NEW SERVICES=NEW RISKS: HOW CONTRACTS CAN HELP OR HURT YOU

As you grow as an equipment dealer, so may your potential risks. In his article, “Changes in Industry and Dealership Business Model Create Risks for Dealers,”  attorney Lance Formwalt, of Seigreid Bingham, P.C., tells dealers of the new risks they may expose themselves to by adding new or enhanced services in attempting to meet their growing customers’ needs. He explains these are different risks than dealers face when simply selling iron. “When you sell new equipment to a customer, it comes with a standard warranty and if there are issues with the equipment, the manufacturer is generally willing to stand behind its warranty and you are compensated for helping fix the problem,” he says. The fix is not so easy in the cases of some of the potential mishaps outlined below.

Consider the following scenarios:

• Repair Services All dealers who repair equipment generally receive a pretty good profit margin for these services. But what happens if your $2,000 repair job was done incorrectly for one of your large corporate farming customers, causing their equipment to malfunction and creating yield losses of $200,000 due to the misapplication of seed, fertilizer, pesticides, etc.?
• Consulting Services Perhaps you have an agronomist on staff giving advice to customers, including “prescriptions” relating to the application of seed, fertilizer, water and other products to maximize yields. What happens if the agronomist gives the wrong advice, yield results disappoint, and your customer misses out on several hundred thousand dollars of profits?
• Precision Ag Software Malfunction When you sell precision ag products, the products heavily rely on software for proper operation or transmission of data. If you are selling these products, what you may not realize is that the software is often not covered by a warranty or the warranty may be very limited (either by its terms or the remedies). What happens if a software malfunction results in signicant crop loss and your purchase order form doesn’t address software warranties?

While the prospect of each of the above scenarios occuring are daunting, Formwalt advises that choosing the right language in your customer contracts could significantly reduce your financial risks. As you evolve to keep up with customer demand and changing technology, he recommends that your contract language also evolve. For example, applying warranty disclaimer language to products and services that you offer as well as indicating a limit to the maximum amount of damages that you will cover are two ways he suggests.

Read the entire article

Lance Formwalt is a member of the Equipment Dealer Practice Group at Seigfreid Bingham, P.C. This article is intended to provide general recommendations and is not intended to be legal advice. You should always consult your attorney for advice unique to you and your business.

Image at right:
A sample rental contract generated by the ASPEN dealership management system.
Enlarged text (shown in highlight) can be modified for each type of contract.