Agreement Attributes

Cary F. McGovern Comments
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The most important component in the operation of a commercial records-storage facility is the standard storage agreement. It ensures permanency and a lifetime relationship with your client. There is an industry-standard contract form with features that ensure your long-term success in the business. This article discusses the contract and those standards.

The commercial records-storage industry trade association, PRISM International (formerly ACRC, the Association of Commercial Records Centers), has, for many years, advocated the use of a contract form promulgated by the association for its members. That contract has become the most common storage agreement used by records centers worldwide. PRISM does not guarantee the accuracy or legality of the contract and requires a signed liability waiver from the members who use it.

There are two critical factors important to understanding the function of the contract:

1. No contract, no business—The contract locks the client to you and makes it very difficult for him to leave you in the future. If you have no contract, or one that is not written with the standard penalties, the client can walk away from the agreement, leaving no value to your hard-earned storage revenue.

2. The price list may differ from client to client—Schedule A is referred to in the contract and is the price list. There should never be a standard list. It should vary based on volume and service levels, and never be published under any circumstance except within a proposal.

Agreement Attributes

The standard agreement form has several very important attributes it should always include. Let’s review each of these.

Limitation of liability—Arguably the most important attribute relates to your protection from liability. This specifically ties the records-storage unit (whether a carton, file or specific media) to a flat stated value. Generally, the value is set at either $1 or $2 per unit. Since business records may have varying values—from very low to quite high depending on their importance—it is imperative to limit the value. No one can compute the potential value of a record or the potential cost of recovering a box or file.

Contract term—Although the contract term for a records-storage agreement is normally one or two years, it can be extended up to five years if negotiations are necessary. We always want the longest term possible so volume can build. The penalties for early withdrawal include payment for the entire term of the agreement. Generally, any outsource contract is limited, by common convention, to five years.

Evergreen clause—”Evergreening” a contract refers to its automatic renewal at the end of a term. The wording refers to a 30- or 60-day period during which the client has to cancel the contract. Without positive action, the contract simply renews for the next term. Even though the contract reaches its completion, the retrieval and permanent-retrieval charges continue to be enforced.

Permanent removal—Records may be retrieved at any time during the term of the agreement. A retrieval fee plus a delivery fee is assessed on any unit requested from storage. Units out of storage continue to accrue charges for rental, since the tracking requires continued maintenance and review.

When a carton is retrieved permanently, either for destruction or relocation, there is a second retrieval charge called the “permanent removal” fee. There is no standard for permanent-removal fees; however, a charge that approximates the fee for regular retrieval is customary. Recently, some companies at the high end of the industry have changed this charge from being based on the unit of storage to the cubic foot. This is a major shift in pricing strategy, since boxes tend to be larger than one cubic foot. I have seen unitretrieval fees that exceed $10.

Periodic price escalation—You have the right to increase prices on storage and service as long as you stipulate the escalation period and the methods of increase. Although there has been a troubling trend in the industry to make the escalation unlimited, I recommend you fix it to something tangible, such as the “regional cost of living increase” as published by the U.S. Government. The price increase may be applied at an interval during the term of the contract or at the end of the cumulative term of the agreement. There may be a maximum increase stated as well.

Schedule A—This refers to the price list. I recommend this never be published, since it can vary from one client to another. Additionally, the list should only cover those services you offer. A description of these should be written on the reverse side of the Schedule A. This ensures the client fully understands the service as you have defined it, and it is clearly stated and agreed to by his signature. There can then be no doubt the client understands the levels of service and prices you offer. It is wise to have him initial and date the Schedule A as well.

Addenda to the agreement—The agreement may be added to at any point during the term of the agreement as long as both parties agree and document it in writing. The appropriate form of an addendum refers to the original agreement and either adds, deletes or changes services, prices or terms.

Client for Life

The issues addressed above must be included in the agreement to ensure you have a client for life. Records-storage volume from existing clients should grow at a rate of 7 percent to 25 percent annually depending on the age of the account. Newly outsourced companies have a tendency to grow at faster rates and decrease to about 7 percent compounded annually after they mature.

If you want to review several versions of the PRISM storage agreement, request a proposal from an existing records-storage center in your community to receive a copy of its contract. It is widely available from PRISM members who are interested in acquiring your business. Of course, I urge you to join PRISM and sign its waiver form prior to using the contract for your storage center. Visit www.prismintl.org for more information.

Regular columnist Cary McGovern, CRM, is the principal of FileMan Records Management, which offers full-service records-management assistance for commercial records storage startups, marketing assistance, and sales training in commercial records-management operations. For assistance in feasibility determination, operational implementation or marketing support, call 877.FILEMAN; e-mail fileman@fileman.com; www.fileman.com.

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