Establishing clear and fair terms and conditions early on in a repair service contract can serve as a shield against undesired disputes, writes Washington Aviation Group’s president, Jason Dickstein.
Imagine you perform an installation for an operator. The operator is displeased with the results and decides to sue your repair station. You insist that the installation was carried out correctly and the operator insists that it was not. Who wins the dispute? The lawyers who are charging both sides are really the only ones who win the dispute.
Getting involved in legal disputes can be a nightmare for the parties involved. Even if you win, you have invested time and resources into getting that ‘win’; time and resources that you may never get back.
A significant part of my law practice has been developing systems to help prevent and/or mitigate problems – problems like non-compliance and commercial disputes. One feature that I find to be invaluable for mitigating disputes is to have a set of terms and conditions that apply to your transactions.
The point of the terms and conditions should be to anticipate what could go wrong and to offer a fair resolution of the dispute, or of an element of the dispute. For example, it is not unusual for customers of a repair station to be headquartered in a different state from the repair station. This raises a question about where litigation could happen if there was a dispute leading to litigation. By establishing a term that states where all litigation must be brought, you can ensure that it is convenient (or at least less inconvenient) to your location.
You can also dictate how disputes might be resolved: for example, the terms might require them to be resolved through arbitration. The laws of states can vary. As an example, the laws vary on the specifics of how to retain a security interest in an aircraft after accomplishing maintenance work on it. For this reason, your terms ought to dictate which state’s laws apply to the transaction, in order to clarify which set of laws applies to your transaction.
For repair stations, an effective set of terms and conditions can help establish what happens when disputes arise. I often say that a contract is no better than a handshake in most business transactions… until things go wrong. When things go wrong, though, your contract becomes the most important document in the world.
People often think of contracts as a single piece of formal documentation. While they can take that form, a contract is really any agreement between parties so the thing that reflects your contract may be multiple different documents. It can be made up of emails that have gone back and forth between you and your customer. Commercial documents such as quotes, repair orders, service orders, purchase orders and similar documents can all become a part of your contract.
When the agreement is between two business parties, most state laws define the businesses as ‘merchants’ and apply special rules to them. Whether you and your customer are treated as ‘merchants’ under the law often depends on the nature of the customer. When the parties are merchants, though, the first set of terms and conditions that are offered will typically control the transaction unless the other party (1) offers alternate terms and conditions of (2) rejects the offered terms and conditions (in whole or in part).
The specific way that the negotiations lead to a common understanding of the terms and conditions of the transaction may impact which of them apply when there are multiple different versions of the terms and conditions. In most cases, though, having the first set of terms and conditions that is offered can be the most valuable way to ensure yours are more likely to control the transaction. One reason for this is because a lot of parties simply don’t bother to read the terms and conditions – they merely accept what was offered.
This teaches us two important lessons. The first is that you should seek to announce your terms and conditions as early as possible in the transaction. If you are quoting work, then make the terms and conditions a part of the quote. It is common for repair stations to offer a proposed repair quote and ask the customer to sign the quote to authorise it; this is an excellent opportunity to include your standard terms and conditions as a part of the offer.
The second important lesson is that you should always read the terms and conditions that are being offered to you. Make sure that they align with your understanding and with your interests. If you disagree with transactional terms and conditions that are being offered to you, then you should reject the terms (and offer alternate terms) or you should reject the transaction.
I often see terms and conditions that are drafted to be unfair. These can be great (in court) for the party that wrote them; but against sophisticated customers they mean that you might spend more time negotiating the terms and conditions than you spend on the actual work. Patently unfair terms and conditions can be deal-killers, so my personal preference is to draft terms and conditions that are reasonable, and that merely resolve tough issues in a fair way for both parties.
Indemnification clauses are a great example of where you can be fair. I have seen draft indemnification clauses that require my client to indemnify the other side for issues for which my client shouldn’t reasonably bear responsibility. This has been a point of contention in negotiations – a point that did not need to be negotiated if the indemnification clauses had been more reasonable to begin with.
When drafting indemnification clauses with my clients, I ask the client what they think they should be liable for, and what they think they shouldn’t be liable for. I try to draft mirror image indemnification clauses based on our concepts of ‘who should be responsible’. The point of a well-written indemnification clause should be to assign responsibility fairly, based on the decisions that can be made when the parties are able to think dispassionately about the issues. Once the problems arise, of course, no one wants to think about what is fair – they only want to think about not being the party responsible.
If you can allocate responsibility for mishaps fairly in your indemnification clauses, though, then you can also anticipate insurance needs and make sure that you have adequate insurance for the issues for which you will reasonably be responsible. One great example is in cases where a unit fails after significant flight hours and as a consequence of improper operation. If it causes harm to a third party, then you don’t want to be held responsible for that harm. An indemnification clause can set the parameters for who bears responsibility in such a case.
Establishing fair terms and conditions can help protect your business from unwanted liabilities. It also shows your customer that you are willing to do business fairly and professionally. When a dispute arises, if the applicable terms and conditions clearly resolve it, then the parties can often rely on those terms and conditions without having to go to court to vindicate their rights. After all, no one wants to go to court when they know they are going to lose.
This feature was first published in MRO Management – August/September 2023. To read the magazine in full, click here.