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By Edward A. Schirick, C.P.C.U., C.I.C., C.R.M.
Does a difficult economy impact your risk management decisions? How
about your independent contractors? In times like these, everybody is
trying to cut back. Good managers are watching their budgets closely
and are reducing expenses where they can. The risk in this process is
the tendency to make cuts equally across all parts of the budget. This
can remove "fat," but more often than not removes "muscle" as
well — jeopardizing your assets, not to mention the overall financial
health of your organization. What is "muscle"? It's
money for training, proper maintenance of equipment, and risk management
initiatives. These expenses are strategic, not discretionary, and must
be protected as much as possible from cost-cutting efforts.
You are
not alone in trying to manage the uncertainty in
this economy. The people and businesses from whom you buy products and
services are doing the same thing. They are trying to increase revenue
and/or cut expenses. Have you considered the risk implications of their
actions on your camp business?
Consider, for example, the independent
contractor-outfitter you use for white water rafting,
the indoor climbing gym, or any other activity you outsource to an independent
contractor. Economic pressures are most likely forcing these folks to
take cost-reducing actions, too. What are the risk implications to your
business of your independent contractors cutting back on training their
staff or hiring less experienced staff? Suppose some others decide to
skip regular maintenance on the vehicles they provide or delay replacing
worn out equipment such as the nylon rope they provide as part of their
climbing program? What are the risks to your business if these business
owners reduce the limit of liability insurance
they carry or have key insurance policies terminated because they were
late paying their premiums?
Bottom line, these risks are present even
when the economy is good, but when business slows
down the risk increases. Our recommendation under these circumstances
is to continue to be vigilant and continue due diligence, with the goal
of reducing the risk of being the "deep pocket" when something
unplanned happens resulting in an injury.
Get It in Writing
All of your
independent contractor business relationships should
be in writing. Large or complex relationships probably
call for a formal contract, but smaller relationships can be confirmed
in a letter or e-mail of understanding.
Formal contracts should be drawn
by lawyers, who are licensed to practice in your
state. Many camp directors share examples of contracts with each other
and feel comfortable borrowing language and modifying terms to meet
their own situations. If you engage in this practice, please realize
that state laws may differ and language that is appropriate in one state
may not be binding in another. Always run drafts of contracts you piece
together from shared information by your attorney to ensure compliance
with the laws in your state, otherwise the contract could be void and
not worth the paper or cyberspace it is written on.
Elements
Besides
formal elements of contracts required by state
laws the fundamental elements of any written sub-contractor
relationship should be captured in writing by confirming who, what,
where, when, who is responsible and specifying the documentation needed.
Think about the following example:
White Knuckle Rafting has worked
with your camp for several years. They've done
a good job, and you've developed a nice friendship with the owner. You're
comfortable with her so now your business discussions focus mainly on
the dates, rates, and number of campers you will be sending her way.
The revenue in her business has been declining,
partly due to recent economic conditions, but also
due to some bad business decisions she's made previously. There have
been some signs and symptoms of her difficulty, but you haven't really noticed them. You read an article in Camping
Magazine about working with independent contractors so you decide to
take a more formal approach with White Knuckle Rafting in 2009. You
put together a memo of understanding that looks like this:
Dear Suzy:
This confirms
our conversation regarding the summer of
2009. Our camp intends to bring seven groups
of fifteen campers each, plus two of our
staff per group to you this summer for a
float trip down the ABC River from the rapids
to the falls. Our vans will pick up our campers
and staff at the end of the trip. Our groups
will arrive by nine o'clock each Monday
beginning June 29. Our last group will be
there on August 10.
White Knuckle Rafting
will provide all equipment, including rafts,
helmets, PFD's, paddles, first aid
equipment, emergency communication, and safety
and rescue equipment, in good operating condition,
as well as licensed, properly trained guides
in accordance with your state regulations,
American Camp Association Standards, and
rafting industry practices.
Our staff will
accompany our campers and be responsible
for them while on land. Once they embark
on the river, your guides are entirely responsible
for safety and supervision; our staff is
to be considered guests just like the campers,
with the exception of one staff member who
will be a certified lifeguard.
We will identify
this person to your staff before embarking
on the river. He will be responsible for
backing up and assisting your staff if any
rescues are required while our campers are
in your care on the river. We will need proof
of your insurance coverage — a certificate
of insurance will be sufficient showing general
liability insurance limits of at least $1,000,000
each occurrence and $2,000,000 aggregate
and worker's compensation insurance
including employer's liability insurance
limits of at least $500,000.
In addition,
our camp should be listed as additional insured
on your general liability insurance. We will
require a copy of the endorsement to your
policy, which provides us with this status
in addition to the certificate. In addition,
Suzy, if your general liability or worker's
compensation insurance is terminated for
any reason during the time you are providing
services to us, I expect you to let me know.
I'll extend the same courtesy to you.
Sincerely, |
Strategy for 2009 Don't assume things are the same with your
independent contractors. They probably are not.
- It is difficult
to confirm all agreements in writing, but make
a commitment to thoroughly document all of your
independent contractor relationships this summer. This includes electricians,
plumbers, food vendors, and other trade contractors who may come on
your premises for a variety of reasons, as well as independent contractors
who conduct programs.
- Ask
for and review certificates of insurance from
independent contractors. Share copies with your insurance broker,
and ask about the risks of doing business with independent contractors
who don't
carry insurance or who carry insurance limits less than the limits you
carry at camp.
- Be
diligent, and be aware. Maintain the integrity
of your training, maintenance, and risk management
programs. Don't cut the "muscle" from your budget
and avoid putting your assets at risk.
Be safe and have a great summer!
Originally published in the 2009 July/August
issue of Camping Magazine.
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