Contract considerations for haulers

Waste disposal and recycling companies face unique challenges. Their services are essential for most municipalities and construction projects, yet they still face many of the same payment issues as other service providers in the construction industry, including the risk of not being paid in a timely manner for the services they perform.

Haulers can minimize the risk of nonpayment and protect their financial interests by including specific provisions in their contracts, understanding lien rights and being aware of legal claims available if payment is not received.

Key contract provisions

A well-drafted contract is important to ensure payment for work performed. By including certain clauses and provisions in their agreements, haulers can better safeguard their financial interests. These provisions provide clarity on payment terms and can serve as legal protection if disputes arise.

1. Establish clear payment terms. One of the most critical aspects of any contract is specifying clear payment terms. A waste hauler’s contract should outline when and how payments are expected. This includes the frequency of payments, such as weekly, monthly or per service, and the method of payment (e.g., check, credit card or ACH, or automated clearing house, transfer). Additionally, the contract should specify the penalties for late payments, such as late fees or interest charges. A standard approach might include a specific percentage of the outstanding balance for each week or month the payment is delayed. These payment terms create a sense of urgency and help ensure that customers understand the financial obligations tied to the service. 
2. Provide detailed service descriptions. The contract should include a comprehensive description of the services to be provided. This includes the type of waste to be collected, the frequency of service and any other relevant details (e.g., weight limits, trucks used, container sizes and additional services). By clearly defining the scope of services, the hauler and its customer have a mutual understanding of what is being offered and what payment is due in return. Ambiguities or vague service descriptions can lead to disagreements over the terms of service and payments. For instance, if a customer is unclear about the amount of waste that can be hauled per visit, disputes could arise when it comes time to bill for overages. Haulers also should maintain detailed records of services rendered, including dates, quantities and any additional charges for services beyond the original agreement. This documentation is helpful if further legal action is necessary. 
3. Specify termination clauses. Termination clauses are another important contract term in waste disposal and recycling. These provisions outline the conditions under which either party can terminate the agreement and the consequences of termination. For example, the contract should permit a hauler to terminate the contract if the customer fails to pay within a certain time frame and/or suspend future services until payment is received. The contract also should describe the procedure for contract termination, including the required notice period and any penalties or fees associated therewith. 
4. Include a dispute resolution mechanism. Having a clearly defined dispute resolution mechanism in the contract can save time and money if a payment dispute arises. Whether the dispute is over the amount owed or the quality of service, the contract should outline the process for resolving disputes, such as negotiation, mediation or arbitration. These processes can often resolve issues more quickly than formal litigation, reducing the likelihood of prolonged financial losses. This clause also should specify who will bear the costs of arbitration or mediation, as well as how the parties will select an arbitrator or mediator. 
5. Consider adding other important contract provisions. In addition to the previously mentioned contract clauses, haulers also should consider incorporating the following provisions into their contracts: waiver of consequential damage and prevailing party. The waiver of consequential damages provision helps mitigate the hauler’s exposure should a legal claim arise. The prevailing party provision will give a hauler an avenue to recover attorneys’ fees should it prevail on a legal claim against the customer.

Waste and recycling companies also should pay close attention to any warranty and indemnity provisions and make sure the company is not taking on exposure it is not prepared for and comfortable with.

Pay-if-paid and paid-when-paid clauses are other contract provisions that, if requested by the customer, should be negotiated carefully. Both provisions alleviate the customer from its obligation to pay the hauler until the customer has received payment from the owner of the project.

Lien rights

In some jurisdictions, waste and recycling companies could be able to file a mechanic’s lien (or its equivalent) for unpaid work related to waste removal services. A mechanic’s lien is commonly used in construction, but it can sometimes apply to waste hauling, particularly in commercial or industrial settings where the waste removal is part of a larger construction project. The lien itself allows the hauler to place a legal claim on the property for unpaid services. This is a powerful tool, if available, because it greatly increases a hauler's chances of getting paid.

To have a valid lien, a waste and recycling company must normally jump through certain procedural hoops. Depending on the jurisdiction, the waste and recycling company could be required to send a pre-lien notice to the property owner and/or contractor about the unpaid debt. A lien affidavit must then be filed in the real property records of the county in which the work was performed. Both the notice and affidavit typically need to be submitted within a specific time frame from the date the work is performed.  

It is important to note that lien laws (and the deadlines associated with perfecting a lien claim) vary by jurisdiction. Therefore, it would be beneficial for a hauling company to learn the specific deadlines in the jurisdiction in which it is performing work.

On a related note, waste and recycling companies should be cautious about lien waivers. A lien waiver is a legal document that waives the right to file a lien on a property in exchange for payment. In some cases, waste haulers could be asked to sign a lien waiver before they are paid. It is essential to understand when and why to sign a lien waiver to avoid relinquishing important legal rights.

Legal claims for nonpayment

If payment is not made despite the contract terms and lien rights, waste haulers could need to consider pursuing legal claims to recover their fees.

The most common legal claim is a breach of contract claim (i.e., the customer breached the contract by failing to make a payment as outlined in the contract). To maximize recovery on a breach of contract claim, the contract should clearly define the types of damages that the hauler is entitled to recover. This would certainly include the amount owed to the company for the work performed but also any interest and attorneys’ fees incurred as a result of the late payment.

If the lien is properly perfected, the hauler also should seek to foreclose on the lien.

Such legal actions can be expensive and time-consuming, therefore, it is beneficial to consider all other commercially reasonable avenues beforehand.

For waste companies, ensuring payment for services is a vital aspect of maintaining a profitable business. By carefully drafting contracts with clear payment terms, service descriptions and penalties for late payments, waste haulers can reduce the likelihood of disputes. Additionally, understanding lien rights and taking legal action through breach of contract claims or other avenues can help haulers secure payment if issues arise.

Christian Dewhurst is a partner in Gray Reed’s Houston office. His legal practice primarily is focused on resolving the entire spectrum of claims and litigation that arise during commercial and residential construction projects, including delay in performance claims, design and construction defects, payment disputes, productivity claims, lien claims, work injury claims, plus many more. His client list includes all the various players involved in the construction process, ranging from project owners, developers and general contractors to subcontractors, suppliers and distributors. Christian can be reached at cdewhurst@grayreed.com.