Guest Editorial by Lawrence C. Melton and Tracy T. Vann Negotiating Construction Equipment Leases Getting Beyond the Battle of the Forms In today’s economy, it is no longer practical to expect contractors will own all of the equipment utilized on a large commercial project. The cost of excavators, track hoes, trucks, scaffolds, compactors and other large equipment is simply too expensive to pay for in full, the financing too difficult to come by, and the maintenance and cost of re- pair too unknown, not to mention the risk the equipment could be taken by potential creditors down the road. Con- sequently, in lieu of purchasing large equipment, contrac- tors now, more than ever, are leasing large equipment from equipment rental companies. While there is certainly nothing wrong with leasing equipment, savvy contractors need to be leery of the standard equipment lease contracts provided from rental companies. These con- tracts are typically ambiguous and contractor unfriendly, provid- ing hefty costs, fines, interest and repair rates to contractors in the event of mechanical failures or defaults; yet providing no re- lief to the contractor in the event of a breakdown, unavailability, or other issues that may cause delay on a project. Unfortunately, contractors are often in such a rush to mobilize, equipment leases are rarely properly negotiated. This article examines standard terms contained in most form equipment leases and dis- cusses the need for negotiated leases on the front-end of the construction project in order to avoid contract ambigu- ities and issues with contract interpretation down the road. A standard equipment lease typically provides a date of delivery; payment terms; place of delivery; quantity; unit price; maximum allowable hours per month per piece of equipment; length of rental; terms regarding damage (i.e. normal v. excessive wear and tear); and terms for repair and maintenance. While the date of delivery, quantity, and unit price change, all other terms are generally boilerplate language. Problematically, this leaves ambiguities in the contract that can cause significant issues for the parties in the event of a dispute. For example, assume the contract calls for 160 hours of usage per piece of equipment per month. What happens if you go over the 160 hours? How do you determine the rate? How do you calculate allow- able usage? Assume you go over 10 hours one month but then only use 150 hours the next month – is that a wash, or is there still a penalty? Similar concerns arise over the length of rental. Assume the contract is for 12 months, what happens if there is a project overrun? Unless you have previously negotiated terms for that event the rental company could potentially hold you hostage and charge you a significantly increased rate. Alternatively, what if the project is completed early? Is there an early termination fee? Are you required to pay for the full 12 months. What if the lessor fails to deliver the equipment to you on time, causing the lessee delay on the project? What if the equip- ment fails during the project? Who is responsible for the repairs? To what extent? Is replacement equipment avail- able? If not, who is responsible for the delay on the project while the equipment is getting re- paired? What about performance standards? Is the lessor providing the lessee with any sort of guaran- tees? These issues, and issues sim- ilar to these on all of the above standard terms and other non-stan- dard terms, are why it is important for savvy contractors to negotiate these leases prior to execution. Fail- ure to negotiate these terms on the front end often leaves both parties with an ambiguous contract, leading to time consuming and expensive lit- igation in the event of a dispute. Issues concerning negotiation of these leases aren’t aided by the way they are typically ex- ecuted. The lessor (equipment owner) and lessee (GC or subcontractor) are rarely in the same city – and may not even be in the same state. The lessor typically sends a form lease to the lessee that includes blanks filled in for the lease rate and term and a set of general conditions. The lessor’s lease form may be very one-sided, particularly as to maintenance of the equipment (all) and the condition in which the equipment will be returned (perfect). The les- see will review the lessor’s form lease and either mark it up before signing, or attach its own purchase order (PO). The lease can be executed in any number of ways: • The two forms (lease and PO) will cross in the email, and the parties will sign both; • The lessor will cross out parts of the lessee’s handwritten material and then sign; • The lessee will incorporate the terms of its PO by reference; • Sometimes only one party will sign a form agreement; or • Neither party will think to sign anything, because in most cases the people exchanging the forms are not authorized to sign contracts for the company. _______________________________ Continued on page 10 The South Carolina Construction News — July/August 2013 – 9