What should I check in a 3PL’s contracts with the clients whose stock it stores?
Read each client contract for how long it runs, how either side can end it, how storage and handling are priced, who is responsible for lost or damaged stock and whether the contract can move to a new owner. Have your lawyer review the largest ones.
Client contracts are the revenue of a 3PL, so read them as carefully as the financial statements. Start with the basics: the length of each contract, renewal terms, notice needed to end it and how pricing is set. Check whether rates can change, how storage, handling and special services are billed and whether there are minimum volumes or fixed commitments.
Then look at responsibility. Ask who is liable if stock is lost, damaged or miscounted, what insurance is expected and how claims have been handled in the past. Check how the contract treats a client’s stock if the 3PL fails to pay a landlord or a lender, and whether a client can inspect or count its goods. Ask how often clients audit the stock.
Finally, look at what happens in a sale. Some contracts may ask for the client’s consent before they pass to a new owner, or may mention a change of control. Ask your lawyer to read for this. Make a table of the main terms for every client and compare it with the invoices. Look for any promise that appears in emails but not in the contract. Ask your lawyer to review the biggest contracts, and ask how the seller documented any verbal promises. Note any client with unusual terms, since those clients often have the most influence.
Key takeaways
- Tabulate length, renewal, pricing and termination for every client.
- Check who bears the risk of lost or damaged stock.
- Ask your lawyer what happens to each contract if ownership changes.
Related reading
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Buying
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Sources
This answer is checked against primary sources. Links were last confirmed on the dates shown.
- 01Business Development Bank of CanadaGovernmentMajor pitfalls to avoid when negotiating a purchase agreement
- 02Business Development Bank of CanadaGovernmentHow to conduct due diligence when buying a business
- 03Business Development Bank of CanadaGovernmentWhat are the steps to buying a business?
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