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Commentary: Understanding self-service deployment agreements
Deployment agreements define the legal relationship between a self-service supplier and the owner of the site where the equipment is deployed. Here are the four basic areas every deployment agreement should cover.
This commentary originally appeared on the Self-Service and Kiosk Association's Web site, SelfService.org.
Deployment agreements define the legal relationship between a supplier of self-service equipment and the owner of the site where the equipment is deployed. These documents can be deceptively simple. After all, most people believe it cannot be difficult to prepare an agreement to place a machine in a specific location. Furthermore, every equipment supplier uses some version of a deployment agreement and most suppliers have never had a problem with their agreement.
However, on those occasions when a problem arises, the terms of the deployment agreement will define the legal responsibilities of the participants, and problems arise more frequently than you might believe believe.
Every deployment agreement should cover four basic areas.
The business relationship between the parties
Initially, the deployment agreement should detail the business relationship between the parties. It must spell out whether the equipment is being purchased, leased or merely deployed at the site, as well as the payment arrangements. Obviously, it is the financial terms that make the arrangement profitable for the parties. Of course, in cash-purchase situations, the payment terms are fairly straightforward. However, in installment purchase, lease, and simple deployment situations, the financial terms are not always as carefully spelled out. Furthermore, in the case of small entity site owners, the identity of the entity's principals is determined, and if possible, the principals provide suitable guarantees.
There is nothing worse than trying to collect monies from an insolvent deployment site owner. If there is to be a division of revenue between the supplier and the site owner, the terms of such a division must be carefully spelled out. This is especially true where the deployed equipment is owned by a third party who is paying the site owner to deploy the equipment at the site.
In a non-purchase situation, the term of the agreement must also be clearly thought out. I recently saw an agreement in which the term was "forever." Apparently, millions of years from now, the ATM machine will still be deployed at the site. The type of merchandise being dispensed, the nature of the area in which the machine is to be located, and the ownership of the site should contribute to the determination of the deployment term.
There also should be consideration to circumstances under which deployed equipment can be moved before the end of the term. Occasionally, disputes arise when a site is closed for remodeling or the business being run at the site is changed (such as a drug store to a pool hall).
Furthermore, many deployment agreements do not contain certain "boilerplate" provisions which are contained in most contracts. These include:
1. A choice-of-law provision, which sets forth the state whose law will govern the interpretation of the agreement. The law of every state is not the same, and many states have specific provisions applicable to deployment agreements. Also, in certain circumstances, the Uniform Commercial Code may apply, and as adopted, the Code varies from state to state.
2. An entirety provision, which states that the entire agreement between the parties is contained in the written agreement. This provision is designed to prevent one party from claiming that oral promises were made which are not contained in the agreement. Several years ago, a dispute arose relating to a CAT Scan Machine where the entirety provision was not included in the agreement. Its absence led to six years of litigation over claims that oral commitments had been made relating to the payment of the lease.
3. A choice-of-venue provision, which sets forth the state in which any dispute between the parties under the agreement is to be resolved. An equipment supplier should pick a convenient state and county forum in order to avoid the possibility of having to defend suits in many different forums, including small forums where the supplier may be based.
Several years ago, I served as an expert in a dispute where a large merchant filed suit in his hometown in rural Colorado. At the trial, the judge admittedly ignored Colorado law in order to help the local resident merchant. Likewise, a decision should be made as to whether the prevailing party should be allowed to recover its attorney's fees in any such dispute. This should be determined based upon the relative economic strengths of the parties and who is likely to commence suit.
4. A provision stating that the waiver of one breach shall not constitute a waiver of subsequent breaches.
Likewise, the agreement should set forth any specific requirements for the deployed equipment such as telephone or electrical requirements, any exclusivity requirement in connection with the deployed equipment, the times and hours that the access to the equipment should be available (in non-purchase situations), and the like.
The obligations, if any, of the supplier subsequent to deployment
Any post-deployment obligations of the supplier should be carefully spelled out. This relates to maintenance and repair of the equipment, stocking the machine with cash or merchandise and removing cash or merchandise. If such obligations exist, the responsibility of the site owner to cooperate with the supplier should also be spelled out. Finally, if the site owner is to pay for such services, the site owner's payment obligation must also be carefully spelled out.
The presence of electronic transaction processing
Many self-service machines (including ATMs) provide electronic transaction processing services. Unfortunately, the deployment agreements generally do not deal with this issue. Electronic transaction processing is big business which generates substantial revenue in residuals to those involved. Generally, deployment agreements fail to spell out who is entitled to receive residual revenue, responsibility for chargebacks, processing rates, etc.
Processing is done by many different banks and different independent sales organizations. The level of customer service, processing rates, add-on fees, etc. varies from processor to processor. Many sites already have credit card-processing relationships and they continue with that relationship for the site. Significant revenue can be earned by specifying an appropriate processing relationship in those situations where the deployed equipment is not owned directly by the merchant.
Furthermore, if the obligations of the supplier to the site include maintenance or risk-management, it is especially important that the processing relationship contains online-monitoring capabilities. Also, the owner of the site must make certain that the processing relationship proceeds smoothly, since any significant failure or chargeback history could cause the owner of the site to lose its own ability to process credit cards.
The allocation of risk between the supplier and the owner of the site
Risk allocation should be a significant issue in any deployment agreement, as follows:
1. Limitations on liability. Most agreements contain a disclaimer limiting the types of damages that can be collected in the event the equipment malfunctions or is not properly maintained. Such disclaimers normally limit damages to direct losses incurred and exclude lost profits, indirect damages and consequential damages. Such clauses also normally state that there are no warranties which are not included in the actual agreement. Such provisions also can operate to prevent litigation by limiting the amount and type of imaginative damages that a lawyer can concoct.
2. Damage to equipment and operating losses. The agreement should spell out who is responsible for damage to the equipment. This is especially relevant when the equipment is damaged by a site customer, by a fire or similar natural disaster or by abuse. Likewise, responsibility for operating losses due to vandals or other causes should be defined.
Some years ago, an armored car company lost in excess of $70,000 collected on its rounds, including funds for stocking ATMs. The agreement did not specify responsibility for the loss between the site which owned the machine and the supplier which performed maintenance services. When the funds could not be recovered from the armored car company, the machine supplier had to absorb the loss.
3. Products liability and injury claims. The ingenuity of the human race knows no bounds. No matter how carefully designed equipment is, users will manage to catch their hand in the machine, cut themselves on the machine, have the item dispensed drop on them and cause injury or suffer some other misfortune. The deployment agreement should allocate responsibility for such claimed injuries. (See insurance below.)
Also, depending upon the item being dispensed, such items may cause injury to a purchaser. Such injuries run the gamut of a child cutting himself on a plush toy to an adult eating a bad piece of beef jerky. Under most state laws, both the site owner and the equipment supplier are deemed to be in the chain of distribution, except in an outright purchase agreement. This means that both may be held responsible under the theory of strict liability. Depending on the products being dispensed, the agreement should specify who has primary responsibility for any such injury and make arrangements for appropriate insurance coverage.
4. Insurance. Relatively inexpensive insurance can be obtained to cover personal injury and products liability. Generally, personal injury claims are covered by existing insurance carried by the site owner. Adding the supplier to the insurance as an additional insured should be relatively simple. Likewise, where the equipment supplier provides post-deployment services, the supplier should have insurance covering the same. Obviously, it is in the supplier's interest to make its own coverage secondary to that of the site owner.
As to products claims, the costs of such insurance will vary depending upon the product being dispensed. As with insurance for personal injury, existing insurance may cover any such claims. This should be explored and resolved as part of the deployment agreement.
Many of the issues involving the structure of deployment agreements can be resolved through the use of common sense. In any instance where a key term appears to be missing, the parties should attempt to reach an agreement as to that term. Likewise, although the use of form agreements is common, not all form agreements apply to every situation. The item being dispensed should make sense for the location where the equipment is to be deployed, and the financial terms of the agreement should make economic sense. Lawrence Washor is an attorney at Washor and Associates, a firm that specializes in the self-service, ATM and credit card-processing industries.
Repair / ServiceTransaction ProcessingTransactional KiosksInstallation / DeploymentCommentaryNorth America
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