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.
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:
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 car