The Importance of Reading Your Operating Agreement

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The operating agreement between a motor carrier and an independent contractor is the lifeblood of the relationship. At stake are many legal and regulatory issues; not to mention the mutual profitability of both parties.

What is an Operating Agreement?

In simple terms, the lease/contract defines the parties involved and what the obligations are of each party. It is a relatively simple instrument that says one party is an authorized carrier and the other is commercial vehicle for hire. Both are in business to make money and realize a profit; not to cause the other party undue heartache and expense.

Specifics of an Operating Agreement.

The Federal Motor Carrier Safety Administration (FMCSA) and the Department of Transportation (DOT) have a great deal to say about an operating agreement and its contents. The specifics are plainly laid out in Title 49 of the Code of Federal Regulations, section 376.12 (49 C.F.R. § 376.12).

The contract as a minimum must establish certain specifics including, but not limited to, the following:

  • Beginning Date
  • Duration/Term
  • Exclusive Possession
  • Escrow Accounts
  • Final Settlement
  • Copy of Policies
  • Termination
  • Vehicle Identification
  • Loading/Unloading
  • Payment within 15 Days
  • Insurance Obligation
  • Certificates
  • Damages
  • Compensation of Receipt of Logs
  • Operating Expenses
  • Oversize/Overweight
  • Chargeback Items
  • Nonemployer/Employee
  • Accounting of Funds
  • Receipts

An original and two copies of each lease shall be signed by the parties. The authorized carrier shall keep the original and shall also place a copy of the lease on the equipment during the period of the lease. The owner of the equipment shall then keep the other copy of the lease.

Each party needs to be familiar with the document and make certain the printed contents are consistent with items agreed to verbally. The contract should contain a clause regarding arbitration or some other means of reasonable resolution should a dispute arise.

If your current operating agreement isn’t at least 10 pages in length, a qualified transportation attorney can be most helpful in determining any shortfalls.

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