Grasping Security Services Contract Agreements: Core Requirements and Expert Insights

What is a Security Services Contract?

Central to the partnership between an organization and a security provider is usually the security services contract agreement. The contractual agreement is often the running document which sets out the expectations and obligations of the parties concerned. A security services contract agreement therefore needs to be drafted in a way that protects the interests of all parties without being too onerous or difficult to the point where it hampers the successful delivery of a security service.
An example of why security services contract agreements are important is when there is a breach of confidentiality. If an employee of a security provider company divulges some confidential information to a third party , it could be seen to sabotage any trust in the relationship, which would hinder performance. The damage is likely to have already been done by the time you seek to take action against the offending party, therefore if the security service contract agreement clearly sets out who owns the information, this can be helpful to prevent any dispute arising.
Security services contract agreements should therefore set out key pieces of information:
It is vital to take time and care in the preparation of a security services contract agreement as it can protect your interests, safeguard the security provider, and most importantly, keep assets, information and people safe.

Vital Aspects of a Security Services Contract

Several key elements must be present in a security services contract to effectively protect the parties, including scope of services, duration, payment terms, and responsibilities of each party. The scope of services outlines what the security company will be expected to do. It will include whether security will be assigned on-site or via remote services. It should also contain provisions that limit the type of services, such as excluding medical, legal, and other services not related to physical security. Duration of the contract is also an essential element. Generally, contracts run for a specified period of time, and the terms clearly outline just how long the agreement is in force. Payment terms are also needed to ensure the customer is clear about what services they are paying for and when. A provision covering the responsibilities of each party is also critical in preventing any misunderstandings.

Legal Aspects of a Security Services Contract

In addition to the issues described above, security services contract agreements must comply with both federal and state laws and regulations governing the conduct of licensed private security companies. While most states have adopted some form of the National Association of Security Companies ("NASCO") Security Company Code of Ethics and Business Practices (the "Code"), this is not universally true. Among the issues covered by the Code are proper licensing and authorization, standards of conduct, training and record keeping, and sexual harassment.
At the federal level, the Federal Trade Commission has promulgated regulations pertaining to the routine and systematic collection of information about individuals, known as "consumer reporting." A consumer report is any communication of any information by a consumer reporting agency bearing on a consumer’s credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics or mode of living, which is used or expected to be used as a factor in establishing the consumer’s eligibility for credit, insurance, or employment purposes. In order to request a consumer report from a consumer reporting agency, the requesting party must have a permissible purpose, except in limited circumstances, necessary under the Fair Credit Reporting Act (the "Act") for the use of such information. Moreover, the requesting party must provide the consumer reporting agency with certain identifying information about the employee, such as the employee’s name and social security number, which information is subject to the same confidentiality requirements as the consumer report itself, as detailed in the Act.
Depending upon the level of liability for which a security company is willing to indemnify a client, the contract should contain an appropriate limitation on liability clause. In some cases, the company’s efforts to limit liability may not be appropriate or enforceable, given that private security companies owe a high standard of care for protection. Nonetheless, this may be an issue between the security company and its own insurers.
Requirements for submitting proof of insurance should be specified in the security services contract agreement between the company and the client. Standard terms would include: naming the client as an additional insured (with respect to both general and excess policies); requiring written notice of cancellation to the client; limiting the insurer’s liability to the limits of the policy and specifically disclaiming separate liability on behalf of the insurer (particularly if the insurer is a captive); setting forth the applicable form of policy, which in some instances may be specific to the jurisdictional or regulatory authority; requiring that auto insurance be primary; adding sub-contractors as additional insureds; and requiring that employment claims coverage be obtained.

Pitfalls to Look Out For

The common pitfalls in security services agreements typically fall into three categories: contractual oversights, service level issues, and compliance shortcuts. For example, an otherwise strong agreement could fall short with respect to important provisions if a client were to terminate the agreement without prior notice. Such a termination – without cause – could leave a security guard vendor and its company executives exposed to breach of contract claims, and therefore, your contract should specify that a client giving notice of termination must make advance payments of a set number of months’ anticipated compensation. A security company might also fail to provide enough detail in the scope of work. For example, there should be a clear agreement (and one rooted in facts) that if guards are required to use their cell phones on duty, such usage can only be for work-related matters and they will not be paid for such time. The same can apply to premises where certain standing posts require sitting – or if security officers on such posts are expected to perform other duties requiring them to be on foot. Regular visits to upper levels of buildings in which they are stationed and verification of the location of individuals under the guard’s charge also require clarity in job description. Busy or pressured clients – particularly property managers – often cut corners by not complying with federal and state employment and labor laws, including those laws involved in workers’ compensation injuries to security officers and, in transit cases, injuries to clients. Countless security companies have faced crippling lawsuits just because they lacked a basic understanding of these laws. Business lawyers can advise clients on how to avoid such catastrophes. This includes compliance with the Labor Department’s Guidance that requires hourly employees to be provided rest periods on a regular basis. If not, lawsuits can be brought against the security guard employer and its company executives under state and federal laws.

Negotiating An Equitable Security Services Contract

A security contract should be negotiated with the same focus and attention as a substantial purchase for your commercial or residential assets. Any agreement between you, the client, and the security provider must benefit you both. You may, for example, feel confident in your signed year-long contract, but your contractor has reserved the right to increase fees at any time during that period, even in the case of unexpected market conditions. Although you are locked in contractually, you may end up paying more than would have been prudent had you been willing to negotiate a small increase in price.
It is never a good idea to enter into a contract without having full knowledge of what each party will owe the other. Put vaguely, the contract could mean anything. Put explicitly, the contract could mean a lot less. The only way to protect yourself from misinterpretations is to present them with your expectations before they present you with a written contract.
It is also prudent to negotiate within the contract to make sure that your security provider’s position makes sense. For example, the contract may state, "in cases of employee misconduct, attempted theft, vandalism, or other illicit behavior, the client shall notify the contractor within 24 hours to begin an investigation . " This is fine, except if you do not notify the contractor of misconduct until the next day, the client can be held responsible for damages without having any protection from theft to prevent future issues.
More often than not, it is security providers who view contract agreements as a way to limit their liability. If a contractor is attempting to add a section that limits their involvement in your security, investigate what the implications of this limitation really mean. Does a force majeure clause protect them from dismissal due to unforeseen extreme weather, or would a natural disaster be grounds for dismissal? Are they protected against vandalism, theft, misconduct, and a number of other situations not covered in the contract? How will you determine whether or not the contractor or employee is to blame in case of theft? How much will you lose if they are negligent to the point of breaching contract?
Security services contracts should be negotiated by both parties, and should protect the interest of both client and contractor. Be smart and be careful, and you will be able to negotiate a fair and honest contract.

Tips on Tailoring a Security Services Contract

Security service contracts can be customized to meet the particular needs of different kinds of businesses and industries. For example, federal and state laws and local ordinances will dictate specific requirements for security guards in bars, clubs, and other nightspots, including the kinds of training, background checks, liability insurance, and other factors that are deemed necessary. A bar or nightclub might be able to get away with contracting with less than qualified security personnel, but you risk running afoul of the law and endangering the safety of your clients if you do so. Banks and other financial institutions must safeguard their customers’ accounts, while hospitals face unique security risks. Because of these and other considerations, a security services contract for such establishments would likely differ in many respects from a contract with a manufacturer or an IT company.
To get started, here are examples of some provisions that might need to be considered based on the particular circumstances of your business: While these may not be the only considerations, they highlight some of the concerns and issues that should be discussed with your attorney so that potentially risky issues can be addressed, thus protecting your interests as much as possible.

Due Diligence: Reviewing a Security Services Contract

Ensuring contract compliance is paramount to maximizing the efficacy of the security services provided. While security services companies must demonstrate their value to their business clients in the traditional manner, which includes both compliance with the terms of their contract and their ability to provide competent and professional services, they should take care to document their work product for future reference, as well.
Often times, a contract will require an annual review to assess and enforce a security services company’s compliance with the terms of the contract. For instance, some contracts will require a periodic review of the security company’s performance by a committee or the client’s board of directors. In addition, many contracts will require that the security services company provide a report detailing the work it performed over the past year, including the number of hours of service required under the terms of the contract, the security services being performed, and other relevant information. Depending on the nature and scope of the work and the relationship with the client, it may be advisable for security services companies to retain an independent third-party, such as a forensic accountant or attorney, to ensure compliance with all terms of the contract and to double check any amounts billed to a client’s business. In that way, the third-party can act as a safeguard against overbilling and other violations of the terms of the contract. Because a breach of contract occurs whenever a party fails to perform a contractual obligation, a security services company that fails to strictly adhere to the terms of its contract is subject to liability for damages. Furthermore, any improper actions that result in financial injury to a business client are fully compensable as part of the damages. Ideally, such a review process can also serve to strengthen relationships with clients through transparency and thoroughness.

Final Thoughts on Security Services Contracts

In conclusion, carefully drafted and enforced security services agreements are essential tools for both the security provider and its customer. These agreements reduce the risk of costly misunderstandings when disputes arise. Of course, these agreements cannot anticipate every contingency. But in any dispute, they generally will help identify the issues and determine the respective obligations of the parties.
Given the increasingly competitive landscape in which security providers operate, there may be pressure among vendors to offer more favorable contract terms and conditions to prospective customers. In such instances, however, it is important to remember to refuse to accept unreasonable contract terms that could expose the vendor to substantial liability. As stated previously , proposed contract changes should be discussed with the provider’s corporate counsel, even if this requires discussing possible alternatives with a prospective customer. At the same time, the provider’s investment in developing and maintaining strong customer relationships can be wasted if an unreasonable customer chooses to terminate an agreement or refuses to exercise its renewal option. Careful execution of agreements will help minimize damages for breach of contract while at the same time enhancing the value of any goodwill that the provider has built with its customers.
If you don’t have an existing contract or the terms and conditions of your current contract are outdated, consider having your corporate counsel draft a new contract or amend your current contract to include specific provisions addressing some of the topics discussed above.