Negotiating a printing contract.

An association communicator received a printer's invoice for a major convention promotion piece that was 20 percent higher than the bid price.

* Another executive thought both she and her printer understood the details of one of the association's small print jobs, until she got the invoice and found unexpected costs included.

* An association magazine publisher discovered that resolving the problem of unacceptable print quality on one issue's four-color cover put a severe strain on what had been until then a good business relationship.

Each of these situations had one thing in common: None of the executives mentioned had a detailed written printing agreement that might have prevented misunderstandings. The bid for the convention brochure was entirely verbal. The small job was "too small" for a contract.

And nowhere in the magazine publisher's agreement with the printer was it spelled out how disputes would be handled.

Negative impressions of contracts are hardly the exception. Some view contracts as so binding and restrictive that they don't want any part of them. But realization among publishing executives and printers is growing that at least some form of written agreement is a good idea, even if it is not a formal contract.

Clearly stated expectations on both sides should be reason enough to put things in writing. "We're in the business of communicating, but we do a lousy job of doing it with each other," says Ken Garner, chief operating officer of United Litho, a Falls Church, Virginia, magazine printer with a large number of association clients. "A well-written agreement can be positive for both the customer and the printer. It should facilitate the relationship, not retard it."

C. Clint Bolte agrees. A former executive at William Byrd Press, Richmond, Virginia, and a consultant for the past nine years to printing companies as well as association print buyers, Bolte believes the real purpose of an agreement or contract is mutual benefit. "Both parties bring to the table things that are of primary concern to themselves and of potential benefit to the other side," he observes.

Having a clear understanding of agreed-upon terms is the main reason Kathleen Dempsey has contracts with her printers. Director of publications for NACORE International, a West Palm Beach, Florida, association of corporate real estate executives, Dempsey has two formal contracts--one for NACORE's monthly four-color magazine and another for its annual membership directory. She requires a written and accepted quotation for other print jobs.

Types of agreements

Whether it is called a bid sheet, quotation, proposal, or contract, the purpose of a written agreement is to spell out the expectations of both parties. Length varies from single-page quotation sheets covering one-time jobs to detailed, multipage agreements covering several years.

A short-term or one-time project agreement is used by the printer to estimate the cost to produce your printing job based on the specifications you provide. The specifications under which the cost estimate is made are spelled out on the quotation. Review them to make sure all your requirements are listed.

Do not assume anything that is not spelled out--if you don't see something, ask about it. For example, if it was your intention to have the printer prepare final art from your computer disk, make sure the cost to do so is itemized in the quotation.

If you accept the quotation, no matter if you sign it or not, you accept the conditions under which you and the printer agree the job will be done. The price quoted in this agreement is generally good for 30 days, after which it is subject to requote. It will also be subject to requote if the specifications have changed by the time you submit the job to the printer.

Another type of agreement is a more formal contract for long-term work, such as a periodical publication or group of printing projects. This type of contract can be for any length of time agreed to by you and the printer.

While in the past an annual agreement was the norm, there are advantages for both sides in extending the contract term to three or, in rare cases, even five years. Tough economic times often result in limited resources, and a good contract can assure you a priority position when availability of your printer's supplies tightens up. A long-term contract can also offer discounts and pricing ceilings that help you plan your budget more effectively.

Determining factors

At what point is it beneficial to both printer and buyer to have a written agreement? It all depends.

At StorterChilds Printing Company, a midsized commercial printer in Gainesville, Florida, President John Childs prefers to use written proposals with newer customers, when the job is worth more than $20,000-$25,000, or when more than one person in the customer's company is involved. "We almost always put an association proposal in writing," says Childs, "since otherwise there is no record of our agreement if the person who negotiated it leaves the association."

United Lithos' Garner uses agreements for all work done in his shop. "In short-term work, particularly," he says, "there is so little time to understand each other's way of working that it is much more critical to define in great detail what is expected from each party."

The Austin-based Texas Automobile Dealers Association (TADA) has developed such a high degree of trust with its magazine printer over a 10-year history that Vice President of Communications John Devenport doesn't see the need for a contract. "If we were to select a new printer, though, I would negotiate a formal agreement," he says.

Devenport handles TADA's other printing projects through a process of written bids and conducts negotiations during that process. He considers the successful bid a written understanding of the work to be done.

To Bolte, the consultant, a written agreement helps when the buyer's volume is sufficiently large--when a job is worth at least $30,000 or when the accumulated annual printing budget is $100,000 with one printer. He points out that if you spread $100,000 among two or three printers, you lose economies of scale from which both parties benefit.

Most printers will negotiate just about any part of a printing agreement as long as negotiations are conducted before the work commences. You're in an excellent position if you are a buyer whose annual printing volume represents from 4 percent to 5 percent of a printer's annual gross revenues.

In the $100,000 example above, for instance, your best negotiating position would be with a midsized printer--one with 25-30 employees and $2.5-$3 million in annual gross revenues. You want to be important to your primary vendor; the printer wants a small but solid customer base that he or she can count on even when times are tough. Both of you have something significant to gain by coming to agreement on how your relationship will work.

What should be negotiated?

As printers and buyers agree, everything's negotiable. "A customer will frequently ask for certain concessions," says John Childs. "If the request is fair and reasonable, we'll usually go along. If the customer represents ongoing business, we'll be more lenient than we would with a one-time customer."

"Our agreements are as a complex or as simple as a client likes," says United Litho's Garner. "It may be a one-page outline or a six-page, detailed narrative. The important thing is that a written agreement forces us to sit with a customer and take a serious strategic look at how we can make our relationship a smooth one."

Negotiating can be a delicate art. TADA's Devenport has found that if he pushes hard on price, the printer ends up making an adjustment somewhere else to compensate. "The service I receive is what usually suffers. I hate to make a big issue about price," he says, "but sometimes my budget requires it."

Many print buyers focus their negotiations more on the technical parts of their projects instead of on broader relationship issues. While the technical aspects are important, failing to discuss broader issues may hamper your chances of developing the best relationship possible.

Many of the contract terms and conditions discussed below fall into this broader area. Examine your own situation to see how many of them might enhance your relationship with your printer.

Basic contract elements

Whether you have a simple written agreement or a more formal contract reviewed and endorsed by your legal counsel, certain essential items and provisions need to be included in any form of printing contract.

Name and address of the printer. Name and address of the customer.

Your association and the name of the appropriate contact person.

Description of the printing work.

This can be included in the contract itself or by reference to attachments. Any variation in the following items will affect the price. The description should include exactly what is to be printed (brochure, magazine, flyer, etc.); size of the piece before any folding; specific type and color of paper to be used; ink colors; artwork and composition specifications, such as whether these items are customer supplied or to be done by the printer; any halftones, screens, reverses, or inserts included; specifically what proofs will be required (blueline, color key, etc.); bindery procedures (folding, stitching, cutting, etc.); and how the material is to be packed for shipment.

Quantity to be printed. To give yourself some leeway, ask for quotes on likely quantities plus prices for additional hundreds or thousands depending on the length of the print run. That way you will know how the price will be affected if you change your count during production. According to printing trade customs, 10 percent more or less than quantities ordered constitutes acceptable delivery unless negotiated otherwise in advance.

Discuss this negotiable point with your printer during the bid process. While trade customs state that the printer will bill for actual quantity delivered within the tolerance, some printers charge for the quantity ordered regardless of actual delivery count as long as that count falls within the 10 percent more or less range. That can represent a significant dollar amount on a large-run, four-color job that runs fewer copies than the quantity ordered. A clear understanding in advance can eliminate invoice surprises.

According to printers Childs and Garner, buyers unfamiliar with the print production process and the complexities involved in hitting exact counts are starting to request that this trade customs standard be written out of their contracts. "These buyers want full delivery but no overs, and expect us to discount the price if we fall under the quantity ordered. It's not fair, and in the long run forces printers to raise prices to cover the potential for loss," explains Childs.

Price. The quoted price is based on the information you provide the printer. It is subject to change if your specifications change. In the case of a one-time printing job, the price quoted is generally subject to change after 30 days.

On a longer-term contract, such as for a magazine, price changes may occur as the result of your specification changes. For a periodical it may be helpful to obtain, instead of a bottom-line quote, a menu of price quotes.

A menu would include the costs (in your quantity plus additional hundreds) of one 16-page signature, one eight-page signature, and one four-page signature, plus costs for four-color, black-plus-spot color, price per stitching station, price per halftone, and so forth. By combining the appropriate prices to meet your periodical's needs, you will know exactly what your cost for any given issue will be.

In every long-term agreement, the cost of paper is handled on a "price prevailing" basis. Printers cannot guarantee what the mills will be charging a year or even six months down the road. Increases are generally passed on to the customer. If you do a large volume of printing on a particular stock, it may be worth it for you to buy a skid of that paper--roughly 2,000 pounds or about a five-foot tall stack, 26 inches by 40 inches--for your printer to keep on hand for you, even if it's more than you initially need.

Terms of payment. Terms include whatever arrangements you negotiate with your printer. The terms may include a discount if the invoice is paid in full within a specified time frame, usually 10 days from invoice date. The amount and conditions of any finance charges should be spelled out.

If your contract allows you to pay for a job in installments, find out what your state consumer protection statutes require in the contract. State statutes generally follow requirements in the Federal Truth-in-Lending Act, which states that customer payment plans be in "clear and conspicuous language."

Some common requirements state that certain items must be listed, including any provisions on the reverse side of the contract; payments under the contract must be itemized; and there may be regulations regarding type size and location of certain language in the contract.

Time and place of delivery. Discuss the anticipated completion date of the job and its subsequent delivery with your printer. The printer should inform you regarding how long each production step should take, and together you can reach a delivery date acceptable to both sides. It's also a good idea to include the ramifications of delays on either side, such as a restated delivery date for delays caused by the customer.

Additional terms and conditions. Optional terms based upon your experiences or circumstances can be set out in full or inserted by reference to an attached list. Some of these are discussed below.

Arbitration or dispute resolution clause. While neither party to an agreement plans a dispute in advance, disagreements do arise. Whether you include a formal arbitration clause recommended by the American Arbitration Association, New York City, or simply outline how you and the printer will resolve disputes, it is important to give serious thought to this aspect of the agreement in advance.

Garner strongly urges buyers and printers, before they begin working together, to discuss what will happen when an error occurs. "A single, small error can snowball" and damage or end a relationship, he points out. "Play what-if scenarios, and include in every agreement some form of language that spells out how each side will react if something happens."

When disputes reach the point of litigation, it's time to arbitrate. "Arbitration is the most expeditious form of litigation," says consultant Bolte, a licensed arbitrator. "If the parties to an agreement can sit down with an independent arbitrator, most disputes can be resolved to the satisfaction of both sides without going to court."

Signature of the printer. Signature of the customer. Date the contract was signed.

Other terms and conditions

Besides the basic components, your printing agreement can include any number of additional elements that fit your particular circumstances. In conversations with printers and association print buyers, several common areas emerged.

Schedules. One of the biggest sore points to both sides in any printing relationship is the schedule. "The schedule is as important a specification as the paper," says Bolte. "You should include your desired turnaround with all of your other specs in the bidding process." Good printers will insist on a face-to-face planning session for any job worth $5,000 or more, according to Bolte; if your printer doesn't, insist on it. This session should result in a detailed checklist of who does what and when.

"This planning session will turn up weaknesses in the schedule that everyone becomes aware of and can work to improve," says Bolte. "For example, printers always assume bluelines will be kept no more than 48 hours, and prefer 24. If a buyer knows it will take longer than that to get an approval, the extra time can be built into the schedule."

Ownership of materials. One of the most confusing issues for buyers is ownership of the materials used to produce a printed piece. Disputes usually revolve around the negatives. Printing trade customs state that all items supplied by the printer remain his or her exclusive property, unless otherwise agreed in writing. Many printers are willing to negotiate this point, but you must do so before the printer starts work on the job.

Length of term. Previously, buyers tended to keep written agreements short in duration or avoid them at all costs. Now, however, there is greater interest in long-term arrangements because of various pricing pressures dictated by economic conditions. Longer-term agreements allow for the discounting and price ceilings that help keep costs in line.

Discounts. Price discounting is another key item that can be included in longer-term printing contracts. Printers will often provide volume discounts on value-added services; the percentage depends on the length of the agreement. The value-added amount is determined by subtracting material costs (except paper and outside services billed through the printer) from the gross billing. Discounts are offered on the net difference, and range from 1 percent to 5 percent depending on the printer.

United Litho typically offers discounts on a three-year contract: 4 percent or 5 percent the first year, 3 percent the second year, and 1 percent or 2 percent the third year. The descending scale provides the buyer some incentive to roll to another three-year period before the current contract ends.

Bolte suggests a rolling three-year agreement, annually negotiating the discount to be offered the third year. The roll assumes that all terms are being met by both sides. If negotiations break down, there is a definite termination point; if, however, both sides are happy, such an arrangement can continue for years.

Why aren't discounts higher? According to 1991 ratio studies conducted by Printing Industries of America, Alexandria, Virginia, the average before-tax profit of printers in the gross income range of from $1.5 million to $3 million is only 4.58 percent on value-added services. Across all size categories, the margin is only 2 percent. So, in giving a 3 percent discount, a printer is giving up a big chunk of his or her profit.

If discounts seem small, remember your printer should be offering competitive prices already. A written agreement does not preclude your continuing to bid out jobs--a recommended practice.

Why should a printer forfeit so much of his or her profit? Contracts provide the printer business he or she can count on, which makes it much easier to plan future space, equipment, and labor needs.

Protection against inflation. You want a predictable pricing structure that will make budgeting your printing easier during the life of the contract. No one knows what the future inflation rate will be; however, a printer can tell you he can keep labor costs to, for example, a 3 percent increase. The printer's goal is to improve productivity each year to offset any difference between your contract increase and higher inflation.

What prevents the printer from increasing rates by the amount allowed in the contract if inflation doesn't reach that point? He or she realizes that engaging in such a practice would encourage you to take your business elsewhere.

Guaranteed time slot. If your volume is large enough, you might negotiate to be given priority status over other new business. Priorities can include first access to limited resources, such as paper, or first option at press time when several publications are on the same schedule.

Storage of material. If you buy a skid of paper, where will it be stored? And at whose expense? What about the other materials needed for your work, such as film and plates? Clarify material storage issues in advance.

Periodic performance review. Besides the routine review afforded by successful completion of work under the contract, you may wish to include a more formal review process. During such a review you can discuss with your printer how the relationship is progressing and see if any adjustments need to be made.

Severance of the agreement. Relationships don't always last forever. Agreements should describe the process for discontinuing your relationship with your printer. The printer will want to ensure that all outstanding invoices are paid in full, and you may want to include something particularly important to your situation, such as return of stored materials.

Strong relationships

A written agreement doesn't guarantee a smooth relationship, but it does provide a solid foundation on which to build one. Open communication and clear expectations are key ingredients in a successful relationship with your printer.

"Printing is a custom manufacturing process," notes United Litho's Garner. "It's the only one I know of where the ultimate customer is also providing the most important raw materials. That makes mutual cooperation and understanding critical."

Dempsey, of NACORE International, treats printers fairly, believing they'll respond in kind. "I try to be as up front as possible when providing specifications," she says. "I also listen when printers have a suggestion or when they try to educate me on an unfamiliar process."

TADA's Devenport gauges a printer on involvement with TADA's account as well as on quality and price. Involvement to Devenport means the printer acts as a consultant, not just as a salesperson.

Echoing the sentiments of Dempsey and Devenport, consultant Bolte says, "|Association print buyers~ seem to acknowledge their reliance on printers and the importance of candid, mutually beneficial, long-term relationships."

Kathleen M. Edwards, CAE, is vice president of member services, Southern region, for the Printing Association of Florida, Miami, and executive director of its affiliated Benjamin Franklin Education Foundation.

The Impact of Desktop

The advent of desktop publishing has drastically increased the need for clear communication between printers and buyers. Everyone involved must understand what is on the computer disk being turned over to the printer.

Often, addenda need to be added to contracts. When desktop film is to be supplied, it's important to include in any written agreement the printer's technical specifications regarding such things as trap and dot gain, according to Ken Garner, chief operating officer of United Litho, a Falls Church, Virginia, magazine printer.

"The whole reason customers get into desktop is to save money," says John Childs, StorterChilds Printing, Gainesville, Florida. "But if you don't talk to each other in advance, a customer can spend a day or more putting copy on a disk. Then the printer has to spend two days fixing it to make it printable. That ends up costing more than traditional mechanicals for the same job."

Depending upon the skill levels of both printer and customer, the learning curve in desktop runs three to six months. It's an educational process as both sides become familiar with the hardware and software being used. Initially, you won't save money, but if you and your printer stick with it and you understand it will cost more at first, you will save in the long run.

Trade Customs

Do you know what your printer means by the trade customs? United Typothetae of America, forerunner of today's Printing Industries of America (PIA), Alexandria, Virginia, established the industry's trade customs in 1922 based on the accumulated experience and practices of more than 100 years of printing. Since then, the customs have been in general use throughout the United States and Canada.

PIA revised and updated the trade customs in 1945 and 1974. Currently, the customs are reviewed and published by the Graphic Arts Council of North America, which last updated the customs in 1985. Another review is currently under way. Conducted by PIA, the National Association of Printers and Lithographers (NAPL), Teaneck, New Jersey, and the Graphic Arts Technical Foundation (GATF), Pittsburgh, the project is scheduled for completion in October 1993.

"The driving force behind this current effort is the changes wrought by electronic technology," says NAPL President Gregg Van Wert. "We're reviewing the customs of all the allied trades and may incorporate some of them; the resulting document, however, will have a major emphasis on the relationship between printers and their customers."

Trade customs, as part of a contract, are part of the conditions of sale. In the absence of a written agreement, courts have ruled for enforcing the trade customs. The courts have also used these standards to determine if printing contracts are acceptable or unreasonable. For trade customs to be accepted by a court, however, each party in an action must be aware of the existence of them.

Printers refer to the trade customs in estimates, contracts, and invoices; they are often printed on the back of quotation forms and posted in the customer areas of a printer's facility. Become familiar with the trade customs, and discuss with your printer, in advance of any work, their ramifications in your relationship. Discuss early in the relationship any you don't understand or would like to see modified to fit your special needs.

The various sectors of the graphic arts industry each have their own set of trade customs. Typesetters, for example, go into more detail regarding the preparation of material to be printed and include handling, use, and ownership of electronic media.

Negotiating Savings

Look at the following aspects of your printing jobs to effect savings.

* Examine your schedules. Better rates are generally available for jobs scheduled during the printer's slow periods.

* Consider contract length. A long-term contract offers discounts and pricing ceilings that can help you plan your budget more effectively.

* Supply complete information on printing jobs. If you know your specifications are likely to change, ask for a menu of price quotes rather than a bottom-line quote.

* Discuss how much leeway your printer allows for differences in the quantity ordered versus actual delivery count.

* Consider buying a skid of paper if you do a large volume of printing on a particular stock.

* Anticipate and plan for possible delays by establishing alternate delivery dates in advance.

* Find out if your publication could be printed on less-expensive paper without affecting its quality.

* Review your bindery specifications--the type of fold, number of stitching stations, and how the publication is trimmed can all affect the price.

Working With Printers

Get more information in Getting It Printed: How to Work with Printers and Graphic Arts Services to Assure Quality, Stay on Schedule, and Control Costs, (order number #2DAM210127; $30 for members and $50 for non-members). Write to ASAE Publications, 1575 Eye St., N.W., Washington, DC 20005, or fax your order to [phone].