Operational agreements are between a company and its operator and are meant to help businesses in the long term.
But they can also be used to give businesses more control over their own future.
Operator positions can include roles such as: managing a facility, cleaning and repairing equipment, or running the operation, or assisting with the production of goods or services.
These are all important roles in the modern industrialised world.
And they can be quite lucrative.
In 2017, there were more than 1,600 operating agreements in Australia, with an estimated value of about $1.5 billion.
That’s more than a quarter of the total $3.6 billion in contracts in Australia in 2017.
The numbers are growing and it’s only going to get worse.
Operational agreement deals are a key way of securing a contract for your business.
What are they?
Operational contracts can be a business’s biggest source of revenue.
The terms of the agreement are set by a company, typically a major Australian business, but can also come from other parties such as a union, government or local government.
These agreements are usually signed between the company and the operator.
These tend to be long-term, meaning that if the contract is not renewed, the company can be liable for the costs of running the facility.
The operator also has the option to withdraw the agreement at any time.
For more on what a operating agreement is and how it works, watch this video.
What is a commercial contract?
A commercial contract is a legal contract that allows the operator to make profit from the business.
Commercial contracts are usually very short-term contracts with fixed terms and usually include payment for work done.
A commercial operator will often negotiate an agreement with the operator, usually to ensure that they have access to the equipment needed to run the business and that they can sell that equipment at a profit.
For example, if the operator wants to build a new factory and the cost of building the factory is $300,000, the commercial operator could offer the operator a contract worth $100,000.
These commercial agreements are often more attractive than the operator’s operating agreement.
Commercial operators also can sign longer-term agreements.
For instance, a commercial operator can negotiate a contract with an organisation that will provide them with a certain level of support for a particular project.
For an example of a long-lived commercial operator agreement, watch the video below.
The deal with the government allows the company to pay for the use of the facility for 10 years and the contract allows the contractor to continue to work at the facility, paying their costs.
The agreement with a union ensures that the operator will be paid when the equipment is used.
In addition, the operator may agree to work on their own equipment to help the facility continue to function.
Commercial agreements can also have a number of conditions, including a limit on how much the operator can charge the company.
A company may also have an obligation to pay a fixed amount of money to the operator in the event that the business goes into administration.
If a commercial agreement is breached, the employer could face penalties and possible court action.
What about employee and independent contractor contracts?
An employee and an independent contractor are two separate industries.
Independent contractors are people who work as part of a company.
They do not have to have a licence or a commercial licence.
An independent contractor, or a person who is independent, is also referred to as an employee.
An employee, or independent contractor is also sometimes referred to by the trade name of a business.
For a more detailed explanation of what these terms mean, watch our infographic about employee contracts.
What if a commercial or operating agreement doesn’t cover the equipment required to run a business?
An independent or employee can still apply to a court for a new operating agreement, but they won’t be able to claim any of the cost or compensation of running their business.
An operating agreement can be made only with the equipment that was previously used to run your business and is being used to operate your business in the future.
This includes equipment that is being bought or leased and equipment that you’ve purchased and that is now being used by another business.
This could include the use and maintenance of equipment.
For detailed information on the rules governing operating agreements, watch Our Guide to Working with Operational Agreements.
When should I be concerned about a commercial operating agreement?
If your business is running at a loss, you might want to think twice about your operating agreement with an operator.
If your costs exceed what you are paying for the equipment, your operating agreements with operators will be likely to be void.
Your business might also need to look into whether the operating agreement you signed is valid.
For further information on what to look out for when considering whether a commercial, operating or independent agreement is valid, watch The ABC’s How To Find a Commercial Operating Agreement guide.
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This information is based on information provided by the operator and the