Oversight and compliance strategies for private fleets using third-party providers

At the NPTC National Safety Conference in early September, Rick Schweitzer, NPTC’s general counsel, conducted a tutorial session on private fleet liability and outsourcing. Below are key points from his presentation.

Some private fleet managers may think that outsourcing safety-sensitive functions, such as maintenance, driver hiring, and regulatory compliance, or even some or all of their transportation functions to a for-hire carrier or carriers, will relieve their company of liability in the event of a truck crash. That is not true. 

If your private fleet outsources functions such as vehicle maintenance, driver training, accident management, driver qualification files, drug and alcohol testing compliance, or driver hiring, your company remains responsible for complying with all the requirements outlined in the Federal Motor Carrier Safety Regulations (FMCSRs). So, for example, if your vendor’s DQ files are not in compliance with 49 CFR Part 391, or your personnel company provides you with drivers who are not qualified to operate a commercial motor vehicle, your company violates the FMCSRs.

Outsourcing doesn’t remove liability: Why your fleet remains responsible

The Federal Motor Carrier Safety Administration (FMCSA) does not consider using a third-party vendor an excuse for noncompliance. Your company is the motor carrier and will be subject to the violation and civil penalty. Now, you might have a contractual claim against the vendor for failing to comply with the terms of your agreement. However, that does not relieve your company of its liability to the FMCSA or the state motor carrier safety enforcement agency.

If your maintenance provider fails to secure a wheel properly and it leads to a crash, your company will be sued and held liable for the injury. Again, you can sue the maintenance provider under your contract, but that does not prevent your company from being taken to court.

Likewise, if you use a third-party logistics provider or a for-hire motor carrier to haul your company’s freight, plaintiff’s lawyers and courts have established new theories of liability that hold the shipper accountable for the negligent or reckless acts of the for-hire carrier (and its driver) that led to an injury or property damage.

If you did not properly vet the for-hire carrier before offering a shipment, and the carrier driver causes a crash, you, as the shipper, could be directly liable under a theory of negligent hiring or negligent entrustment of a dangerous instrumentality.

Further, if you did properly vet the carrier at the outset, but the carrier’s safety performance deteriorated over several months or years, as measured by their SMS scores, you could be held liable under a theory of negligent retention of the carrier. In either case, the shipper would be directly responsible to the injured party for damages.

Managing vendors like in-house teams: Oversight, metrics, and insurance

So, how do you protect your company? You must manage these outsourced functions as if the vendors were in-house. This means periodically conducting performance reviews under the terms of your agreement, establishing objective and measurable performance metrics, and, most importantly, taking action when the vendor fails to meet its obligations.

There is a world of difference between strategic oversight and blind trust. Your company needs to maintain oversight of audits, incidents, and performance. And it must ensure that whoever conducts the vendor audits is also subject to oversight and audit. Obviously, having dozens or even hundreds of vendors performing various tasks makes this oversight process daunting.

Moreover, you cannot simply rely on the vendor’s insurance coverage to protect you, even if you have an ironclad indemnification provision in your agreement. Insurance is only as beneficial as the assets backing it up. For instance, a for-hire motor carrier is only required by law to have $750,000 in liability insurance. Most small carriers have $1 million policies. A maintenance provider or other vendor may not have extensive coverage. A major—or even a relatively minor—accident could quickly consume that amount.

Having adequate insurance is critical, but it is not sufficient on its own and does not replace the need for vigilance in managing the vendor relationship. From the outset, ensure that the vendor’s culture and objectives align with your own. You need to determine that they have a track record of regulatory compliance and safe operations and that they themselves are monitoring their own performance.

Finally, you need a clear plan of action if a vendor fails to meet your standards. You do not want to find yourself in a deposition with a plaintiff’s attorney having to explain away your lack of review and response that led to an accident.