The Essentials of Security Contracts: Components and Common Practices

Security Contracts Defined

A security contract is an agreement between a lender or creditor and a borrower who is seeking protection against loss. A security contract contains a description of the subject matter, a clear description of both parties, the terms of the agreement, the period of time the contract will be effective for, signatures , and a security agreement. The security agreement is a document attached to a loan that allows a debtor to give a creditor title to property in the event of default on a loan. An example of a security contract would be with a car loan. An example of a security contract would be with a loan where the borrower is seeking protection against loss of, or damage to, portfolio investments such as stocks or bonds. Self-storage and janitorial services, lending to businesses, real estate investors, apartment owners, and any organization that has valuable physical items in their possession is considered a common industry that uses security agreements.

Different Types of Security Contracts

Security contracts come in several forms. There are guard security contracts, cyber security contracts, and surveillance contracts.
Guard Security Contracts
Guard services can be provided by a person or security firm. A contract for guard services will usually spell out in great detail the services to be provided. A guard security contract may include terms such as: Guard security contracts should be reviewed carefully to avoid misunderstandings or other difficulties. For example, it is important to know who will be liable if a guard is not actually present as required. The security company may assume no responsibility to you in that case. You should also be certain the contract does not require you to pay for services not rendered.
Cyber Security Contracts
You may need a contract spelling out the parameters of the contract with your cyber security provider. This type of contract will typically describe the cyber security services and provide for the payment to be made. There will likely be terms addressing confidentiality of material provided to the vendor, either in electronic or other formats, and the return of that information. Cyber security contracts may also contain indemnification language that spells out the responsibility of each party if a problem occurs.
Surveillance Contracts
There are contracts that deal with the installation of cameras and other surveillance equipment. These may be standalone contracts or be part of your guard security contract. Again, this type of contact will involve a description of installation services, ongoing maintenance services, and payment.

Essential Legal Framework of Security Contracts

Security contracts are not only an important tool to manage risk for security service providers, but also to comply with the requirements of the law. There are a number of laws and regulations in California addressing the requirements of licensing, bonding, and insurance that are essential for compliance.
Licensing. Licensing of security officers is regulated by the Bureau of Security and Investigative Services (BSIS) of the Department of Consumer Affairs. The BSIS regulates the licensure of private patrol operators, repossessors, alarm company operators, private investigators, and other professions in the security industry.
Bonding. Private patrols operators must be bonded for at least $5000. As a condition for receiving an initial license and on each renewal, the private patrol operator, and licensing is valid for two years, must post a bond in a form prescribed by the director of BSIS. The bond may be in the form of a surety bond executed by an admitted surety insurer, a cash deposit, or a certificate of deposit.
Insurance. A private patrol operator is required to maintain at least one million dollars ($1,000,000) in liability insurance. As a condition precedent to issuing an initial or renewal license, an applicant or a licensee shall file with the bureau an insurance certificate executed by an admitted surety insurer authorized to do business in California evidencing the existence of this insurance.
Contracts between private patrol operators and their clients should confirm that the licensee of the patrol service has met these requirements, and if the contract is silent as to insurance, indemnify for liability arising out of the business.

Building a Security Contract: Crucial Clauses and Provisions

‘Scope of Services’ is the section where the security guard company (or its third party contracted, subcontracted or otherwise collaterally liable security guard company) agrees to provide the services at issue, and the customer or client agrees to accept those services. Even the simplest of agreements should define the following: 1) how many guards are being provided; 2) what kind of work they will be doing (simply walking the floors and watching feeds? Supervising employees? Taking complaints? Escorting employees off company property? Responding to emergencies?); 3) under what circumstances does the guard call the police; 4) when the guard is allowed/duty-bound to make an arrest; 5) whether weapons can or cannot be carried on company property; and 6) whether the guard needs special training (for example, does the guard need CPR training?)
The typical blank-provision facility security guard contract is truly a disaster waiting to happen. Always, always, always go for the "expiration date" provision. These are sometimes called "renewal discounts" or "early termination discounts." They look like this: "The Customer agrees that if the Term of this Agreement is extended, and such extension is not the result of a default by either party, then the Customer will receive a discount off the Standard Rate as specified below:
• If the Extension is for less than one year, the Customer will receive a discount off the Standard Rate equal to 10% of the monthly minimum;
• If the Extension is for one year or more but less than three, the Customer will receive a discount off the Standard Rate equal to 20% of the monthly minimum;
• If the Extension is for three years or more, the Customer will receive a discount off the Standard Rate equal to 30% of the monthly minimum.
The first time a promise gets put into writing, there is one person, the drafter, who knows what the promise says. After the first time, the drafter and the second person, the recipient, both know what was promised. The third time, when you send the contract to a court or arbitrator for enforcement, there are the drafter, the recipient, and the arbitrator or judge who all know what was promised. And generally everyone thinks the contract (and thus the promise) speaks for itself.
If you have a functioning ‘Confidentiality and Non-Disclosure’ provision in an agreement, it will do the following things: 1) tell your employees, indeed, everyone, where the lines are when it comes to proprietary data; 2) establish your trade secrets; 3) put your employees on notice of what constitutes a violation (and thus grounds for discharge); and 4) remind your employees that you are serious about the business. And a good ‘C&ND’ provision needs to be fairly narrow in its scope of applicable ‘Information.’ This will not be a document that anyone reads over a weekend with their favorite drink of choice, this will be a document that someone will read when they are angry and ready to sue you for some real or perceived slight.

Common Pitfalls in Security Contract Handling

Managing security contracts can present several challenges, especially with multiple locations or high turnover within an organization. Contracts should be reviewed annually, at a minimum, to address changes in needs, circumstances, or company structure. Many companies renew contracts automatically, which can create compliance issues if there are changes to existing regulations or guidelines. You should consider revising your contracts if any of the following apply:
• Change in scope or level of services
• New security technologies
• Facility changes (new equipment, office relocation)
• Changes in regulations governing security forces
• Change in how security personnel are compensated by contractors or whether they receive benefits
• Lawsuits or complaints
• Security force turnover (most contractors sign a one-year agreement with their employees)
• Expired licenses
Not all of your clients will be familiar with the requirements for security contractors. Make it easy for them by creating a checklist of compliance items. Here are a few ideas:
• Copy of Driver’s License
• Employer Identification Number
• Business License
• Firearms Permit
• Policy and Procedures
• Proof of Insurance
• SC Private Security License
• Training and Certification Documentation
• State License
• Office Location， hours of operation , and telephone contact numbers
Security contract managers can face other common challenges as well. That’s why it’s important to establish appropriate channels for sharing information and documenting activities.
Change Management
While you want to be flexible when dealing with a change in scope of the contract, you also want to be careful to document any amendment to the agreement. While informal emails between your company and the contractor may help resolve minor issues, you should still formalize any permanent staff or location changes to avoid disputes later.
Performance Monitoring and Evaluation
One of the best ways to ensure performance from the contractor is through careful documented monitoring of all services delivered. This should include regular evaluation of staff and services rendered. Weekly or monthly meetings are often a good idea to address any ongoing issues. Maintaining documentation not only helps your relationship with the contractor, it also gives you evidence of the level of performance should a complaint arise.
Dispute Resolution
In an ideal world, you and your contractor will have open communication about any problems and can resolve them quickly. However, that isn’t always the case, especially if one or both of you adjudges the other to be at fault. In such cases, it’s important that you review the procedures outlined in the contract for resolving disputes. Almost all contracts contain a procedure for formal dispute resolution, such as arbitration or litigation in a particular jurisdiction.

Effective Security Contracts: Best Practice Guide

Effective security contracts are the product of a clear and continuous dialogue between all relevant parties. In particular, this includes the business clients, security companies, and vendors who will implement the security measures covered in the contract. Without open channels of communication, the chances that contracts will accurately reflect security goals are slim to none. As a result, best practices for security contracts involve:
• Open discussions about future goals – if a security company is looking to grow or change its capabilities, it’s important to discuss these goals with clients. Although maintaining long-term clients is one of the most important ways to ensure viability, you want to do so by servicing their needs, not by promising capabilities that do not yet exist. For the security team, this means "don’t promise what you can’t deliver – both you and your client will be disappointed."
• Frequent and consistent reviews – consider the law of diminishing returns; it’s easy for management to avoid constant reviewing of security contracts because doing so takes employees’ time and resources. However, that avoidance creates the possibility that important changes to the business landscape will be ignored. Frequent, consistent evaluation of security contracts requires you to look at both successes and challenges, devise plans for addressing the latter, and create easy-to-read, understandable reports for your clients, who may not have the expertise to interpret overly-complex data. Providing this level of commitment up front shows clients that they are important to you; it also strengthens your relationship by demonstrating commitment to fulfilling the terms of the security contract.
• Process-centered thinking – when creating a security contract, be process-centered, not results-oriented. Instead of trying to predict future events, and speculating about what the best outcomes may be, consider past experiences and create processes that will allow you to manage these events. Security executives should also put security contracts in the broader context of specific business units, including M&A, vendor management, physical and cyber security, HR, and finance, among others. The bigger picture will help clients understand the importance of investing time and energy in security contracts, and also to see the value add that comes from customizing the contract to their unique needs.
• Staying involved – make sure you’re involved in finalizing the contracts’ terms; get feedback from your team as well. You can then evaluate potential risks and rewards associated with the contract, and address these in the final version. Some security experts recommend going further; that is, before signing an agreement, security professionals should go on-site (or fly to China if that’s where the security contract is being implemented) and review the facilities. This helps ensure that you (the security contract’s writer) understand the facilities’ needs firsthand, and can suggest changes to the contract accordingly.
• Keeping the lines of communication open – whether your security contract is for physical or cyberspace, it’s important to remain close to your client. Make sure you’re participating in regular meetings and reviews of contracts, and keeping an eye on important developments within the client’s organization and its industry. The ability to retain existing clients while acquiring new ones is critical to ensuring companies’ long-term success. In this, security contracts are no exception.

Evolving Landscape of Security Contracts

The landscape of security contracts is poised for a major shift due to the advent of major technological advancements in recent years. The increasing importance of data protection has generated much discussion about the future of private security firms, which have become the commercial stronghold of personal data capture and storage in many corporate organizations.
Cybersecurity measures will continue to proliferate to meet the massive demand for the protection of growing data stores. Experts predict that the cybersecurity contracts will evolve as cloud computing capabilities advance and the prevalence of cyberattacks continues .
While the traditional human-based security model will certainly persist, experts expect cybersecurity divisions (if not entire cybersecurity firms) to emerge and supplant private security firms as the dominant force in the physical security arena. As data protection measures become paramount, the nature of responding to security threats will change. Security forces will have to learn to use advanced tools and analytics to respond to threats, whether they be in the form of a physical attack or a cybersecurity breach.