What are the 'System Standards' for a Red Wagon Club business?
Red_Wagon_Club Franchise · 2024 FDDAnswer from 2024 FDD Document
/span>Standards and Specifications
To ensure that our standards and specifications of quality, service, and system development are maintained, we have developed, and may further develop, standards and specifications for the development and operation of RWC Businesses (the "System Standards"). You are required to offer and sell all products and services that we periodically specify and to offer and sell only those products and services that we periodically approve. We will provide you our then-current specifications for all required furniture, fixtures, equipment, products, material, and supplies used in the development or operation of an RWC Business and the Technology System (collectively, the "Operating Assets"), as well as for the manner in which RWC Businesses are operated and the terms and conditions under which services are offered. We may designate, approve, or develop standards and specifications for manufacturers, distributors, and suppliers of products and services to your RWC Business, which may be us or our affiliates (collectively, "suppliers"). Our standards and specifications may impose minimum requirements including, for example, as to quality, cost, delivery, performance, design and appearance, delivery capabilities, terms, and conditions under which they are sold to you, and financing terms. We may change, delete, or modify any of our System Standards, and those changes might require that you make additional expenditures. You are required to purchase only the items that we approve or that meet our standards and specifications and, as described below, to purchase those items only from suppliers that we approve or otherwise allow.
Designated and Approved Suppliers
You must operate your RWC Business in strict conformity with your Franchise Agreement, the System Standards, and the methods, standards, specifications, and sources of supply that are designated in the Operations Manual. You must purchase the products and services we periodically designate only from the suppliers we prescribe and only on the terms and according to the specifications we approve. A complete list of designated and approved suppliers is maintained in the Operations Manual, which we may periodically update.
Approval of suppliers may be conditioned on requirements relating to product quality, prices, consistency, reliability, financial capability, labor relations, client relations, frequency of delivery, concentration of purchases, standards of service, including prompt attention to complaints, or other criteria and may be temporary, pending our continued evaluation of the supplier. We are not required to divulge our standards and specifications for products and services to you or any supplier, but we may, primarily through the Operations Manual, make standards and specifications for certain items available to you, and we may communicate standards and specifications to our approved suppliers for the items they sell from time to time. If we determine that divulging standards and specifications will jeopardize the confidentiality of our intellectual property rights, we may elect to approve products or services that we determine meet our standards and specifications without communicating those standards and specifications to you or suppliers.
We may concentrate purchases with one or more suppliers to obtain lower prices, advertising support and/or services for any group of RWC Businesses, whether franchised or operated by us or our affiliates. We may also designate a single supplier for any product, service, Operating Asset, or other material, or approve a supplier only for certain products or services. We and/or our affiliates do not currently, but may in the future derive revenue or other material benefits based on your purchases (including from charging you for products and services we or our affiliates provide to you and from promotional allowances, rebates, volume discounts and other payments, services, or consideration we receive from suppliers that we designate or approve for some or all of our franchise owners). No such arrangements currently exist. Because we started offering franchises at the Issuance Date of this Disclosure Document and are in our first fiscal year, neither we nor our affiliates have derived any revenue from franchisees' required purchases in a prior fiscal year.
Currently, one of our officers owns an interest in designated suppliers of (i) bookkeeping services, (ii) marketing services, and (iii) marketing materials. Except as set forth above, neither we nor our affiliates currently own an interest in any supplier of products or services to our franchisees, but we may do so in the future.
Insurance
You must, at your expense, comply with the requirements regarding insurance coverages that we describe in our Operations Manual from time to time. If you fail or refuse to procure and maintain the required insurance, we may (but need not) obtain such insurance on your behalf, in which event you must cooperate with us and reimburse us for all premiums, costs and expenses we incur in obtaining and maintaining the insurance, plus a reasonable fee for our time incurred and resources used to obtain such insurance for you. Your obligation to satisfy our minimum insurance requirements is not diminished or limited in any way by any insurance we or our affiliates carry, and no insurance coverage that you or any other party maintains will be deemed a substitute for your indemnification obligations under the Franchise Agreement.
Our insurance requirements represent only the minimum coverage that we deem acceptable to protect our interests and are not representations or warranties of any kind that such coverage is sufficient to
comply with your lease obligations and applicable laws or to protect your interests or those of your RWC Business. It is your sole responsibility to make that determination and to acquire any additional coverages you believe are necessary to protect those interests, based on your own independent investigation. We are not responsible if you sustain losses that exceed your insurance coverage under any circumstances.
Currently, we require that you purchase at least the following types and amounts of coverage (subject to change as described in our Operations Manual):
| Coverage Types | Required Limits of Coverage | ||
|---|---|---|---|
| General Liability | $1 million per occurrence, $2 million aggregate, $1,000,000 Products/Completed Operations, $1,000,000 Personal Injury & Advertising Injury for claims of bodily injury and property damage | ||
| Auto Liability | $1,000,000 combined single limit for all owned, non-owned and hired vehicles used in the franchised business | ||
| Business Property | Special form coverage on all assets including but not limited to furniture, fixtures, equipment, inventory, and supplies used in the operation of your franchised business at 100% of its Replacement Cost value | ||
| Business Interruption | For not less than 50% of your gross sales or 12 months Actual Loss Sustained basis and include extended period of indemnity for 180 days; including Franchisor’s Program Fees | ||
| Employer Liability | $1 million per occurrence/employee with cost of defense outside the policy limits | ||
| Workers Compensation | Statutory, as required by the franchisee’s state of operation | ||
| Employment Practices Liability | $1,000,000 for employment practices wrongful acts; including third party coverage for harassment and discrimination of non-employees, and including Wage & Hour defense limit of $100,000. The policy must name us as co-defendant, and as an additional insured if available | ||
| Cyber Liability | $1,000,000 to cover any claims related to including but not limited to first and third party cyber breaches and defense and recovery expenses | ||
| Professional Liability | 1,000,000 per occurrence and $3,000,000 in the aggregate, to be purchased and maintained by the Affiliate Law Firm Business under the Sublicense Agreement | Each insurance policy for liability coverage must name us and any affiliates or lenders we designate as additional named insureds, using a form of endorsement that we have approved, and provide for 30 days' prior written notice to us of a policy's cancellation. Each insurance policy must contain a waiver of all subrogation rights against us, our subsidiaries, affiliates, and ours and their successors and assigns, and the coverage shall be primary and non-contributory to any insurance that we carry. You must furnish us with a compliant certificate of insurance no less than 45 days after you sign your franchise agreement, but before you begin operations of your RWC Business, and 20 days prior to any renewal of insurance or whenever we request and be provided by an insurance company and broker approved by us. |
Our requirements for minimum insurance coverage are not representations or warranties of any kind that such coverage is sufficient for the operation of your RWC Business. Such requirements represent only the minimum coverage that we deem acceptable to protect our interests.
Source: Item 8 — RESTRICTIONS ON SOURCES OF PRODUCTS AND SERVICES (FDD pages 19–22)
What This Means (2024 FDD)
According to Red Wagon Club's 2024 Franchise Disclosure Document, the 'System Standards' are designed to maintain quality, service, and system development across all Red Wagon Club businesses. These standards encompass various aspects of the business, including the products and services offered, the required furniture, fixtures, equipment, materials, and supplies (collectively known as 'Operating Assets'), and the methods of operation. Red Wagon Club may also set standards for the manufacturers, distributors, and suppliers of these products and services. These standards can impose minimum requirements related to quality, cost, delivery, performance, design, appearance, and financing terms. Red Wagon Club has the right to change, delete, or modify any of the System Standards, potentially requiring franchisees to make additional expenditures. Franchisees are obligated to purchase only approved items that meet Red Wagon Club's standards and specifications from approved suppliers.
The Operations Manual contains a complete list of designated and approved suppliers, which Red Wagon Club may periodically update. Approval of suppliers may depend on factors such as product quality, prices, consistency, reliability, financial capability, labor relations, client relations, frequency of delivery, and standards of service. Red Wagon Club is not obligated to disclose its standards and specifications to franchisees or suppliers but may do so through the Operations Manual or direct communication with approved suppliers. To maintain confidentiality of intellectual property rights, Red Wagon Club may approve products or services without revealing the specific standards and specifications.
Red Wagon Club estimates that 40% of the initial investment and 30% of ongoing expenditures will involve products and services subject to these restrictions. Franchisees will not receive any material benefits from complying with these standards or purchasing from designated vendors. If a franchisee wishes to use an unapproved supplier, they must submit a written request for approval, including sufficient specifications and information about the proposed supplier. Red Wagon Club's criteria for approving suppliers are confidential, and the franchisee must cover any costs associated with the review. Red Wagon Club will notify the franchisee of the approval or rejection within 6 months of receiving all requested information; failure to respond within this timeframe is deemed a denial. Approval can be revoked if the supplier fails to meet Red Wagon Club's criteria.
In addition to product and service standards, Red Wagon Club also mandates specific insurance coverage. Franchisees must comply with the insurance requirements detailed in the Operations Manual, including general liability, auto liability, business property, business interruption, employer liability, workers compensation, employment practices liability, cyber liability, and professional liability (if applicable). The required limits of coverage vary by type, such as $1 million per occurrence for general liability and auto liability. Franchisees must name Red Wagon Club as an additional insured on liability policies and provide certificates of insurance. These insurance requirements represent the minimum acceptable coverage to protect Red Wagon Club's interests, and franchisees are responsible for determining and acquiring any additional coverage necessary to protect their own interests.