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Letter to the Editor

Establishing a Good Agreement

Getting a direct repair agreement to work for both shop and insurer requires honest and open discussion of what the mutual goals are.

When you talk with those on either side of direct repair agreements who have chosen to sever those agreements, one of two reasons is generally cited for ending the relationship.

The first reason is that one side or the other wanted a change: The shop wanted to increase rates, for example, or the insurer wanted to increase a discount or raise the percentage of non-OEM parts the shop was using.

The second common reason for DRP agreements to come to an end is largely preventable: The perception by one partner that the other isn't living up to his end of the agreement.

This may be because employees on either side of the partnership are not adequately informed about the details of the agreement. Or it could be because the two sides did not fully discuss all of the key elements that both needed to understand and agree upon going in.

Future issues of INSIGHT will focus on ways to successfully negotiate a change in a direct repair agreement, and on improving employee understanding of (and compliance with) the agreements.

Start on the Right Foot

But this month the focus is on starting out on the right foot by ensuring both sides have discussed and come to agreement on the wide variety of aspects both need to make the partnership successful.

Not surprisingly, shops and insurers says it is rare for a DRP agreement to fail because labor rates aren't agreed-upon up front. Rates are generally well spelled-out.

Spell Everything Out

But what can cause tensions if not also discussed at the time the agreement is being established is in what instances those rates will apply.

Is everything the "body man" does paid based on the body labor rate? Not usually. So is it based on what the procedure pages or guide to estimating indicate? Not always. The estimating guide may indicate that installing a battery is a mechanical labor operation, but that may not be how the shop will charge or be compensated for that work.

Robert Tavarez, director of client services for Caliber Collision Centers’ Texas shops, cites an example of a shop putting a frame underneath a vehicle.

"Insurance Company A thinks it ought to be at the body labor rate, while we may think that taking all those components off ought to be at the mechanical rate," Tavarez said. "So it's not just the rates that should be discussed up front. It's what goes on behind those rates."

There are also many "non-rate" charges that both sides need to be clear about from the beginning as well. These include mark-up percentage on used parts or sublet operations, and discounts (on rates, parts prices or overall costs) - and whether such discounts are at all based on the volume of work that flows through the agreement.

While insurers are generally pretty good about making thresholds for paint materials known, it is incumbent on the shop to find out at the time the agreement is being discussed what documentation it will need to provide when materials costs exceed these thresholds.

Other charges that can cause conflicts unless discussed up front include:

• Corrosion protection - what does it include and how is it to be billed (lump-sum, per-panel, based on an hourly rate, etc.)?
• Cover car for overspray
• Pin striping - billed per panel? are there minimums or maximums?
• Alignments
• Air conditioning work
• Frame set-up and measure
• Hazardous waste
• Storage rates.

"The time to ask for storage is not when you have a total loss sitting in your lot for 30 days," Tavarez said. "You want to make sure you cover what you charge for storage at your agreement time. It may be x dollars per day after xx days of notification, for example, giving them some time to get that car out of there."

Make a Complete Checklist

But creating a good working agreement involves discussing more than just rates and dollars. Performance measurements, administrative requirements, and estimating practices should also be on the checklist of items to cover when establishing a direct repair agreement.

"Probably the most important thing you discuss especially with your insurance clients is: What are they going to look for? What are their performance measurements," Tavarez said. "How are they going to measure them? What level must they be at?"

Key performance measurements both sides will want to discuss include:

• Customer satisfaction: Who is responsible for CSI, the shop or the insurer? what are the thresholds and what are the implications if not met?
• Severity: Is it being measured and are there averages that must be maintained? are those averages determined locally or by state or region?
• Parts usage: Are there targets for OEM, used, or non-OEM parts usage?
• Repair vs. replace percentages
• Supplements: Are there limits on the number of supplements or the percentage of the total job they may include?
• Cycle time and rental days: Are there labor-hour-per-day requirements or incentives?

Lay Clear Lines of Communication

A good agreement also should include discussion of administrative requirements:

• How are assignments transmitted?
• How is it determined how much work a particular shop is to receive and can the shop call and request more?
• What is the process for final bills and the timeline for payment?
• What are the thresholds for total losses?
• What are the communication requirements (between the shop and insurer, and shop and customer)?

Come to a Clear Understanding

In terms of estimating practices, both sides should understand:

• What estimating system is to be used
• What disclaimers must be included on estimates - Whether estimates are to include "days to repair" or "date of inspection"
• The number of and types of photos that are necessary, and whether photo captions or labels are to be used
• How depreciation or appearance allowances are to be handled
• Requirements or limitations for used or non-OEM parts usage
  • Are used mechanical or suspension parts acceptable?
  • What are vehicle production date or mileage minimums before anything but new OEM parts should be used?
  • What are the necessary parts search and documentation requirements?

Cover Everything from A to Z

Lastly, establishing a good agreement includes ensuring both sides understand how estimating compliance and vehicle reinspections will be handled. A growing number of shops have gone with insurance personnel when vehicles the shop has repaired are being inspected. Again, this helps everyone understand what will be expected and looked for.

While establishing a good agreement won't eliminate the possibility of questions or disagreements down the road, too often DRP agreements are severed largely because some issues were not clarified or discussed up front.

"Make your agreements as specific as possible," Tavarez recommends. "It's going to help with the gray areas. You're still going to have some, but hopefully it will reduce them. Agree on not just rates and charges but also on how you are going to be graded and how those measurements will be made."

Negotiating Tips

Know where you make your money.

Most shop owners think they know where they want to be, but often have no clue where they are. They don't know where they really make their money: foreign cars or domestic, front-end hits or rear-end hits, big jobs or small ones? If you don't know what your gross profit on labor is, for example, you don't know what you can negotiate away.

Know how you stand.

Get as much information as you can about your position going into the negotiations. Before you approach a vendor about an additional discount, for example, find out how you stand in relation to their other customers: Are you a larger customer or a smaller one? How expensive for the vendor is it to service your account compared with others, in terms of deliveries, returns and prompt payment? The more you know about your value to the vendor, the less likely you are to make the mistake of asking for too much or too little.

Start with a secondary matter.

Say the lease on your building is about up. The property owner is proposing a 5-year lease at a slightly higher rate. Your main concern is being able to get out of the lease in 18 months when your new shop is built on the property you bought a few miles away. Start the negotiations focusing on the increased rate. By eventually conceding that point, you'll gain leverage when you bring your main issue to the table.

Find new points to negotiate.

Get past a sticking point by turning the focus to other aspects of the negotiation. Don't assume, for example, that if someone is trying to negotiate your price that price alone is the only thing that interests them. Cycle time, for example, may be just as important.

Listen, listen, listen.

Most people struggle in negotiations because they think only about getting what they want. But negotiating requires give-and-take. To get what you want, you first have to find out what the other party wants. The only way to do that is by listening. Don't assume you know what the other party is thinking; this keeps you from hearing what is being said.

Don't be overconfident.

Norm Brodsky, a veteran entrepreneur and business writer, recommends always assuming other people are smarter than you. When you think you're going to be able to outsmart other people, you stop paying attention to them and listening for the information you need. He admits to writing the word "dummy" several times on a back page of the yellow pad he takes into a negotiating session.

"Whenever I catch myself thinking how brilliant I am, I open the pad to that page, give myself a silent whack, and go back to listening," Brodsky says.   o

Feedback

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