CREJ - Property Management Quarterly - August 2015
As you prepare to engage in a winter mitigation agreement for the upcoming season, one of the most important decisions you face is the decision about your billing style. It is important to choose a billing style that complements your overall objectives for your property. Your billing style should complement your brand, your budget needs, your safety goals and your liability/risk management needs. Typically there are four contract styles a manager can consider for his snow removal. Hourly pricing. This is by far the most common billing style in use today. With this style, a contractor bills the property by the hour for each component of his operation. A property manager receives an itemized bill for time spent on snow mitigation efforts at his property. For some managers, the hourly billing structure allows them a level of control over the snow removal budget throughout the season and allows them to compare apples to apples when choosing their contractor. One of the hidden pitfalls is that an apples-to-apples comparison only works if each contractor is using the same equipment and maintains the equipment at the same level. Inefficient or broken equipment leads to slower service times and incomplete service. As for maintaining control over the snow removal expenditures, this is true to some level. But since we can’t control the weather, the limited control that can be exercised comes at the direct expense to property safety and liability of increased slip-and-fall exposure. If you are involved in making in-storm decisions or you plan to manage activation triggers, this plan will save some dollars. It is important to understand that in this scenario you are assuming the liability associated with this role and are relieving the contractor of responsibility in a slip-and-fall case. In an hourly billing situation, slight environmental changes and even the fatigue of an equipment operator can affect the efficiency of your service, which can lead to big differences in the way the same storm might be billed. For the contractor, hourly billing can be a nice way to fill out the schedule for underused equipment. However, the style does not reward improvements in efficiency or equipment upgrades so the incentive to improve is undermined. Often this style leads to protecting the status quo. Per-push pricing. This structure establishes a predetermined price for each time a property is serviced. This style allows property managers to pay only when the snow has flown. The bill will fluctuate month to month as the season progresses, but the manager will be billed the same each time the property is serviced. With most reputable companies that offer this contract style, occasionally the manager will be billed for a “partial push” when the storm necessitates further service but does not justify another full service. For many managers, knowing that the efficiency of the operator or equipment doesn’t affect the bottom line is relieving. This is one less variable in the budget. The per-push pricing agreement can be rewarding to contractors who want to improve their operations because they get paid a fair wage for an agreed upon result. An investment in better equipment results in greater stability – equipment is generally more dependable than people – faster completion time, less liability and happier clients. Per-storm pricing. This style is like the lesser-known twin sister of the per-push pricing style. Sometimes called event pricing, per-storm pricing sets a predetermined price for the entire event. Once the contractor engages, he remains engaged until the storm clears. The contract generally has a time period (usually 24 to 48 hours) and all accumulation, which falls within that time period, is considered one storm or event. Similar to per-push pricing, the monthly expenditure can fluctuate a great deal, but the property manager has the peace of mind that the property will be serviced to a certain site condition and the manager consistently will pay the same price for the same result. This can be a great fit if a property manager’s site demands a very low tolerance or zero tolerance. This style generally requires a contractor to dedicate a certain amount of personnel and equipment assets to the site, and generally the site stays in good condition throughout the storm. The agreement provides a certain stability for the contractor given the type of client who needs this level of service. However, it can be a challenging style because there is a need for dedicated resources without a minimum revenue commitment. Adding to the challenge is the fact that a property that needs this style requires a demanding level of service that can be difficult to provide in unpredictable weather conditions. Annual pricing. With an annual contract, managers will pay a predetermined amount for the entire season. Managers are billed in equal monthly installments and will pay the same each month, regardless of whether there is no snow or a 4-foot blizzard. This style is one of the least understood options. The most accurate way to look at this agreement is to understand, first, that like anything else, there are certain seasons that may be anomalies or outliers – some years we get a statistically high amount of snowfall and some years a statistically low amount. However, most years fall within a predictable range of accumulation and events. With this in mind, an annual contract can be a powerful way to manage the budget and a site. Managers will have a fixed budget amount and a predictable site condition. For managers who have a large acreage of parking lot or drive lanes, this can be an effective way to manage winter conditions and the budget. Managers most likely will have dedicated resources. One thing to note is that this style generally is only used by contractors who have a high level of expertise, experience and stability. This pricing agreement helps maintain stability and a degree of consistency in a challenging business for the contractors. However, it can lead to less profitability in heavy snow years, especially if a large percentage of contracts follow this billing style. The style represents a mutually committed relationship between property manager and contractor and often these relationships last a number of years.