Running a Shop Law Contract Law

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It’s only a real partnership if both sides can benefit, says Kerry Woodson, general manager of Jungerman CARSTAR in St. Peter, Mo.

And when it comes to making decisions for his shop, particularly when dealing with direct repair programs (DRPs), Woodson focuses on what makes his business stand out—its customer service, its quality of work, its people.

“You can’t sacrifice the core of what makes your shop what it is,” he says. “You have to know what you want; you have to know what [the insurers] want; and you have to make sure it can work.”

Jungerman has more than 30 DRPs—many small, some large—that make up roughly 65 percent of the shop’s overall work mix.

The fact is, Woodson says, DRPs can be a very valuable asset to a shop: They can increase sales, improve efficiencies and create an automatic customer base. But problems can arise if the program isn’t a perfect fit for your business. Every shop is different, and you have to decide whether or not a specific DRP is right for your business, Woodson says.

“You need to have the ability to do what’s right for your customers. You don’t want to get caught in bad situations.”
—Kerry Woodson, owner, Jungerman CARSTAR

Making that determination comes down to each individual DRP contract.

FenderBender spoke with Woodson and two other shop owners about key areas of DRP contracts to focus on before signing into a program.

Getting Started

Gary Wano is the executive vice president of G.W. and Son Auto Body Inc. in Oklahoma City, and a member of the Collision Industry Conference’s repairer-insurer relations committee. He says the very first thing to understand is that DRPs are designed to help insurance companies—not your shop.

“That doesn’t mean they can’t work for you, if they meet your needs” he says, “but you have to find ones that align well with your shop’s values.”

Wano is extremely picky about what kind of agreement he signs. His shop has just one DRP, which makes up just 7 percent of his overall business.

“We’ve been in business here for 27 years. It’s because of our commitment and choice to do the right thing regardless, and our community understands that,” he says. “I’m not going to do anything to jeopardize that.”

Jody Gatchell, owner of A&J Collision in Conway, Ark., says to begin the process by “doing your homework” about the insurer: How do they work with customers? How do they turn in claims? Who else is in their program? Whom are you going to compete with for those jobs and customers?
“Research that company for its strengths and weaknesses,” says Gatchell, whose shop generates 78 percent of its $2 million in annual sales from DRPs. “Then you need to focus on those critical areas of the contract.”

Areas of Concern

Parts, wheels and processes: Woodson does not like putting parts in a vehicle that don’t meet his personal standards. It’s that simple, he says, but many DRP agreements may require the use of aftermarket or used parts.

“You need to have the ability to do what’s right for your customers,” he says. “You don’t want to get caught in bad situations.”

Wano says to be careful of requirements for reconditioned wheels, used structural components and aftermarket parts, as well. “Make sure it fits with your values.”

Indemnification language: One of Wano’s biggest areas of concern in DRP agreements has to do with indemnification clauses, which define liability for repairs.

The worry, Wano says, is that shops are often required to use certain parts. Yet when those parts are the cause of a future problem, the shop is still held liable for that repair.

“You have to understand where you stand in these situations before entering into the agreement,” he says. “Look over the language, see if there’s a rider in there that holds you harmless in those situations. If not, try to see who has the final say on the parts and processes that go into making the repair.

“Bottom line: Make sure you’re protecting yourself against their parts or processes requirements.”

Estimate writing: Gatchell always wants to know who actually writes the estimates. It can vary from insurer to insurer. Some have an agent on-site to examine the vehicle and create the estimate for the customer. Some have the shop do it based on their requirements.

“You want control,” Gatchell suggests. “You are or will be doing the job of the adjuster … but the good thing is you are writing the estimate. You have control of the process from the beginning. And control equals income.”

On-site time: Know how often and how long adjusters and insurer representatives will be at your shop, Wano says.
Wano’s production manager was once at a shop where an on-site adjuster regularly saw the shop beat estimate time on jobs. The adjuster then started estimating future jobs for fewer labor hours.

“Don’t get penalized for being proficient,” Wano says. “Know how the insurer is going to interact with your shop, and get on common ground about your processes and systems and your staff’s ability.”

Cycle time requirements: Speaking of estimate writing, Woodson says carefully examine cycle time requirements, because it can have a large effect on your estimates—and your standing within the program.

Wano says that some DRPs may give a certain amount of days to complete a repair based on the expected hours for the job. If your shop doesn’t meet the requirement, you could be stuck with a bill for the customer’s alternative transportation.

“With vehicles getting more and more sophisticated, you can run into problems. Know the requirements and know if they meet your expectations.”

Final product guarantees: Warranties should be clearly defined, Wano says. Which repairs, parts or components are under warranty? Is the shop responsible for picking up the tab on the warranty parts, labor, etc.? Is it the insurer? Who eats the rental vehicle charges?

“You don’t want any surprises when something comes up later,” Wano says.

Information providers: Most shops simply can’t afford multiple information providers, Wano says, and some insurers may have certain requirements.

“Ideally, you want them to be able to accept whatever information provider you’re using,” he says. “I would definitely shop it to where I don’t have to have multiple subscriptions to providers. Depending on the size of store, that can be very, very costly.  And there is software available, from an insurer’s standpoint, that would allow them to use whatever information provider through their system.

“Make sure the DRP requirements fit your capabilities.”

Customer service index (CSI) scoring: One of the most common, critical key performance indicators in DRPs is a shop’s CSI score.

“I would also want to see, from a CSI standpoint, if there is a mandate of a company that needs to be used for your CSI testing, or can you use the company that you currently use?” Wano says. “If you can’t use your own, then you’re looking at doubling up the expense of determining your CSI.” 

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