How to Negotiate Service Level Agreements with Your Service Provider
There are many fleet service providers to choose from, each with an extensive menu of services. Fleet services include such items as maintenance and accident management, acquisition and disposition of vehicles, and driver record and training programs. When creating a request for quote (RFQ), determine the basic services your fleet operation requires. Further detail specific services as vendors respond.
Three major issues are covered in a contract: performance, cost, and legal. The performance clause in the contract spells out both parties’ responsibilities. Cost factors are specific program expenses, usually per vehicle. They include vehicle price, depreciation, and provider and program administrative fees. Legal ramifications should also be spelled out so that both parties clearly understand the consenus of violating the contract terms.
A master lease agreement is a binding ontract. However, a “force majeur” clause should be written into the contract. This is a standard clause in almost any legal type of contract that states the lessor or lessee cannot be held responsible for events beyond its control. It is critically important to detail as much as possible how various common situations will be handled by both parties.
When negotiating a service level agreement, include the following:
Measurable goals to which both parties can agree and verify.
Implementation strategy for all programs.
Identification of bundled or unbundled services.
Identify Measurable Goals
Order and deliver your vehicles.
Invoice for the vehicles.
Provide documentation on your vehicles.
Dispose of the vehicles upon termination of the lease contract.
Performance requirements should be included in any contract with a fleet supplier. Benchmarks based upon performance not only ensure success for you, but also the supplier. The contract is a partnership between you and your fleet supplier. As with any great partnerships, it takes both sides to work hard at the relationship.
The contract should spell out how the service provider will:
Most fleet service providers can document savings with packages they designed. They include savings on rental billings, accident management claims, and repair and maintenance. Lifecycle cost analysis is also important in determining savings. Take into account all aspects of your fleet costs — fixed and variable.
Most measurements take time to see the results. Long-term goals such as efficiencies and lifecycle costing don’t happen overnight. They must be tailored to your company. No two companies are exactly alike — management evaluates different metrics to determine process or program success. Set the bar higher to attain your operation’s goals and improve the bottom line and your fleet’s effectiveness. Keep asking your providers for new information to help reach and exceed your goals.
Hold fleet suppliers to their guaranteed results. If the vendor stated that the program would save a certain amount of money over a specified period of time, hold it accountable to meet that goal at a minimum or to make up that difference per the contract.
Don’t limit contract savings to “hard” dollars. Saving “soft” dollars is also important. These savings are in areas such as vehicle downtime, response time, timeliness of receiving reports, etc. This will be your bible to measure supplier performance based upon what was discussed during the selection process. Your company’s goals may change over time, so don’t be afraid to communicate those changes with your fleet service providers.
Tracking the progress of “performance” clauses assures the program’s strategic success. Don’t rely on your fleet supplier to track performance. Establish procedures to track the services, whether maintenance, accident management, expense reports, or billings.
Develop a customized service matrix that details performance standards in certain key areas and defines the monetary penalty for not achieving the minimum standards. This tracking provides accountability that tolerance allowances, built into the standards, would not provide. The standards must be reasonable and fair. However, clearly state that while being flexible, results must be achieved timely. Don’t be afraid of putting dates and/or amount of savings expected at certain intervals. The best agreements retain a degree of flexibility, but they also account for the needs of both parties prior to implementation.
Document the service provider claims regarding potential savings in areas such as repair, maintenance, and accident management by achieving a reduction in costs per vehicle or in whole.
A comprehensive fleet analysis report is crucial to managing your day-to-day fleet. If you do not have an internal mechanism to establish a report, obtain one from your fleet leasing company. The minimum information that this report should provide for each vehicle includes:
Repair and maintenance costs.
Lease costs (depreciation and lease charge).
Other pertinent information crucial to your company/fleet.
Mileage (average usage and mpg).
A regional report is beneficial if your company has regional or branch locations. Drilling down to the bottom line cost of each vehicle is critical to maximize fleet utilization. You can isolate specific cost problems or opportunities by vehicle or a specific region or branch. Stress the importance of getting “micro” information.
Standards and performance should be reviewed on a quarterly basis and, if necessary due to changing needs or circumstances, the service standards are adjusted to meet new expectations. This ensures that client and provider continually review their performances. Review actual historical data continually. A systematic discussion with your fleet service provider helps ensure that objective information is used to determine the best course of action to take and increase service reliability.
Response time is very important. Track overall response times for vendor-provided administrative programs (accident management, MVRs, etc.).
When measuring different costs, evaluate costs associated with current and replacement fleet vehicles.
A strategy to implement fleet service provider packages is the next step in the process. Never outsource plans, policies, and budgets. They may influence these functions, but you and your company must make all the final decisions. It’s okay to give some leeway to providers as long as they know your company’s plans, policies, and procedures. Align your policies to influence the service level agreement. Expectations should be reasonable, but firm. When implementing new programs, involve departments affected from the start and apprise them of further developments. Look to them for suggestions and questions for the fleet service provider.
Don’t be afraid to set specific goals to hold your fleet service provider accountable. Clearly state a results timeframe.
Bundling vs. Unbundling
The bundle/unbundled issue has created much debate. My point of view has always been that you need to go where you will get the most “bang for your buck.” You should continually search for providers who will do this for you.
It is convenient to make one call and have all problems handled. However, if the fleet service provider is not meeting your goals and not communicating with you as outlined upfront — go searching.
Not all vendors can provide all the services you may require. Most of their packages are designed in a one-size-fits-all scenario. Try to find a vendor that tailors a package to all or most of your specific needs. A good rule of thumb is to pick and choose the services that best meet your drivers’ needs. They will be affected the entire time you are in business with a provider. Obtain input from them as to what they require to do their job.
How you manage service providers is key to making your business a success. Never be afraid to ask questions. Be proactive.
Establishing a Valuable Business Relationship
If your fleet provider doesn’t nurture the relationship, take your business elsewhere. This expectation should be part of your upfront communication.
If your fleet supplier is saving you money, you are apt to buy into more of its programs. A supplier’s best sales pitch is what he or she is doing for you right now. Most fleet managers have networking contacts in the fleet industry. Word of mouth about a fleet supplier will surely get around, especially at fleet gatherings such as the National Association of Fleet Administrators (NAFA) and Automotive Fleet & Leasing Association (AFLA) conferences.
Communicate with Fleet Service Providers
Open lines of communication with fleet service providers is crucial. They must be available to answer any questions. Asking questions should be part of your overall fleet strategy. For example, how can your company improve its bottom line and increase efficiencies in fleet areas? It is a good test to see how creative and flexible providers can be with their programs.
A good fleet service provider should come to you with new ideas and programs. How a program is communicated to you is just as important as what is communicated. Analyze how each proposal can help you attain your fleet and company goals. Be cautious of adding programs that may cost more with little or no return. Analyze them before adding them to your contract.
Being able to answer any questions that may arise is a great barometer for determining the strength of both parties. Clearly indicate that cost-cutting and cost-eliminating processes are to be continually reviewed with all involved departments to verify that the established operating plan and policies and procedures are being executed properly. This includes establishing and promoting maximized fleet cost effectiveness, such as replacing vehicles with sound lifecycle guidelines.
Recommendations and communications to senior management based upon facts in black and white must be made on an ongoing basis. Communicate with operating groups to involve them in understanding the objectives to maximize fleet use. There will be no surprises when a decision is made based upon facts already in their possession.
How you challenge your supplier to be more productive with a great legal agreement is another key to making your business a success. Keep in mind that all fees and costs are negotiable and, above all, use common sense. Demanding unrealistic service levels results in an unfavorable relationship between the parties. You could risk a program that could be valuable to your company.
David Fern has more than 15 years of fleet management experience. He currently works as an auditing consultant for Resources Global Professionals and can be reached at email@example.com.
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