News: Focus Advisors Offers Review of 2021 Collision Acquisitions
What do you do when an insurer refuses to pay your standard mark-up on sublet repair services?
Q: We performed services for a customer’s repair and had several sublet services performed by outside service providers. The insurer is now refusing to pay our standard mark-up on those services. What can we do?
A: So your customer brought their late-model Range Rover to your shop for repair due to your quality reputation and your many glowing online reviews.
The initial estimate was to repair the outer quarter panel, which the customer’s insurer refused to provide ample hours for. After talking with the claims rep, it was decided to replace the quarter rather than repair it.
Upon ordering the needed parts, you learned that Range Rover will not sell parts to your company unless you’re a certified Range Rover repair facility. You informed your customer and the insurer, and it was agreed that you would sublet the repair to a Range Rover-certified repairer.
You contacted a local, quality-oriented, Range Rover-certified shop that you’ve worked with before and engaged them to secure the necessary parts and perform the quarter panel replacement for your shop. Upon completion, you paid the sublet shop $11,000-plus and completed the remaining repair processes at your facility.
On behalf of your customer, you provided the insurer a supplement for a 25-percent mark-up for the sublet repair, and they responded by paying for the towing to and from the other repairer (including a 25-percent mark-up) and a $250 “admin fee” for your efforts (which is sorely deficient, as noted below).
This raises an interesting issue that will no doubt become more widespread with the newer technologies and various mandated repair procedures and the specialized equipment needed to conduct them.
What Others Say
I spoke to several of my colleagues, including other ADE coaching clients, to get their thoughts on the issue of subletting collision work to other repairers. Here’s what they had to say:
If a customer came to my shop and said, “Hey, Barrett, I want my car custom pinstriped and have the interior replaced with a custom one and I want you to handle it for me,” I would respond, “Well that’s great, but I don’t do that kind of work.”
“Yeah, I figured that, but that’s OK. I trust you and want you to handle it for me. Just let me know when it’s done and what I owe.”
Never wanting to disappoint a customer (or turn down an opportunity for profit), I would likely take care of it and sub it out and have the desired work done just as you did. And yes, I would expect a sublet mark-up, no matter what the cost. I might even give the customer a break on the mark-up amount…after all, it’s my business.
I’ve heard of more and more shops subletting repairs to certified shops or shops that have the facilities, training and resources to perform repairs that they cannot such as aluminum repair (welding), the use of a Celette bench/jigs, specific blind-rivets, carbon fiber repair, pre- and post-repair scans, calibrations, etc. Not to mention suspension alignments, glass and exhaust work, etc.
In this case, for whatever reason (trust, reputation, convenience, etc.), the customer brought their vehicle to you for repair. They authorized you to repair their vehicle knowing and understanding that they would hold you and your accompany accountable for their vehicle while it was in your care, regardless of who you selected to do the repairs. So you did the following:
- Took the role of general contractor, assigning duties to a “subcontractor” to handle specific functions (just as a building contractor might engage plumbers, electricians, excavators, framers, masons, HVAC contractors, etc.).
- Carefully and thoughtfully selected an OE-certified subcontractor (repairer) you felt would do the best repair to protect you from an unhappy customer and/or potential liabilities.
- Expended (invested) your operating capital ($11,000-plus) for the replacement of the Range Rover’s quarter panel and, upon completion, promptly paid your sublet contractor. These are monies that, once expended, you cannot earn interest on or have available to invest in other activities that would generate a return on investment. You have a right to expect a return on your investment, including for the risk you take.
- Incurred and retained all liabilities with the repair for as long as the customer owns the vehicle (in the event that you might or might not get satisfaction from the sublet contractor should a warranty or liability issue arise).
The insurer acknowledged your activities and agreed you were entitled to be compensated for your efforts. Proof of this was their tendering the cost plus mark-up of the tow bills and their offer to provide you $250 in admin fees.
As such, it is not a matter of if you’re owed as much as it is a matter of how much the insurer wishes to pay (or not) and how much you’re willing to accept.
I believe you’re indeed entitled to be compensated for your efforts. Furthermore, regardless of the amount for the service, based upon “prevailing and competitive practices” or what may be determined to be “reasonable and customary,” such as a 25- to 35-percent mark-up for sublet services, I don’t see where your assessing 25 percent for the amounts you paid out is unreasonable. Of course, you can give your efforts away or discount them as you deem appropriate.
Note: In a well-crafted repair authorization/contract, sublet charges should be clearly noted along with other notices and caveats regarding various potential charges (e.g. storage, admin fees, warranties, etc.).
Maintain a Record
If you intend to pursue this issue with the customer/insurer, I encourage you to do so in writing only (e.g. e-mail and/or certified mail, return receipt requested) so you can maintain a record and keep your customer aware of all ongoing communications. The customer and insurer need to understand that the customer, who authorized the repair, will be ultimately responsible for the entire bill, including any insurer underpayments. You will hopefully get your customer to buy in to your thinking.
After I wrote this article, I learned that the insurer provided additional payment to the consumer for the repairer’s sublet services. While the repairer agreed to a compromised amount to resolve the matter, the settlement was based upon a mark-up percentage for the entire sublet amount versus a mere administration fee.