If you’ve been involved in this industry as long as (or longer than) I have, you may still remember the days when handwritten estimates were a way of life and computers and computerized estimating systems were still just Buck Rogers science fiction.
Since estimates were handwritten back then, they were often as few lines as possible – to prevent “hand cramping” and because no one could read our estimate anyway.
Those were the days!
These days, however, what you write – or don’t write – can get you into trouble. Technology and state laws for conducting business – in this case, estimating – are changing. And you need to change with them.
The Beginning of Change
In the 1970s, seminars across the country began to teach us that if we quit writing large labor items – such as for the frame repair – in one lump sum and itemized the different damages we were repairing instead, we could get more money because we could demonstrate (defend) each repair operation and the adjuster wouldn’t be able to just “cut” the large, lump sum item.
Did this strategy work? Yes … to a point. And this same philosophy and practice extended into a number of other areas as well, such as the pricing for flex additive, color tinting, car covers, hazardous waste disposal, color sanding and buffing, drill time, anti-flutter materials, light bulbs and sound deadener pads, to name a few. We discovered the Procedure Pages in the front of the two estimating systems (at the time only Motor and Mitchell were in use), and the art of itemization pricing began to take root.
When computerized estimating systems began to become commonplace, what used to be a large 30- to 40-line handwritten estimate quickly became 70 lines or more. Granted, some of the extra lines on the estimate were based on how the computerized system lists operations, but much was due to the ability of the estimator to select items quicker and not have to hand write them.
Today, with “point and click” technology, we’ve now moved to 200-line supplements. This would have taken hours and hours (maybe days) in the past to hand write.
We’ve also begun to use “M Codes” (ADP Manual Entries), Long Expansions (Mitchell) and the Parts Code Tables (Pathways) to add additional operations our marketplace allows. Certainly any successful shop today has multiple profiles set up in their estimating system(s) for each work provider that they do business with. And these operations are based on their marketplace and agreements for established pricing.
The Purpose of an Estimate
I’m not trying to provide a “legal definition” in this article, since this would vary from state to state. What I’m offering is a practical observation of the concept of estimates.
In its simplest form, an estimate is a sales/pricing document, and it provides a basis for “selling the job.” However, today it’s much different when looking at a door with medium damage as in the past and estimating, “To repair the door, repaint it and replace the side molding.” Today, the estimate may very well become 30 to 50 lines or more as compared to the past and will probably include:
R&I the door handles, locks and other attaching moldings/trim;
R&I the adjacent panels attaching handles, moldings and trim;
R&I inner trim panels and glass;
Blend adjacent panels and the clearcoat operations;
Replace adjacent adhesively mounted molding trim or prepare the part for reinstallation;
Corrosion protection, undercoating and chip protection;
Protect adjacent panels (cover car) and jambs;
Featheredge, prime and block;
Hazardous waste removal – just to name a few.
The estimate then normally becomes the basis for the repair/work order. The more detailed it becomes, the more complete, which reduces production variations. The benefits of this approach can often be realized through the parts ordering/receiving, reduction of supplement delays, decreased production delays due to missed operations and part delays, and the reduction of cycle time, all while increasing facility throughput.
Some say the government needs to intervene.
In fact, up until the very recent changes within California’s Bureau of Automotive Repair (BAR), repairers and insurers in California could’ve been facing a nightmare. The BAR was moving toward having every single operation listed that was done on the vehicle, and the BAR was targeting facilities that they determined were committing fraud – based on their interpretation of fraud (most of which very few would agree with, but very difficult and costly to defend)
And, if this had gone forward, it would’ve been easy for another state to just copy what was already in place – so it could’ve easily spread across the country into your marketplace as well.
What’s scary is how “fraud” or performing fraudulent repairs is being defined by some states. You may have not only committed fraud for operations you wrote for but didn’t do, but also for work performed that wasn’t listed on the estimate/repair order.
The first may very well be a clear case of fraudulent repair if the operations intentionally weren’t done. But the latter … to what extent is this taken?
How Much Itemization Is Needed?
This direction of fraud interpretation has become very concerning and in reality, the main reason for this article. Is the itemization detail designed to protect the consumer or create a bureaucratic nightmare for repair facilities that do larger-than-average volumes of work? State to state, different levels of detail are required to be provided to the consumer. However, there are several issues that we need to look at as they relate to itemization.
Think about the following:
If it’s not listed on the estimate/RO as a line item, does that mean it wasn’t performed?
If it’s not listed on the estimate/RO as a line item, could it be included in another operation listed?
The answer to the above two questions are definitely:
No, not always.
Yes, it’s possible.
But these aren’t the answers many (including you) may believe are true. It certainly warrants some discussion.
If you answered the first one “yes,” then I guess your estimates/ROs must be 3,000 to 4,000 lines long because where do you stop? As an industry, we haven’t defined this well at all, and it varies based on local customary practices, systems used, detail requested by state laws and even the customers.
Let’s look at the simple door example used earlier. Did you list that you pulled the vehicle into the work bay, cleaned the vehicle exterior (washed it), removed the side molding, ground the paint off to bare metal, installed 27 stud pins, pulled damage to contour, cut the pins off, hammered all eyebrow ridges to contour, applied epoxy primer (if needed), mixed plastic filler, applied plastic filler, sanded plastic filler, re-applied as necessary, featheredged the paint, cleaned the panel (multiple times), applied corrosion protection primer, applied primer filler, applied a guide coat, block sanded to contour, cleaned the surface, masked area as needed, mixed the products used, tacked the surface, applied basecoat, applied clearcoat, color sanded and buffed, removed the tape/masking, cleaned the equipment, disposed properly the excess, detailed vehicle for delivery and quality assured all work performed?
And this list of operations wasn’t intended to be all inclusive since there are thousands of sub-operations to them as well, but I hope you get the picture.
Where do we stop?
If you answered the second question “No,” then please re-read the door example again. As you can see, there are many operations that weren’t listed on the estimate/RO that were all part of the labor times listed but not line itemized to the full detail.
And what about your technicians? Do you believe they’ll read the repair/work order any more thoroughly as it goes from 50 lines long to thousands? Will this help them to not miss any more operations? There’s a clear understanding – yet it’s not been standardized or well-documented – that to perform repair operations properly, techs include certain tasks that may very well not be listed on the estimate, work order or final RO.
The database providers do provide some detail of what sub-operations are included in the given flat rate time, but all bets are off once we begin to interject “judgment times,” or database times that are manually adjusted. What the estimator considered at the time he wrote the estimate is what operations were included – and this will vary based on many factors, such as the estimator’s skill, the extent to which he typically itemizes damages, the system he’s using, the extent and location of damages, and the state and customer requirements.
Selective Memory and Splitting Hairs
The real question is who decides which operations need to be line itemized and aren’t included in other operations and what is included? The answer, again, is certainly inconsistent across our industry and is more personal judgment, local practices and the details required by the state and customers. As an industry, we need to better define this because some very challenging actions are taking place regarding what is included and what is not.
One example that’s a critical issue now for many repairers is that some insurers are demanding that if a panel is repaired and the basecoat isn’t going to be applied to the complete panel, the time should be adjusted (typically by 50 percent). This adjustment is certainly unfounded for many reasons, but as a result of our industry not well-defining many aspects of the procedures required and sticking to them, we have many challenges facing us.
I’m not saying there doesn’t need to be a change on the estimate/RO that indicates the panel basecoat application isn’t being applied to the full panel. What I’m saying is there are many fallacies and other factors to consider, too.
The first fallacy to this practice is that the “application of the basecoat” that’s certainly the only portion of savings that’s really affected by not applying to the full panel is just a small portion of the total basecoat time provided in the database. One database provider listed the application of the basecoat to be only around 20 percent of the total paint time listed.
So, logically, if we reduce the basecoat time as a result of not applying it to the complete panel, even using the 50 percent rule (which is also a point of debate by all paint companies and the information providers since it may take little or no time difference to apply a blended basecoat application than to paint full panels, and it depends so much as to the extent of damage, color and paint system) we’d be reducing the basecoat time by just 10 percent, not 50 percent.
Another issue in this arbitrary reduction is the loss of paint and materials revenue that’s commonly a factor based on total paint hours on an estimate. If you reduce the basecoat time, the paint and material revenue decreases. The scope of this article isn’t intended to examine paint and materials in depth, but why are paint and materials calculated in this manner anyway? Why does the rate differ marketplace to marketplace when the cost price is basically the same everywhere? And why are there material caps?
The last issue involved here is one for the ages … Since it’s a repaired panel, there must have been repairs performed. Yet in most areas, there’s no allocation to take that repaired panel from the finished metal repair stage (generally considered around 180 grit, straight and no pin holes) to the new and undamaged condition that the paint times are designed for, as specified by the database providers.
There’s a “gap” that we haven’t addressed here well. This featheredging, cleaning, priming (corrosion protection), application of primer filler (surfacer), guide coating and blocking to contour are often forgotten as a requirement now that the panel isn’t a new panel but a repaired panel.
Now the latest rebuttal to these necessary preparation operations often not listed on the estimate/RO but performed every time for repaired panels has received a newer challenge. Some insurers are stating the metal repair time allowed is for the panel to be returned to the new and undamaged condition required for the database paint time allowance. This presents a challenge since as an industry, this “standard” hasn’t been established or well-defined – so who’s to say it wasn’t?
Also, there are additional challenges internally for repair shops and insurers to take this approach. First, we know we can’t perform all the “gap” operations in the metal department since application of primers violates many EPA and OSHA requirements, as well as basic personal fire and safety issues. So insurers now are contending that a deduction of a portion of the metal repair time should be applied to the paint department for these “gap” operations. However, CIC Write it Right Guidelines would consider this “cost shifting,” a form of fraud.
So if the metal repair judgment times are adjusted accordingly on the estimate/RO, shouldn’t it mean these “gap” operations be placed back where they belong – the paint labor column? And paint and materials should now be calculated, too?
So What Do You Do?
The most important concept of itemization is to clearly define what’s being performed on the vehicle to the level of detail required by state laws and the customer and to improve the communication to your staff. Not everything must be written in detail every step of the way. Many operations performed on the vehicle may not appear on the estimate, work order or final RO, such as detailing, quality assurance checks, test driving, estimating the vehicle and a host of others.
Some insures want everything “listed” that’s performed, but they may still not allow any labor for it, while other insurers demand these items not be listed. Then we also have the problem that, as mentioned, how detailed is detailed?
I recommend that you list the operation and if no labor is part of your agreement, then list as N/C (zero amount as a comment if necessary). But as to how detailed you get, this is up to you.
However, as the seminars for years have shown, profit is made with the pencil (computers now) more than anywhere else. The estimate not only affects pricing (revenue), but also production efficiency and throughput. Itemizing the steps to your needs can improve revenue by simply preventing you from missing items you could have charged for and not stopping production for supplements and parts delays.
One challenge is that with all increased administrative duties caused by today’s DRP relationships, the estimating process, at times, may get “short changed.” Some shops I’ve worked with leave hundreds and even thousands of dollars on the table each and every month because inadequate estimating practices and production are stymied due to parts delays and supplements.
The solution to this issue, and to write better estimates, is to have an auditing process for the estimates. This audit is not only for items missed, but for maintaining compliance with DRP agreements. The greatest challenge to this is that not one insurer does it the same as another and who has the time and personnel to do this consistently and not just “after the fact”?
To audit estimates manually is a very time-consuming and costly process. However, software is now available to do this automatically for estimators and will not only find itemization details missed, but ensure your estimates are in compliance. Check out EMSReview at www.aeii.net/EMSReview1.htm.
As with any software, it’s continuing to improve and advance. One key improvement of this system over the last year or so is that it automatically creates the Long Expansions (Mitchell), Parts Code Tables (Pathways) and soon the Manual Entries (ADP) to make it easy for estimators to write better estimates. For what the program costs, it pays for itself time and time again.
Instead of “You’re the only one who’s charging for this,” it’s become, “You’re not in accordance with your market area practices.”
But if you don’t ask for it, you’ll never get it.
Contributing Editor Tony Passwater is president of AEII, an international consulting, training and system-development organization specializing in the collision repair industry. He’s been in the industry since 1972; has been a collision repair facility owner, vocational educator and I-CAR International Instructor; and has taught seminars and worked with clients across North America, South America, Australia, Malaysia, Korea and China. He can be contacted at (317) 290-0611 or at [email protected]. Visit his Web site at www.aeii.net for more information.
Comments? Send them to BSB editor Georgina K. Carson at [email protected].