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Longterm Contracts

Discussion in 'Business Fundamentals' started by BUFF, Oct 1, 2013.

  1. BUFF

    BUFF PlowSite Fanatic
    from FR NoCo
    Messages: 7,321

    I did a search on multi-year contracts and found most are for 2yrs but I’ve been requested to provide locked in 4 and 6yr pricing. To give a little background as to what’s going on, for the past 3yrs I’ve been providing snow removal/ lawn-care services along with open space/ditch mowing for a HOA/subdivision. The subdivision has 2.7miles of road with 4 cul-de-sacs. After 3yrs I decided it was time to give them an 8% increase which I felt was reasonable along with a disclaimer for a fuel sur-charge increase, again reasonable. The property management company came back wanting to lock in on a 2yr agreement, I slept on it and resubmitted the bid. Keep in mind this management company presents the bids to the HOA and the management company basically just pays the bills. A couple weeks pass and I hear back today and now they want a 4 and 6yr agreement with pricing locked down along with a 6” trigger from a 4” trigger. I was also told the homeowners would hope to see a decrease in my pricing since there’s a long term contract in place. After I got done with the WFT reaction I started to think about this to an extent. The Readers Digest version is a 4 and 6yr contract would result in higher out of pocket cost due to unknown variables related to expenses; Fuel, Tires, Vehicle Maintenance cost, GL, etc……
    So I replied to the management company sticking to the 2yrs contract bid and 4” trigger, I guess I find out what their take on that is in the next couple of days.
    Our winter fluctuate so much seasonal contracts and just about non-existent and probably couldn’t sell them on that idea and to be honest they’ve pissed me off.
    Has anyone else been asked to lock in on pricing for 4-6 yrs and by doing so reduce their cost?
     
  2. BC Handyman

    BC Handyman PlowSite.com Addict
    Messages: 1,868

    good, I would not do a 6yr contract, especially at a lower rate & higher trigger, thats just crazy talk. I have done a verbal 3 year contract, only my old time resi cusomers would i even consider a long time like 6 years, even then it would not be a verbal or written deal, it would be just cause they old, neighbors or cause it very small $
     
  3. Antlerart06

    Antlerart06 PlowSite Veteran
    Messages: 3,437

    I do one that's lock in for 8 yrs but in my contact I have fuel charge and a in crease if salt goes up in price
    On the salt if cost me more to buy they will pay the extra I show the ticket
    My service rate stays same and my hourly stays same
    Only have 2 years left Will I do it again sure as long my terms are in the contact
     
  4. grandview

    grandview PlowSite Fanatic
    Messages: 14,609

    What;s flip side if you got out of the business or something happened,would you be on the hook for anything? You could do it for the 8 yrs but every 2 yrs there needs to be a increase in the price ,maybe a 5%.
     
  5. Mark Oomkes

    Mark Oomkes PlowSite Fanatic
    Messages: 10,923

    I do mine for 3 years, usually with a fixed price the first 2 years and then an increase the 3rd.

    I would like to know how they figure costs are going to decrease in 4 years or 6. That's just stupid.
     
  6. Antlerart06

    Antlerart06 PlowSite Veteran
    Messages: 3,437

    Only way I could get out of it If I was fired, Or Die .
    If I went out business I would have to find someone take over the contact
    I don't see me going out of business any time soon.

    I don't give them a cheaper rate for a long term price actually it was higher when I signed contact but looking at it now its cheap. Now its below my rate.
     
  7. BUFF

    BUFF PlowSite Fanatic
    from FR NoCo
    Messages: 7,321

    There would have to be verbiage in the contract to cover me closing the bizz or needing/wanting to end the contract, along with something for them if they want to bail for whatever reason.
    I would have to make sure I was insulated from blow back.
    The message that I got was they’re looking for a way to have this budgeted several years down the road and locked in pricing, review/reduce pricing. I also got the sense my 8% increase (1st in 3yrs) was a sore spot with them and they sure as heck would go for a 5% in a 2yr cycle. Though this would save them 1.333333% over the 8yr term compared to if I stay on the 8%/3yr cycle.



    As I indicated I use a 3yr cycle, the way I see it is; it’s long enough to review cost data so not to be leaving any money on the table, not to be making business decisions based on current affairs and use longer term history to base them from.

    I didn’t want to sway any of the feedback so I didn’t mentioned this subdivision has 42 homes/estates on 6-8ac and has 40ac of open-space/ pasture scattered throughout that gets mowed. Also the homes run from $900k up to $1.3m. This subdivision is about 8 miles out of town in farm country against the foothills making it not very convenient to get to/monitor conditions. I happen live a mile south of it which works out well for servicing the account. Being where it’s at its subject to drifting with very little wind and the lay of the land allows for decent sized drifts, typically 1-3ft with our average snows. I had planned to buy a V-Plow (yes a Boss GV) to make my life easier and glad I'm late on pulling the trigger on that.
    In a round-about way it’s typically the well to do that are usually the customers that give you the most grief.
     
  8. basher

    basher PlowSite Fanatic
    from 19707
    Messages: 8,993

    2.5% yearly increase, wording to allow me or my assigns(subs) to do the work, I'd go for a 5 or even 10 year deal in a heartbeat.
     
  9. BC Handyman

    BC Handyman PlowSite.com Addict
    Messages: 1,868

    ya if you could get a 2.5% increse everyyear it would be ok, but if no increse I'd say no deal.
     
  10. BUFF

    BUFF PlowSite Fanatic
    from FR NoCo
    Messages: 7,321

    As i stands now the message I was give doesn't allow for any increase over the term of the contract is not in the cards, they want to lock in on one price for the term.
    If they come back to the table wanting to negotiate I will take the liberty of plugging in a by-yearly increase of 5% over the term of the contract along with provisions to protect myself incase of a shut down or they just piss me off.

    Over the duration of the winter and summer work this accounts for about $12k annually which is a decent amount on money but I won't be held hostage either.
     
  11. grandview

    grandview PlowSite Fanatic
    Messages: 14,609

    No increase? then you want all 8 yrs of the money to put into an escrow account with you keeping the interest.
     
  12. BUFF

    BUFF PlowSite Fanatic
    from FR NoCo
    Messages: 7,321

    Yep zero increase of cost. Escrow with proceeds for interest would be the only reasonable thing to do but what they're asking for isn't and highly doubt they'd realize that.

    Still haven't heard back from the management company and figure it'll be a couples days.
    If I was to lose the account it'd suck but I'm also confident I'd get them back next year.
     
  13. BUFF

    BUFF PlowSite Fanatic
    from FR NoCo
    Messages: 7,321

    Update.....

    After not hearing anything back from the management company for a week I ping’d them last night. In the email I said, I have to make a decision to take on other work to back fill this business, I have new potential customers approaching me wanting to sign contracts and need to know if I’m plowing for the HOA this season.
    I got a response at 10am this morning saying, Yes we want you to plow for the next 2 years and agree to your terms, please send us a contract to sign.
    I believe the management company sat down with the HOA and told them they’re being ridiculous with their request.
    So by sticking to my guns and not leaving anything on the table gave me the win at the end of the day.
     
  14. BC Handyman

    BC Handyman PlowSite.com Addict
    Messages: 1,868

    good to hear buff!
     
  15. Mark Oomkes

    Mark Oomkes PlowSite Fanatic
    Messages: 10,923

    Congrats!!!
     
  16. BUFF

    BUFF PlowSite Fanatic
    from FR NoCo
    Messages: 7,321

    Yeah I'm pretty pleased, if they didn't want to sign on I'd still be pleased with myself for not folding and maintaining my bussiness plan/approach.
     
  17. grandview

    grandview PlowSite Fanatic
    Messages: 14,609

    Tell them you booked up,but for a small fee you'll be able to fit them back into your route.
     
  18. BUFF

    BUFF PlowSite Fanatic
    from FR NoCo
    Messages: 7,321

    I did think about telling them to pound sand and probably would have but I'm dealing with a Management Company that caters to high end subdivisions/properties. I do work for a couple other properties they manage it'd be wise to stay on their good side. But when the contract expires I'll either drop them or bend them over.:laughing: