Truck repair and maintenance contracts
When you take out an R&M contract with your new truck are really sure what you are buying? We slice and dice the contracts to see what’s covered and what’s not.
A recent industry survey suggested that 40% of trucks on UK roads are covered by some form of repair and maintenance (R&M) contract and that the proportion for new trucks is even higher, at around 60%. It is not hard to see why R&M contracts enjoy such huge market penetration these days. Many operators feel that in-house workshops are either an overhead they can do without or are ill-equipped to handle the complexity of modern trucks, particularly their electronic diagnostic systems. And if you do not have a workshop, an R&M contract seems a logical choice: servicing and safety inspections run to a scheduled programme, lending themselves to a contractual agreement rather than ad hoc arrangements.
But that still leaves a few important decisions to make. Should the contract cover just scheduled work or include repairs as well? How long should the contract run? Is the vehicle manufacturer’s R&M contract the smart choice or just the lazy choice – can independent providers offer better value for money?
The buck stops with you
Even the most inclusive, all-singing, all-dancing R&M contract cannot absolve the vehicle user of his fundamental responsibilities, namely to ensure that the vehicle is “maintained in a safe and roadworthy condition at all times when in use on the road.” That is spelt out in VOSA’s Guide to Maintaining Roadworthiness, a useful starting point for anyone who is making decisions about maintenance arrangements. The guide also clarifies that the term “vehicle user” applies to both the operator and the driver. The driver is responsible for the daily walk-round checks and completing defect reports diligently. VOSA and the Traffic Commissioners view this daily check as just as important as the scheduled safety inspections: VOSA estimates that over 30% of the mechanical defects it spots should have been identified by the driver.
The Freight Transport Association (FTA) reckons that over 50% of the safety defects uncovered by its Vehicle Inspection Service should have been picked up during the driver’s walk-round check. So, as an operator, your Operator’s Licence obligations as far as roadworthiness is concerned are partly in the hands of both your drivers and your maintenance provider but ultimately the buck stops with you – a sobering thought that should remain uppermost when choosing who inspects, services and drives your vehicles. Responsibility and liability never can be sub-contracted.
Basic or Comprehensive?
Truck manufacturers typically offer at least two types of maintenance contracts. The basic one is essentially a preventative maintenance service contract and normally covers scheduled tasks such as safety inspections, scheduled servicing and two-yearly tachograph checks etc. The cost (parts and labour) of scheduled work such as greasing and oil-changes normally would be included, but not the cost of replacing wear and tear items such as brake pads.
In order to have those included you will need to pay a lot more for a comprehensive R&M contract. This will cover not only the cost of replacing wear and tear items such as brakes and clutches but also unexpected repairs or replacements of other components such as a starter motor or a fuel pump, provided the defect is not attributable to misuse, abuse or accident damage. Preparation and presentation for the annual roadworthiness test is probably included too, and maybe roadside breakdown assistance and recovery too.
Daf and Mercedes-Benz, for instance, follow this two-tier approach for their maintenance programmes but other manufacturers prefer to offer more choice. Volvo Trucks, for example, offers three levels: Blue, Silver and Gold. Blue is essentially a service contract while Silver and Gold are both R&M contracts offering different levels of inclusivity. MAN goes one better, with four levels of maintenance contracts. All include breakdown and recovery. Iveco sits at the top of the tree: its Elements programme offers no fewer than five levels, allowing operators to fine-tune their cover.
If the vehicle in question is leased then it is worth going through the BVRLA (British Vehicle Rental and Leasing Association) “HGV Fair Wear & Tear Standard.” This is likely to be used as a guide to what is an acceptable condition when trucks are returned at the end of their lease period. Operators should identify wear and tear items that fall outside the contract’s scope, budgeting accordingly.
In addition to the list of what’s included and what’s excluded, most R&M contracts offer a range of extra-cost options. These normally include a replacement vehicle if yours is off the road, collection and delivery, international breakdown cover, out-of-hours servicing and maintenance/repair of ancillaries such as bodywork, tail-lifts, tyres, fridge units etc. We look at these in more detail later.
In short, no two R&M packages are identical so a thorough line-by-line comparison of what’s included and what’s not is absolutely essential when comparing alternative contracts.
The beauty of maintenance contracts is that they give you a known, monthly cost that is fixed (more or less) for the contract period. The price normally is index-linked to RPI (Retail Prices Index), with the contract charge adjusted annually. However, it usually is possible to choose a truly fixed, inflation-proof rate. Judging from the quotations we obtained, these are likely to cost between 3.5% and 6% more than one tracking RPI: it is your judgement on where inflation will go and whether inflation-proofing is worth the extra. According to James Ostridge, service contracts manager at Mercedes-Benz UK, over 90% of Mercedes’ R&M customers do choose to insulate themselves from inflation by fixing prices completely.
Maintenance contracts are all about removal of risk. In the case of basic inspection and service contracts, there is very little risk because preventative maintenance costs - service times, labour rates and consumables - are all known, so the only risk you are avoiding is that any of these will rise faster than inflation. Therefore, it is relatively easy to evaluate these contracts, comparing them with the labour rates and consumable prices you would otherwise pay. But it is by no means as easy to assess the value of the more comprehensive R&M contracts.
What is the chance of needing a new battery after four years? How long will the fuel pump last? When will the clutch need replacing? When you buy an R&M contract you are essentially paying for all those unknowns to become the maintenance providers’ responsibility. Transferring this risk of the unknown is never going to be cheap, and the scale of that risk rises disproportionately with the length of the contract as the likelihood of component failure increases. Therefore, if you plump for a long R&M contract you are paying to transfer more risk – it is not because of the additional work and parts needed as the truck ages and the kilometres accumulate.
So for example, the monthly charge for a five-year R&M contract is likely to be around 50-60% more than one for a three-year deal. Most R&M contracts are geared to match a new truck’s contract hire term and so generally run for three to five years, with provision to extend the R&M contract period if required. Scania offers R&M contracts on vehicles up to seven years old and 1.2m kilometres. Daf will go to eight years and 1.2m kilometres. Mercedes’ standard limit is seven years and 1.0m kilometres but may choose to tailor a bespoke quote for something longer than that. These distance maxima apply to tractor units: lower figures may apply to lighter trucks because the B10 life – the distance to which 90% should run without needing a major overhaul or replacement – of their major components generally is shorter.
If you are considering extending the R&M contract term, perhaps because you have also extended the vehicle’s hire period, it is worth remembering that this extension will seem disproportionately expensive. You are now picking up the purely the higher R&M costs of an older vehicle: they are no longer being balanced by the lower costs of the early years.
Another key attraction of comprehensive R&M contracts is that they smooth your maintenance expenditure, so your costs are the same in year five as in year one. That may be convenient for a budgeting point of view but there is, of course, a cost attached to this. By paying over the odds in the early years in order to subsidise the expensive years towards the end of the contract, you are effectively loaning money to the R&M supplier. R&M contracts are about financial engineering as well as mechanical engineering.
We went out to market to get some indicative costs of five-year comprehensive R&M contracts on a representative batch of 10 tractor units. Four truck manufacturers and four independent maintenance providers kindly supplied us with quotations, set out below.
The spread of prices among the truck manufacturers was about £40 between the cheapest and the most expensive: it was about £25 between the independents. Based on these quotes it is the vehicle manufacturers that emerge as marginally cheaper for Hypothetical Haulier Ltd. However, it is only fair to mention that the manufacturers are quoting for only their own vehicles: the independents prices are for unspecified vehicles, so their willingness to offer a one-stop shop for a mixed fleet may be worth the extra.
There are some additional points that need to be considered if choosing an R&M contract from a non-franchised dealer or independent repairer. They include:
Parts policy: does the specification and the quality of parts and consumables match that of the original equipment that would be used by a franchised dealer? Are the vehicle warranty terms jeopardised?
Warranty repairs: how does the repairer handle repairs that may be needed within the warranty period?
Does the repairer have access to all the diagnostic kit, service information and specialised tools and equipment needed to match the standard of the franchised dealer network?
Leicester-based truck rental company Alltruck provides stand-alone R&M contracts for operators who do not necessarily source their vehicles through the company. “We offer bespoke maintenance packages designed to suit the requirements of our customers operation and their vehicles,” explains Alex Rees, fleet engineer. “We would look to offer competitive rates compared to manufacturers and we would incentivise a customer entering into a repair and maintenance agreement with us through preferential rates, proactive account management (service scheduling etc), priority/flexibility of workshop slots and bookings.”
The monthly charges for the R&M quotes above look high because we asked for replacement tyres to be included in the contract. This is a moot point: our monthly charges probably would be cut by £120-150 if tyres were not included, so operators would be well-advised to see if they can manage this big chunk of cost more effectively by sourcing a tyre management contract independently (see CM’s Buyers’ Guide to tyre management at www.commercialmotor.com).
It is easy to argue that a franchised dealer is best-placed to maintain its own vehicle marque, but that reasoning breaks down when it comes to ancillary equipment such as tail-lifts, fridge units, roller shutters, cranes, bodywork etc.
There is also the crucial issue of labour rates. Specialist ancillary services often charge around two-thirds the hourly rate of franchised truck dealers, so many truck dealers call on the various ancillary specialists to provide these services on their behalf.
“Because of the volume of work we give them, we can get a better rate than a small or medium-sized haulier,” reasons James Ostridge, service contracts manager at Mercedes-Benz UK, suggesting that including tail-lifts and such like in truck manufacturers’ R&M contracts need not be an expensive luxury.
Nevertheless, it is wise to test that hypothesis by pricing-up separate service contracts for ancillary equipment before opting for the convenience of a one-stop-shop and ticking the option boxes on the truck manufacturer’s R&M contract.
These are some of the more common issues that are likely to fall between the cracks of an R&M contract, perhaps leaving you with a bill that you may not expect. It is worth clarifying these details up front. If they are not covered, and you want them to be, now is the time to negotiate.
- Fluid top-ups: oil changes are included and so are fluid-level checks, but what about oil needed for top-ups between oil changes? Do you pay – and how much per litre? Ditto anti-freeze.
- AdBlue: the contract probably treats AdBlue as your responsibility rather than a service fluid that is part of routine maintenance. So do “fluid level checks” at a scheduled service include AdBlue top-up?
- Fifth-wheels and drawbar couplings: does the contract include inspection, lubrication, repair or replacement of these couplings? Although you regard the fifth-wheel as part of the truck, many R&M contracts treat it as an ancillary item, outside the contract’s scope.
- Reduced Pollution Certificates (RPC) and Low Emissions Certificates (LEC): if your vehicle has either of these, is the cost of the annual test included in the contract?
- Cracked mirrors and windscreens: accident damage is clearly beyond the scope of any R&M contract but where does that leave windscreens that crack even though the vehicle has not been involved in an accident?
- Batteries: does the contract include the cost of replacement batteries?
- Tracking/steering alignment checks: does the contract include these as part of preventative maintenance and if so, is the cost of any adjustments also included?
- Labour rates: inevitably, the dealer or repairer will carry out some work that falls outside the scope of the contract. What labour rate and parts discount level will be applied to this work?
Replacement vehicles and roadside assistance
Most manufacturers’ R&M offerings include – as an extra cost option – the provision of a replacement vehicle if yours is off the road for repair for more than, say, 24 hours. In the case of Hypothetical Haulier’s 6x2 tractor unit, this option typically adds around £5 a month to the R&M contract price. That equates to £300 over the five-year period. If you go out into the spot-hire truck rental market, that sum buys you just three or four days’ use of a tractor unit, so if you have little spare capacity in your fleet, this replacement vehicle option looks attractive. Before ticking the ‘yes’ box check the availability of vehicle/bodywork types, the length of the qualifying period and whether there is a limit to the loan period.
Roadside assistance is another feature that we think it makes sense to include in any R&M contract. Call-out fees, plus pence-per-kilometre and hourly rates quickly add up and you are not in position to negotiate. On balance, it is probably money well-spent for the peace of mind to know that the R&M contract takes care of this.
Annual tests are included in most of the more comprehensive R&M contracts but it is worth clarifying exactly what that covers.
The fullest interpretation includes test preparation, steam-cleaning, presentation to the test site and even the cost of a re-test should that be necessary.
Overlooking any of those can catch the unwary: a steam clean can be as much as £70, while the standard re-test fee for a three-axle tractor at a VOSA test station is now £56, even if carried out within 14 days of the original test.
Maintenance service providers that have an ATF (Authorised Testing Facility) on site have a head start when it comes to the sheer convenience of annual testing.
One other tip: check if the R&M contract includes the annual test that falls due as the contract is about to expire. In other words, does a three-year contract include three tests or two?
Your vehicles are most likely to require assistance in your own yard, so it is crucial that you explore the ins and outs of how the R&M contract covers this scenario. Consider the common faults – cracked mirrors, dud bulbs, flat batteries, broken air-lines … Are these covered by the terms of the roadside assistance and do you want to wait for that, anyway? If not, think how to cope with these eventualities, with a supply of spare bulbs and air or electrical susies, for example, and the tools needed to change them. Your on-site self-help must also include engine-oil for top-ups, AdBlue and windscreen-washer fluid. It is also worth seeing if you can strike a deal with your service provider to cover on-site call-outs at a rate that is less than usual breakdown rates.
R&M contracts usually charge a premium for out-of-hours servicing. Once again, it pays to clarify exactly what this means. For example, truck dealers that run a two-shift system covering 0600-2200 are likely to treat all that time as standard and so might not charge differential rates. On the other hand, technicians on ‘real’ night work command a premium and that is likely to be reflected in the labour rate you pay. Rather than pay extra for all vehicles to be serviced at night or weekends, it may be possible to cherry-pick some that can be spared more easily during the day.
Most contracts, be they basic service agreements or comprehensive R&M packages, are based around eight safety inspections each year. That is derived from the average safety inspection interval of six weeks. But the long-standing VOSA guidance on this topic says the inspection interval may be anything from four to 13 weeks, depending on the truck’s application and annual distance. Thanks to the Operators Compliance Risk Score (OCRS), giving VOSA and the Traffic Commissioners insight into an operator’s record of roadworthiness compliance, it may be possible to demonstrate that safety inspections at intervals of say, eight weeks or ten weeks, are appropriate. So does that justify a lower R&M rate? The difference may not be as great as one might imagine. Says John Davies, head of UK service and support at MAN Truck & Bus, “There is little difference in price on an R&M contract for truck that might be on six-week inspection compared to a truck on 10 weeks. With a truck having five inspections a year, compared to eight with six-week inspections, the real benefit to the operator is less inconvenience by having a truck on the road for longer.”
The truck manufacturers we spoke to take the line that extended periods between inspections exposes a truck to more breakdowns, pointing out that seeing the truck more frequently makes it easier to identify wear in components that may need replacing. It could be, they argue, that extended safety inspections lead to oil, filters, brake pads and such like being replaced prematurely because the technician fears that they will not quite go the distance to the next safety inspection and service.
Any operator proposing to adjust the frequency of safety inspections must first get the approval of VOSA.
Record keeping and management information
It is the operator’s responsibility to ensure that safety inspection sheets, drivers’ defect reports and R&M records are kept for at least 15 months. This is the bare minimum: common-sense says a complete service record from day one is a valuable extra for any truck. Operators must therefore satisfy themselves that their R&M contractor returns all paperwork to them without fail: missing paperwork is a blot on the operator’s copybook. Electronic records eliminate the risk of mislaid paperwork and VOSA is amenable to electronic capture and storage of inspection and service records, including those that can be accessed online. However, they must contain the same information as written records and must be tamper-proof. Irrespective of whether records are held electronically or on paper, VOSA wants to see an audit trail, so a driver’s defect report should be followed by evidence of workshop attention and repair.
The computerised inspection and service record systems that stand behind most R&M contracts are capable of generating a large amount of additional information about your vehicles. The service providers will supply this – usually at a price. Distance reports, cost variance with budgets, service planners, test records, identification of trends and timeliness of safety inspections are the sort of management reports on offer. Information for information’s sake is never a good idea, but these reports may help you spot a developing trend or contrast performances of different vehicles or different depots.
Implementing and monitoring the contract
Even the very best R&M contract will stand or fall on the quality of the local dealer or repairer that delivers the service to you. As the old saying goes, sales sell the first truck, aftersales sell the next. There are four essential ingredients that you need to look for in a maintenance provider. First, is the standard of the workmanship up to scratch? Second, is the dealer/repairer convenient in terms of its location and business hours? Third, is it easy to do business with the company and its staff? Finally, are the parts and labour charges reasonable for the work that falls outside the scope of the contract?
The operator too has an important role in making the R&M contract work well. Presenting vehicles for at the appointed time is the bare minimum. It also helps to give the workshop advance warning of unscheduled work or defects that need to be tackled, so that the right parts can be picked in advance and sufficient time set aside to allow the technician to complete the job first time round.
One of the widely quoted measures that any manufacture likes to quote is its service network’s average first time pass rate at the annual roadworthiness test. These averages are normally over 90%, compared with the latest national average truck pass rate of 74.5%, for the year to 31 March 2011. In that context, over 90% sounds impressive, but remember that trucks being presented for test by franchised dealers are likely to be towards the younger end of the age spectrum and so comparisons with the national average or an independent repairer may not be entirely fair. Nevertheless, bearing that caveat in mind, it is always worth establishing the pass rate of the local dealer or repairer.
VOSA’s ‘Guide to Maintaining Roadworthiness’ makes it plain that operators must take steps to ensure that their maintenance contractor’s work is up to scratch: “Even when you get on well with a contractor, you should have a system for regularly monitoring the quality of the work done. Obtaining the first time pass rate annual test data from the contractor is one way of checking that their performance is satisfactory but this should be supplemented by other checks. Any sign of unreliability, incompetence or other shortcomings causing a reduction in the standards achieved should receive prompt attention. Here again a good working relationship can help, but if problems persist you might well consider a change of contractor.”
VOSA’s guidance points to the fact that it may well be appropriate to use a third-party auditing company, such as the FTA’s Vehicle Inspection Service, to monitor the standard of the maintenance contractor’s work.
Before committing to an R&M contract it is prudent to check the terms under which you can pull out before it expires. Perhaps you are dissatisfied with the service provider; maybe the vehicle is no longer needed or it is written off in an accident. Whatever the reason, you will have to give notice. For example, Tony Parker, Isuzu Truck (UK) repair and maintenance manager, says his company’s R&M contract includes a clause to allow the customer to cancel a contract by providing three months notice. “Isuzu Truck (UK) can only terminate a contract if the customer was to enter administration. Default on payments would result in the vehicle not being allowed to be worked on by the allocated dealer,” he says. Some manufacturers may impose a penalty – perhaps three months’ charges – for early termination.
R&M contracts are priced according to the vehicle’s type of work, annual distance and region of operation. The onus is on you to inform the R&M provider should any of those change. The most likely is that the annual distance is at odds with the contract figure. It is standard procedure to check the distance annually, with the charge for the following year adjusted accordingly. It is advisable to know how the charge will change if there is a discrepancy. Also check if there is a mechanism to either pool distances across several vehicles or whether an excess in one year can be balanced by an anticipated shortfall in the next. The critical point to determine is what happens at the end of the contract term. We asked for the excess distance charges that would be levied for Hypothetical Haulier’s R&M contract. The R&M charge for the distance specified in the contract equates to about 5p/km: we were quoted excess distance charges ranging from 5 to 15p/km. You also should check the degree of tolerance – if any – before this charge is applied. If the actual distance covered is less than the figure specified in the contract, there may well be limitations on the amount of credit that you receive.
Top tips for R&M contracts:
- Make sure the contract fits your requirements, not vice-versa
- Choose a contract level that suits your attitude to risk.
- Make sure the contract agreement meets the requirements laid down by VOSA
- If the contract period is shorter than your planned vehicle ownership, consider how you will maintain the vehicle after the contract expires.
- Compare R&M contracts carefully, making sure you are comparing apples with apples.
- Check the incremental costs of optional extras – can you source the work more cost-effectively elsewhere?
- Clarify grey areas around the periphery of the contract – there are bound to be some.
- Agree rates and budget realistically for repairs and work excluded from the contract.
- If the vehicle is leased, keep it up to the BVRLA’s return conditions – why pay for the work at the end of the lease period for the benefit of the next user?
- Make sure your drivers are conducting their walk-round checks diligently.
- Play your part in working with the maintenance provider to help the contract run smoothly.
- Consider unforeseeable circumstances such as large annual distance discrepancies or the loss of contracts.
- Notify VOSA of any changes in your maintenance arrangements.
User comment – S M & T Wigham
Penrith-based operator S M & T Wigham runs five Daf XF105 tractor units, as well as an 18-tonner, a 3.5-tonne van and 12 trailers. Up until 2006 the company maintained the trucks in its own workshop but as the expense of maintaining the fleet rose it turned to the truck manufacturer’s dealer network.
Now when he buys a new truck company boss Tim Wigham negotiates a two-year repair and maintenance contract as part of the purchase price and only pays for the trucks’ annual tests. “Having a repair and maintenance contract offers peace of mind. Daf can also monitor the truck so if there are any problems or faults I can get it sorted out,” says Wigham.
As there is a Solway Daf workshop very close to Wigham’s yard servicing downtime is minimal. “Daf will pick up the vehicle on a Saturday or Sunday, and drop it back again, and I can call someone if there are any problems” he says. “Daf is very good with us.” Wigham adds that the convenience and the quality of the maintenance arrangement is a key factor in his choice of truck.
Once the two-year repair and maintenance contract is up he negotiates a second deal with Solway Daf, but this is for service and inspection rather than full R&M.
“In the first three years of a truck’s working life you shouldn’t have to pay for anything,” he says. “But you cannot justify the price of an R&M contract that goes into years four and five. It is too expensive for the amount of work that is done, I would prefer to pay for repair work if and when it is required.” Wigham adds that he likes the freedom to make his own decisions on when change oil, fuel and air filters to help maintain good fuel.
Manufacturer comment – Mercedes-Benz
If you think today’s trucks are more reliable and durable than their predecessors and so can’t quite figure out why R&M contracts should be so expensive, Mercedes-Benz agrees with you. It has just revised its truck service contracts, trimming the cost of them in the process. The two new contract levels are called Complete – a comprehensive R&M package – and Managed Service, which covers safety inspections and scheduled servicing. “An operator taking out a three-year, 120,000km per annum Complete contract on an Actros tractor unit would now pay 15% less than he did last year,” says James Ostridge, Mercedes’ service contracts manager. He emphasises that this is not at the expense of reduced cover. “We studied all the data and realised we could cut the price.” First, explains Ostridge, Mercedes’ records show that it now deals with fewer component failures – “and when they do come, they come later in the life of the truck.” Second, Ostridge reckons that Mercedes is now better at analysing and assessing its customers’ operations for the purpose of pricing R&M contracts. “It used to be a fairly blunt instrument, but now our targeting has got a lot better.”
Despite being a completely new truck and one that boasts more emissions-reduction equipment to satisfy Euro-6, the new generation of Actros tractors will attract a further cut in the cost of the R&M contract, with Ostridge suggesting that it will be 2-3% cheaper than the out-going model. He estimates that around one third of all new Mercedes’ trucks are sold with a comprehensive R&M contract but expects that proportion to rise as operators react favourably to the new pricing.
Repair and maintenance contract links
Isuzu Truck (UK)
MAN Truck and Bus
Volvo Trucks: Independents
Pullman Fleet Services
The Neil Martin Group