Monday, 25 July 2011 16:30

Shop Owners Share Frustrations Renegotiating Contracts with Information Providers

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The experiences of a number of shop owners around the country serve as a reminder to make sure you always understand the terms of any contract you are signing. Failure to read the fine print—or negotiate clauses for additional rights to end even something as seemingly innocuous as a software contract—have cost some shops tens of thousands of dollars.

A shop owner in California, for example, has been disappointed in the response he has received from one of the Big Three information providers to his requests over the past 18 months to renegotiate his software contract. The shop owner, who asked that his name and the provider’s not be used, said he purchased a complete package—hardware and software—from the provider, but realized shortly after he did so that he did not intend to the use the shop management module of the package.

“We’re not a large enough shop to benefit from the time I’d have into using it,” the shop owner said.

While he wants to continue using the company’s estimating system, as his shop has for more than 15 years, the information provider has refused to accept any changes to the 40-plus months that remain on the shop management module contract.

“I’ve never have even had the program turned on,” the shop owner said. “They already have a year-and-a-half of my money. I said  they can keep the amount I’ve paid but just cancel it from there on. But they want it all. I know if I ran my business like that I would be out of business.”

Stuck in contract after DRP changes
Steve Schaefer is only too familiar with being locked into a contract with an information provider. Schaefer is the president of Schaefer Autobody Centers, which operates six shops in the St. Louis, Missouri, area. Four years ago, he said, the company joined an insurer’s direct repair program that necessitated that he add a particular estimating system, signing a 4-year contract with that system provider for three of his shop locations.

“Having been burned before, a clause was added to the agreement such that if I ever ceased to participate in that specific insurer’s DRP program, the contract could be terminated,” Schaefer said.

However, a few months later,  the insurer switched to a new information provider, requiring its DRP shops to use a different system than the one the insurer had previously required.

Schaefer said he was among the similarly-situated shops that asked the first information provider for some sort of release or relief from the contract for the system they no longer needed or wanted.

“I was told I was bound to the full term of the contract since I was still participating in the insurer’s DRP program, despite the fact that the insurer was no longer using (that system),” Schaefer said. “I understood that they had some up-front implementation costs that had to be covered, but a 4-year contract for a product I wasn’t using was ridiculous. Their excuse was they had stockholders to protect. My thought was: How about your customers and this industry?”

Today, almost $42,000 later, Schaefer said, he is almost done paying off that obligation.

“It’s a shame when these companies don’t respond with the same reasonable ethical business practices we expect of ourselves and business partners in general,” Schaefer said.

Beware of automatic renewals
Scott Johnson of Greensboro Body Company in Greensboro, NC, said  shop owners should remain keenly aware of when any software contracts end. Such contracts, he said, often include automatic renewal clauses, and if you make even one payment beyond the term of the original contract, it automatically renews for another year or more.

John Hackleman of Hackleman Auto Collision Repair, in Danville, Ind., concurred. He switched shop management systems last year, and told the previous system provider he no longer needed the support he was paying for every month.

“I found out that although we were well beyond our original contract, it renews automatically in one-year increments,” Hackleman said. “I discovered this at my anniversary month but had not given them the 30-days’ notice to stop as required in the contract. So I was required to pay for an additional year and was not able to change their mind.”

Another Indiana shop owner, who also asked not to be identified, said he actually had some success in renegotiating a contract with an information provider. Like Schaefer, he had signed the agreement for an estimating system—even though his shop already had another one—in order to participate in a particular DRP. When he decided to part ways with that DRP, he called the information provider to say he no longer wanted that second system, only —like Johnson and Hackleman—to find out he was several months into an automatic renewal period.

“The only answer I could get was, ‘Sorry about your luck,’ and information on what page in the contract that was so I could get my magnifying glass out to look at the clause,” the shop owner said.

He now considers himself lucky that the information provider soon upgraded to a new system. When representatives of the company contacted his shop to see why it hadn’t converted over, the shop owner told them he wasn’t using it and didn’t want it.

“The next day a lady called and said she could not get me out of the contract but could put me into a less expensive alternative,” the shop owner said. “I am now paying about a third of what I had been paying.”

His recommendation: First thing upon signing a new contract, take the low-tech approach to knowing when you are able to get out of it.

“I now have it on every calendar in the office to cancel the contract by sending them a letter 90 days, 60 days and 30 days before the end of this contract,” he said.

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