ProTech HVAC

It seems that every time you buy an electronic device, whether it is a $29 cell phone or a $10,000 plasma television, the cashier asks if you would like to purchase a “service agreement.” Some are more sales-oriented than others with their feigned excitement and all I can do when confronted with their salesmanship onslaught is quickly cut them off before they let their momentum get away from them, and take advantage of my time. I know too well the realities of service contracts and who benefits from them, and I’ve been taken by Sprint and AT&T. The situation is not unlike the HVAC service agreements that abound in the world - a world that has dramatically changed from the days when a business transaction was so much more honest and straightforward.

First of all, who would pay for a service agreement on a cell phone that costs $29? That is exactly what I paid for my cell phone, an ElCheapo Samsung from Best Buy. I bought the cheapest cell phone I could find for a couple of reasons: I’m always dropping mine and they break. Then, to get a replacement I am told that I have to renew my contract for another 2 years in order to get the low contract price. Otherwise, I have to pay full price, upwards of $400-$800 dollars for a full-function phone. The other reason I go cheap is the learning curve with a new cell phone is a constantly moving target and, frankly, I am tired of endlessly working toward my Masters degree in cell phone operation. [Heck, I don’t even text, I refuse to, as I only need to make and receive phone calls. Plus, why would anyone pay extra to text when they can dial a number, press send and do something called, uhh, speaking?] Sorry for the diversion, this article is about HVAC service contracts.

When service agreements first came out in the HVACR trade they were often called service contracts. Soon, savvy service contract salesmen learned that it was difficult to sell somebody something as legal sounding as a contract, so they changed the name to something appearing to be less legally binding. After all, who likes fine print and legalese? Before long everyone selling service contracts had adopted the new user-friendly name that glossed over the realities of being bound by a contract, which is exactly what it is. A contract is an offer, by the seller, for some kind of performance at some price that is accepted by at least one party, the buyer. Contracts can be verbal or literal. When a contract is written it is usually done so by an attorney who specializes in the industry he or she represents, and it usually takes a lawyer to understand the legalese it is written in. So if you give it a different name like agreement, it sounds less intimidating to a would-be buyer.

By now you can tell where I come down on service contracts. While I have to hand it to the innovators in the HVACR trade who came up with service agreements, I will always see them for what they are: a clever way to deceive the buyer into believing they are getting greater value than they really are. Show me a service contract and I will show you why the buyer ultimately paid more for service than they would have without the contract, that is, if they had a competent service technician work on their HVAC equipment.

One needs to ask oneself, “Why do service companies sell maintenance contracts?” The most fundamental answer is as straight as the center line on a Nevada highway: service companies make money on them, a lot of money. If they didn’t make money on them, more than with time and materials only, then they wouldn’t sell them. In fact, many companies would not be in business if it were not for their success at selling service agreements. Service agreements virtually guarantee cash flow for the company selling them and for the contract salesperson, who receives commissions on their renewal. Once the buyer is hooked it is easy to feel like he has a point person in the company that he can call anytime he has questions or issues. This is an entirely new paradigm shift from the days of business-with-a-handshake when you had a service-related issue you called the company service manager. Even the term service manager has been transformed into operations manager.

There are many more reasons that companies sell service agreements. In any field there are novices and experts and something in between. This could not be truer than in the HVAC trade. When I started working for Tenney Fuels, Inc., in 1980, I quickly realized that the customer was generally skeptical about my meager qualifications (despite that I had received a certificate for completing 400 hours of oil burner technology training in trade school), thus, preferred and requested an older, more experienced technician. This made it difficult for the dispatcher who had to schedule service calls and preventative maintenance. [Cloning technology wasn’t invented yet.] Back then Tenney didn’t offer service agreements, and on many occasions an experienced technician had to “clean up” after my mistakes and others, for which the company could not charge the customer for. So, if a technician didn’t do the job right the first time under the old business model, then there was no way of absorbing the cost of any call-backs.

Ah, but you can bet that today’s service agreements have a built in cushion for call-backs, so sellers can still be paid, usually with a “convenient payment plan.” We are a culture of the hungriest consumers on the planet, which fuels economic growth, or, as we have seen in the case of credit default swaps and derivatives, can bring the global markets to their knees. We not only consume, but we often do it without knowing the consequences that are in store for us. What’s worse is we buy too many things on credit, and along with making payments on enormously expensive HVAC service agreements, we pay interest. You bet if the buyer doesn’t pay the entire cost of the service agreement upfront, then they finance payments over the term of the agreement.

Another benefit to sellers of service agreements is if they can lock their customer into a binding contract, then the customer is less likely to leave for another company that charges a lower hourly rate, so service agreements help in customer retention. Companies that have bound the buyer can now control the buyer not unlike a cowboy hog-ties a steer. Once you are tied up, then the company knows you aren’t going anywhere anytime soon and they can schedule preventative maintenance work at their leisure. This helps smooth out the workload for the company so they are not overrun with work requests for heating system maintenance in the fall, for example – when most customers would like it done. It’s just like the tendency to wait to buy snow tires until it snows.

Service Agreement cost versus Time & Materials Cost: If it takes 3 hours to clean a very dirty oil-fired boiler at a rate of $85 per hour, and the typical parts replacement – nozzle, filter and pump strainer – sells for $35, then the total cost to the customer is $290, that is, if the cleaning, or preventative maintenance, is done by a competent technician and he has no call-backs. Whereas, a typical cost for a service contract that specifies the same service work as the time and materials rate is about $1,250. If you are the lucky owner of a Buderus oil-fired boiler, then it takes a competent oil burner technician only an hour to clean it, assuming everything was installed correctly and the initial combustion set-up was done properly. Even if you add a couple of hours for travel time, the T&M rate is far less.

What the company is selling over and above the T&M rate is the illusion of security - ‘security’ from knowing that if they have a breakdown over the winter they will not have to pay overtime rates (coercion-like). In reality, if a preventative maintenance service call is done correctly there probably won’t be any breakdowns, as any budding issues will have been addressed during the cleaning. It’s just the same as if the cell phone was made of quality materials and workmanship it would not prematurely break, therefore, would not need a service contract in the 1^st place. Rotary dial telephones of yesteryear are a perfect example - they lasted until their push-button successors made them obsolete - they simply did not fail. Today’s telephones are made as cheaply as possible, in 3^rd world countries by workplace-abused workers. Where’s the sanctity of American job security and quality anymore?

HVAC service agreements are often given names of precious metals like, platinum, gold, silver and bronze. Other variations-on-the-theme might include Premium, Preferred, Standard and basic. Naturally, everyone knows platinum is more precious than bronze and “premium” conjures up more value than “basic.” This assists in effectively pointing to the direction that the contract seller wants your purchase decision to go, in as little sales-speak as possible.

Salespeople make a commission on service agreement sales and most are dedicated to this task exclusively, and what’s more is that most of them have no technical training and experience in the trade at all. They don’t need it, as they are made to sell from a prewritten script and formulae. Their job is one of the most specialized in the trade – sell, sell, sell is their mantra, as service contract sales is often the most profitable aspect of any within a company. It actually helps to calibrate, so-to-speak, one’s moral compass if they don’t know anything about the trade. If they did have technical acumen, they might object to the financial plundering they dole out to their customers who fall for the agreement dirty tricks. Do cashiers at Best Buy know how to repair cell phones in order to sell service agreements? It’s the same in HVAC. All they need to know is how to effectively sell, and that is easier all the time in our heavily-marketed-to culture. We are bombarded by thousands of advertisements in any given day. We are, effectively, trained to listen to ads, albeit, mostly subconsciously.

It seems the majority of us believe that we need products and services that we really do not. Is this evidence of the fact that a good marketing campaign is all that is needed to sell, say, a pet rock? [Sorry, I couldn’t help but use a cliché out of a marketing text book.] As consumers we are increasingly being brainwashed into believing we need things like service agreements, when really what we need is quality in the first place – something that is going the way of the Dodo bird. Consumers don’t need service agreements, never did; HVAC companies need them to stay in business with half-trained help and uneducated customers – a scary once-was-a-phenomenon that is now main stream. I call this business judo – deflecting unwanted realities into desirable outcomes with slight-of-hand tricks, colored smoke and mirrors.

Furthermore, many of the parts that are “covered” in service contracts are typically the ones that are never going to fail during the term of the agreement. Surely, at some point in the future the part will fail, but that may be so far out into the future that the customer no longer owns the building. It’s like the aforementioned $29 cell phone. What can possibly go wrong with this phone that would warrant paying $10 for a service agreement? I’ve had my cheapo cell phone for nearly a year. The outside display is cracked because I sat on it, but a service agreement wouldn’t cover something like this, plus, I would have to mail it to an “authorized service repair facility,” not getting it back for months. Therefore, I would have to buy another phone anyway so as to not have interruption in service.

Another thing that should concern the buyer of an HVAC service agreement is the clause in the agreement that forbids them from hiring any other company to service his or her equipment, or buy fuel from anyone else - if the contract seller is a fuel company. This could be a problem if you are dissatisfied with the seller’s performance. Remember, you just may get a novice to service your equipment, but you may never notice unless something goes horribly wrong, and at that point you are desperate for a technician who is qualified. Of course you can opt out of the agreement, but you are still obligated to pay the entire cost of the contract if you cancel before the term has expired. Your freedom to move has been effectively stymied by the legal contract. Now there’s a good ole fashioned hog-tying!

Moreover, sellers of HVAC contracts make the greatest profit on the agreement if the technician is in and out quickly. Too much time spent on doing the job right, like looking for things that may increase fuel consumption, or long-standing problems that the owner has become accustomed to, can put the seller in the red. So they often pressure the technician to hurry along, and just may turn a blind eye to the degree of thoroughness, or lack thereof, that the technician expends on aspects of the equipment that seriously need attention, though won’t cause a breakdown. Many companies have a checklist for the technician to adhere to, but they don’t always adhere, they only check off the boxes next to the items on the list. I’ve seen this directly, and indirectly by going in after a contract has expired and finding innumerable things that were never maintained and lead to system failure. You may be thinking that if there is a service agreement the buyer can rest assured that all the seller’s techs are equally qualified. That’s what they want you to believe and many fall for this deception. When is the last time an HVAC system owner asked to see the resume of the techs who will be working on their equipment? To deceive further still, most contract-selling companies dress their techs in uniform sporting the company trade dress - “uniform” just like in the military – creating the appearance of sameness, as in equally qualified. Outside the uniform they are the same cross sectional representation of the general public as those on a crowded city sidewalk – 49% are below average/51% are average or above.

I sincerely wish it were not so, but the HVAC service industry’s average overall level of quality and ethics have been on a steady decline for 30 years or more. Whereas, the underhanded trickery has been on and inversely tangential course upward. What were once thriving, customer-oriented and family-owned companies who valued ethics and business-with-a-handshake, fuel companies have been repackaged as “petroleum marketers,” plumbing/heating companies are increasingly adopting the flat-rate model that charge upwards of $400 per hour in hidden costs, and HVACR companies rely upon gimmicks like service agreements, all in the name of coercing buyers rather than appealing to them with forthrightness and genuine quality workmanship and materials. [See my article, Got Flat Rate? in this blog.]

So what is the alternative to being taken by a seller of valueless service agreements? The answer is as straight as that Nevada desert highway: educate yourself about who you hire and only hire ethical and competent companies. Ask for the resume/qualifications of the technicians who will be working on your equipment. Easier said than done, I know. However, with the Internet it is far easier to do research than the old days when there was only one source for information about an HVAC company - the Yellow Pages. Don’t be fooled by the words Gold, Silver and Bronze – they are just glitter. The truth lies in knowing what your HVAC equipment needs are and what competitive prices should be. Service contract prices are only competitive with other service contract prices and can never compare to an honest and experienced technician’s time and materials pricing. Find an honest and competent technician and then spread the good word around. Word-of-mouth is a great vehicle for teaching and learning, and customers gained this way are often the best ones to have, right next to informed customers.

As far as service agreements-for-electronics go, when was the last time anyone recommended one to you, or you recommended one to them? [Wink!]

The Wild Wild West of the HVACR Trade Will Soon be Wilder

By John W. Rocheleau

“Mission Statement: To preserve the rule of the law and to protect the rights and liberties guaranteed by the United States and New Hampshire Constitutions, the courts will provide accessible, prompt, and efficient forums for the fair and independent administration of justice, with respect for the dignity of all we serve.” So goes the mission statement of the New Hampshire Judicial Branch of government. Accessible, prompt and efficient access to the State courts in New Hampshire may soon be a thing of the past, as Governor Lynch’s budget cuts to the NH Judicial system will help to speed to that reality.

I will be expert in a long-awaited trial that has been taking shape for nearly 5 years, in Sullivan County Superior Court, on April 21, 2010. This case arose out of claims by a home-owner that its builder and subcontractors were negligent and fraudulent in their performance of their duties to construct the house and its systems with professionalism and competency. While there were numerous problems with the house, the first that caught the new owner’s attention was the enormous propane gas bill for the months of March and April of 2005. These bills approached $2,000 a month! It turned out that the heating contractor did not effectively insulate the radiant floor heated concrete slab, resulting in the majority of heat being transferred into the ground, as evidenced by the absence of snow around the concrete foundation.

It is further alleged that the septic system, water well, modular home components, air conditioning, ducts and other details of the house construction were shoddy and defective.

The builder, United Construction, of Newport, NH has contested many of these claims and has chosen to litigate the claims in Superior Court, rather than settle the claims out of court. Like many on the defense side of legal claims, United seems to have hedged its bets that the plaintiffs would never be able to afford the long road of financial expenses that can lead to “one’s day in court.”

In reality, the plaintiff’s day in court will amount to 2 weeks of trial, but not before accruing, potentially, over a hundred thousand dollars in legal and expert fees. Fortunately, for the plaintiffs, they found a willing trial lawyer who would take the case on contingency. Regrettably, Ron Snow, of Orr & Reno, regarded as one of the best trial lawyers in the state, succumbed to pancreatic cancer in a matter of days after being diagnosed, and the case stalled. Next, the case could not get a court date because there are not enough judges in NH courts to hear all of the civil cases and the case was indefinitely postponed. It appeared that the defendants might get their wish. Finally, it was decided last week that the case could and would be scheduled for trial. Most cases are not so fortunate, however.

In fact, most cases like the plaintiff’s in my example never even get filed with clerks of court because plaintiffs can’t afford the incredible expense of fighting a worthy case. Also, many contractors’ insurance policies protect them against law suits, leaving the plaintiff financially disadvantaged. In the above example, there were 5 lawyers for the defendants at my deposition, compared to one for the plaintiffs.

“Most importantly, your generation of lawyers and judges will be called upon in many ways and in varied circumstances to decide whether state courthouses are truly open to all our people or whether they serve only the wealthy and the well to do. Current trends are disturbing. A justice system, which pulls up the gangway on the poor and middle class, is no justice system at all and will not long maintain public trust and confidence. A justice system, which is too expensive and too inefficient for too many, cannot fulfill the promises of our Constitution or the obligations of the legal profession itself.” - convocation remarks by NH Chief Justice John T. Broderick, Jr. at Syracuse University College of Law, Syracuse, New York, February 22, 2010.

Most home-owners seeking so-called justice don’t even try to seek it because of its enormous expense. In my 10-year battle with Taco, Inc. (licensee of my numerous inventions), I was forced to use a different strategy for dealing with them rather than expending a minimum of $500,000 to take them to Federal District Court. Who has that kind of money? Ultimately, my strategy won out and I forced a settlement with Taco, Inc., but not first seeking help from then Congressman “Jeb” Bradley and Congresswoman Carol Shea Porter.

It’s not just the monumental expense of fighting a legal case through to a jury verdict, of greater concern is the fact that state civil jury cases are at unprecedented threat of disappearance. Governor Lynch’s decision to cut back the number of days courts can be open is a direct threat to everyone hoping to have their day in court in New Hampshire. Soon, there will not be “accessible, prompt and efficient access to the State courts in New Hampshire”, compounding the reality that, in my personal opinion, there is only justice in our legal system for those who can afford it.

The way things are in business, many consumers of HVACR products and services are taken advantage of before they even know it, and many never find out. I see this routinely and can spot a situation like this almost immediately when I see a new customer’s heating, cooling or refrigeration equipment for the first time. This happens often for the simple reason that the layperson does not understand the requirements of HVACR system design, installation and service. They do understand that their fuel bill shouldn’t be $2,000 a month, as in the opening example in this article, but by the time they realize it, it’s too late. It often costs more to buy justice than it does to buy a new heating or cooling system, far more.

How does one protect themselves from fraud and incompetence? “One” must become educated about their pending purchases and research the backgrounds of those who they are considering proposals from. Only then does the consumer have a chance of not getting stiffed.

I recently had a prospective customer tell me that he didn’t “need to know a dimple from a damper” when I offered to meet with him a final time to discuss a design and proposal for a new heating and cooling system that would replace the one that his previous shoddy and disreputable HVAC contractor installed in his home 12 years earlier. This home-owner was about to spend $20,000 on a new system and he could care less about the purchase considerations he was about to make, not unlike his experience 12 years prior, I suppose. His first lessons with the construction of his new house 12 years earlier didn’t enlighten him.

Sadly, too many consumers take the ostrich’s approach and bury their head in the sand when faced with educating themselves with HVACR purchase decisions and this leads to a couple of things: they get taken advantage of, then they are faced with the only option left if they are unable to settle with their adversary, to suit in a system that is likely not within their reach. It usually costs more to suit than it is usually worth. Consequently, unqualified and fraudulent HVACR contractors and service companies perpetuate their misdeeds for years, even decades to come.

There are 3 things consumers can do to protect themselves from the hooks of low-bidders and unqualified HVACR companies.

1. Educate oneself about the purchase one is about to make.
2. Don’t shop on low price alone, but on the demonstrable qualifications of the bidders in the process.
3. Be realistic about how much the true costs of HVACR systems and service are and not be deluded into thinking how much things should cost based on your own personal opinions and not reality.

If you follow those steps then you will unlikely end up choosing between living with a defective system or spending huge sums of money on its repair and/or a litigious case that may never see its day in court. Be smart, be sensible and be careful, as your adversary knows there is no stallion-riding, gun-toting "sheriff" who will protect you.

Evan Conklin, of SeattlePlumber.com is the type of Plumbing and Heating company that I would be happy to recommend to anyone in that area of the country. Why do I say this? You'll want to read his thoughtful and educated response to my article "Got Flat Rate?" and you can easily see that he not only knows his business, but he also knows what is happening to the industry and he is not afraid to say what he knows. Also, at his website you can read his articles about flat rate charging methods and how they lack transparency. Don't just take it from me in my article.

Consumers, you have to open your eyes and educate yourself about Plumbing and HVAC purchases that you need to make. Please be a wise consumer and don't become victimized by trickery and slight of hand that borders on FRAUD! The legal system is not going to be there for you when you get taken by wolves-in-sheep's-clothing. Attorneys General Consumer Advocate offices are not devised to help you and lawyers are going to charge you more than it is worth to go after the fraudulent plumber who got away with a lot of your money. Lady Justice holds 2 scales in her hand for a reason, both are piled with money from legal budgets and the bigger pile almost always wins out. There is as much so-called Justice in our system that you can afford to purchase - Justice is not free and your state's Consumer Advocate is not going to be your friend.

If you think that smooth talk is going to be a good value, then think again. The lowest price up front is always going to be the highest cost in the end when you think of life cycle cost of plumbing and HVAC products and services. If it wasn't done right in the first place it will always require more, if not perpetual, repair and most likely will consume more fuel or electricity or water or your time. What is your time worth? Time spent on frustration, worries, lost sleep, inconvenience, fighting a legal fight, call-backs, and finding the next guy to fix what the first messed up. Let's hope the next guy you get does it right, because if he doesn't, then you are at square one again my friend. When I make purchases it is from the one who seems the most honest, competent and customer service oriented, regardless of his/her price. Period! I rarely get burned, but it still happens once in a while, but that's a fact of life. (See my article "What Can Go Wrong With A Vehicle Wrap?" and look for the final chapter, coming soon.)

Please check out SeattlePlumber.com, even if it's just to get an idea of what an upstanding and professional company should look like.

Caveat Emptor! Buyer Beware!

In these times of unstable fuel prices, I find it compelling to inform the consumer of fossil fuels that which your fuel supplier is not ready or prepared to tell you. Did you know that the average heating system is consuming up to 50% more fuel than is necessary? Well, I will explain here how this is happening around the globe.

Stay tuned for the story!

On 8/17/08, Protech HVAC <protechhvac@comcast.net> wrote:

Dear Tom,

In HVACR, "Green" Begins with Conservation

And conservation begins at the design phase of any HVACR system, with installation (of efficient equipment) and service completing the energy conservation triangle. With 28 years in HVACR design, installation, and service, I can credibly assure the reader that I have witnessed the reality that a startling number of HVACR systems are improperly designed, installed, or serviced, which perpetuates higher fuel consumption throughout the life span of the equipment. (more...)

Got Flat Rate?

By John Rocheleau

The Advertising

You've probably seen them: six-wheel box vans with billboard-size ads on the sides, sometimes displaying a blown up picture of a white-toothed smiley-faced middle class woman on the phone, suggesting everything in life is better for her, now that she’s found a disposable-booties-wearing plumbing & HVAC company. Or perhaps you’ve called one of those colorful full-page ads in the Yellow Pages. You know the kind, they make you feel warm and fuzzy, and define everything you thought you wanted to hear. And what about their application of every credit card logo under the sun? Did that reassure you that if your unplanned plumbing emergency caught you short on cash, then you should, without further thought, simply use your plastic? Did the 800-number, blazing red as fire, subliminally suggest: “hotline straight though to the Maytag Man, who sits patiently awaiting to soothe your flustered mind”? Welcome to the world of Flat Rate plumbing and HVAC advertising! (more...)