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!]

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.

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!

Stay tuned for the story!

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.

or...

The Role of The HVACR Wholesaler in Keeping America "Green"

The installing HVACR contractor is the common thread that connects the Wholesaler to the consumer and, fittingly, the Wholesaler would be wise to seize upon this opportunity to promote energy saving devices to the consumer, vis a vis the contractor. This, of course, would require that the Wholesaler target the demographic most likely to respond to the economic squeeze that high fuel costs have put them in - the middle class.

or...

Tips From An HVACR Master / Inventor That The American Manufacturer Should Consider

An attentive manufacturer, you've noticed a dramatic influx of European HVACR equipment in the U.S. in the past 2 decades. HVACR manufacturers from Germany, Italy, Sweden, Denmark and innumerable other foreign countries have set up shop in the U.S. to satisfy the demands of the American consumer that were not being satisfied by American manufacturers. Tip #1: Creativity and the desire to make a difference will ensure companies in the U.S. will find firm footing in the fertile ground of the emerging "Green" economy.

Tom, please see my website for my bio http://www.protechhvac.com/about/ , inventions http://www.protechhvac.com/protech-inventions/ , and examples of writings on my blog http://www.protechhvac.com/the-protech-blog/
I hope you will consider my submissions for publication in the HVACR Distribution Business Show Guide. I have a multitude of HVACR-related topics that I could write about in the future, as well.

Sincerely,
John Rocheleau
Protech HVAC, LLC
603-817-2754

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!

I bet there’s something you don’t know, unless, of course, you did hire one of these companies - they charge between $125 and $400 an hour. If you didn't know they charged that rate, you are not to be ridiculed for your ignorance, as that rate is disguised in the sell price of every part that they say (wink) you need.

Well, I am going to shed some light on the dark magic behind the M.O. of the Flat Rate model, then maybe you won't go into cardiac arrest from sticker shock should you find yourself paying one of these companies after your next plumbing or HVAC emergency.

The Background

Among the self-employed in the HVAC and plumbing trades are those who have long struggled to eek out a decent living, myself among them. Traditionally, we've charged an hourly rate, plus a modest mark-up on materials. As a service technician for two 2nd generation fuel companies – Tenney Fuels, and Ferns Energy Centers - in the early ‘80s, I was paid $3.75 per hour to start, ten cents above minimum wage. Those companies charged $25 per hour and made a profit on parts, furnaces, burners and boilers, and the sale of fuel oil, the latter bringing in the lion’s share. Then, in 1983, Tenney sold out to a hot shot "petroleum marketer" and my pay was raised to $6.90 an hour. In parallel, the new fuel oil conglomerate raised Tenney’s rates, and started charging the customer for everything from pipe thread compound, and a few sprays of parts cleaner in a can, to speedy dry (kitty litter) to absorb oil we spilled on the floor. It didn’t matter that I spit-cleaned the burner electrode porcelains, the customer still was charged for noxious spray cleaner. The name of the game changed from, service and installation work of the utmost quality (at a fair price), to slap-it-in-as-fast-as-you-can, and maximize profit in every conceivable way, irrespective of quality. The new company even brought in technicians already trained on their new method at other branches, to show our service department how it would now be done. It was a shock to me, a green horn, as every traditional practice bestowed upon me over the previous 2 years was clearly and painfully on its way out. The shock on the faces of the customers, some who had been with the company since its inception, was a poignant experience for them and me. Steadily through the 1980s and ‘90s, the endangered Old School slid closer to ultimate extinction, along with the family-run feel that we were all used to. The Big Boys made their entrance with slick, grand, unimaginative signage, sporting corporate logos that left us – the employees and the customers - feeling like an invasion was underway.

In 1988, I'd nearly had it with the new model that I felt imprisoned by, and resorted to recanting positive affirmations I placed on my service van console – anything to affect peace of mind so I could make it through another soul-wrenching day working for The Man. By this time I was employed by a plumbing contractor who seemed to embody the New School philosophy of taking the customer for all they were worth. Though I had been in the trade for 8 years, a co-worker and junior technician - experience-wise - set out to “show me the ropes” my first day on the job. By noon he’d managed to bill for 8 hours, per man, charging each customer for the time it would hypothetically take to travel to their home and back to the shop. It didn’t matter if 3 of the customers lived on the same street, they still got charged the full hour round trip, as if they were the only service call out their way that day. During the course of our rounds, the profit-motivated technician charged one customer - my dentist - for a light bulb in the furnace room that he bumped his head on and broke. While there, he only wiped the dust from the furnace. The bill came to over $300. Next, he charged a customer for an ignition transformer that was not defective. Then, he charged a 93 year-old woman in a mobile home $285 dollars for wiping the dust from her furnace, and a new oil burner nozzle, despite the woman’s plea that she could barely manage on her deceased husband’s Social Security check. (A month later, when the woman called with a no-heat emergency, she got me, the on-call technician. I went to her house, after normal business hours, and found that the burner master control had failed, so I replaced it…free of charge, as recompense for the bath the technician gave her months earlier. I’d lied on my report, stating that call was a non-chargeable callback due to improperly adjusted electrodes.)

I was paid piecework for the exact time I billed a customer. Otherwise, if I didn’t charge them for, say, a trip to the supply house for parts, or travel to their home and back, or for completing the day’s paperwork, I didn’t get paid for that time. I thought the company owner was a criminal for making his living the way he did, and nostalgically pined for the early days at Tenney and Ferns – honest and ethical companies. I felt the present company not only ripped off (in many ways, not fully explainable in the context of this writing) the customer, but also ripped off me, the employee, by illegally docking my pay for not filling out the daily paperwork correctly.

The last straw for me was when the company charged Kay O’Brien, an elderly woman of 84, for several service calls by a plumber-employee who had no knowledge of oil burners. When I was finally sent to straighten out the original problem, and the additional ones he managed to create with a bountiful helping of sheer ignorance, I suggested that she call the main office and explain (complain). The owner’s daughter (the company bookkeeper) told her to “pay the f-ing bill, or we will take you to court!” This unbelievably disturbing and aggressive lack of gratitude upset me as much as it did Kay, and profoundly affected my attitude, unlike anything I’d felt working for any prior company. I withdrew from participation in company meetings and events and, ultimately, I was fired. The boss man said I "wasn't a team player", and I agreed, at least not on his team, which lead me down the solitary road of self-employment…and hard knocks.

5 excruciating years had passed and I realized I could have been making more money working for a New School employer during that forlorn period of pure angst. My earnings peeked over the poverty level barely enough to see the other side, gazing at what the Joneses had that I couldn’t muster from no matter how hard I’d worked. Soon, my wife left me for a lawyer. (Whatever happened to for richer or for poorer? I think she opted for richer.) Instead of giving in to working for The Man", I chose to risk everything on my luck as an inventor (see my essay, "Lessons In Invention Development"), which, by the way, is like jumping out of an airplane without first checking to see that the chute on your back is not really a backpack full of bricks.

Just prior to falling like The Old Man of The Mountains, I was approached by a company wanting to sell me a Flat Rate franchise and poured on the sales pitch in equal parts to the, aforementioned, over-the-top, advertising on the sides of certain trucks. I rejected their solicitation because their business model and methods seemed like voodoo. Bankruptcy seemed a more attractive option. A local plumbing company owner did buy into the franchise, and soon he was focusing all his efforts on service, all the while his excessive drinking showed his behind-the-scenes stresses that apparently forced him into his decision to change his business model to the Holy Grail the Franchiser sold him on. He had a great many service vans with inventory levels I had not seen since the old days. He had a huge color ad in the phone book that must have cost upwards of a $1,000 a month. (I paid $250 for my black & white quarter-page ad.) He had an 800-number, in bold red ink, and slogans that I knew he wasn't clever enough to dream up by himself. The ad, with credit card logos all in a row at the bottom, convinced me he had gone Flat Rate. I visualized him with voodoo dolls that resembled his customers, squeezing them until their wallets spilled out of the pockets, cash flowing from them for him to seize - the how-to instructions printed on some secret page in his Flat Rate pricing book. I was skeptical of his ethics, as it seemed he had bought into something that suggested profit trumped quality, fairness, and full disclosure. I thought, “If it quacks like a duck…”

I pondered the methodology behind the new buzzword, Flat Rate. Being a creative thinker, and problem-solver, I thought the method was ingenious, juxtaposed to that of the Old School way of generating revenue. I examined the core problems in the trade, but also the lack of fulfillment associated with being self-employed, from my humbled and beaten down point of view. Competition was fierce, and there seemed no way to go up on rates without losing bids, customers, and sales. I felt I was on the precipice of defeat, the sanctified martyr for the cause of doing honest work at a fair price, which seemed passé. Also, there seemed no way to afford employees, and the requisite benefits package they routinely demanded. I held back my spiteful tone with retained thought so as no interviewee would notice when he uttered demands like “vacation”; “insurance”; “holidays”, like so much lava from a volcano, scorching my patience to cinders. He didn’t know, nor would I reveal, out of certain embarrassment, that I had none of these bennies. Once upon a time, I enjoyed all that he asked for at the family-owned fuel companies. Nonetheless, it seemed ironic to provide others with the very things I was missing by not working for The Man.

An established company with 15 technicians in the field can generate sufficient revenue by the Time & Materials model, but I was beginning to see the employee prospects that I interviewed demanded a full compensation package, and that I would never become the company that could afford to pay them. And with customers questioning, "What, you charge $35 an hour? I can get so and so for $25 and hour!" the pressure to suppress the urge to charge more was what I feared and loathed the most, but was ever present. The over arching problem in the trade, that desperately needed fixing, was the perception in the mind of the consumer that no matter the hourly rate, there was always someone out there who should be sought for a “competitive” bid. That sounds like Free Market Competition at work. By not charging by the hour, rather charging for ‘materials only’, albeit, with a hefty price tag that obscures the true cost of the parts, the Flat Rate model appeared to have offered up a solution to the problems I experienced. I’ll explain.

The Way it Works

When you call a Flat Rate Company, typically it’s because you are desperate to have your no-heat, no-hot-water, or worse, “no water” problem remedied, quickly. The typical Flat Rate customer gravitates to the "Yellow Pages" like steel to a magnet, and dials the number in the most eye and emotion-catching ad. The company behind the ad anticipates them coming, and, in a sense, is like the Maytag Man who sits waiting for the unsuspecting and desperate voice on the other end of the phone line. The troubled voice is a common one, and the prepackaged mantras of the Flat Rate Company - "Honey, just call ________." (Fill in the blank with a name of Flat Rate Company.); "Repairs and maintenance on all systems"; "You get firm, up-front estimates and fair, competitive prices"; "Better quality guarantee"; "90 days no payments, no interest financing"; "At last, a serviceman who is always on time, or you don't pay a dime"; "Never an overtime charge"; "You know the price, before we start"; "Clean, professional technicians"; "Immediate response"; "Our prices are based on established standards"; "_______ solves over thousands of residential problems a year and we can solve yours now" – are like valium to ease the caller’s anxiety. Those lines hook you fast in your greatest time of need. Hey, if you can get an experienced, neat, clean, and professional plumber who allows you to approve the price before he does the work, and he smells nice (yes, there is an ad for nice smelling plumbers), and you can slap the repair on plastic, then who wouldn’t call? It's true, the Fat Raters are usually there in short time, have the parts in their warehouses-on-wheels necessary to solve your problem, and you do approve the price before they begin work. However, there’s more to their formulae, and intent by some, than catches the eye.

The Catch

Many Flat Rate companies tell you over the phone when you call, not in the ad, that there will be a trip charge (leverage) if you don't "approve the price" for remedying the diagnosed problem when they arrive. By then you've already done all the hunting for a technician in the jungle of ads that you can stand. When they assure you they can speedily solve your problem, you agree to pay the trip fee should you disagree with their price. Shortly, the technician arrives, and in time he tells you that your problem is such and such, and the cost to fix it is...well, on page 7 of his Flat Rate pricing book. The price seems like a lot, but you have no way of knowing if it is too much - it's not like comparing brand names to generics side by side on the shelf of the supermarket. Besides, you are in a hurry to get your kids off to school, and get to work, and everyone needs to brush their teeth first. YOU WANT WATER, NOW! So you whip out your Visa card and he swipes it before you, and then busies himself in the basement for a while. Once the repair is made, your nice smelling plumber comes upstairs, utters niceties, and when he is positively out your door, removes his disposable booties, hoping you’ll notice he didn’t dirty your floor, which might be the most profound thing you remember about his visit.

On his way to his next service call, the technician whistles with glee, knowing he just made a 7% commission (an incentive to sell as many parts as possible) on the gross sale, on top of his $75,000 salary. Some of these guys make over a hundred grand a year!

[As a salesman for the last company I worked for, in 2002, I made 2% commission on net profit, which was determined by the owner of the company, though I wasn’t privy to his calculations. I quit a year later and they refused to pay my commission check.]

The Math

So how do they arrive at their high prices? Hypothetically, the well pump pressure switch at the root of your no-water problem cost the Flat Rater $12, but you paid $379.25 (the charge that you ‘approved before they did the work’). $379.25 - $12 (their cost of the switch) = $367.25, the Company's mark-up. If you hired a time and materials guy, say, at $85 for the hour in your home and one on the road, plus $24 - an average sell price for the switch, you'd pay $194. Now, subtract $24 from the Flat Rate price of $379.25 and $355.25 is the labor amount you’ve been charged. But wait, there’s more. Divide their labor amount by two (hours) and their equivalent hourly rate is $178 per hour – more than twice that of the time and materials guy! You think, “How can this be? He was only here for 45 minutes?” Then you suck it up and remember his booties and your clean floor, rationalizing away your concerns, especially about the new balance on your credit card, which you can make minimum payments on anyway. But don’t forget to factor in the interest, bringing the total cost of the Flat Rate Company’s repair to new heights never before seen in the Old School model. What is the Flat Rate technician’s cut? 7% X $379.25 = $26.55, but that’s in addition to his salary, or high hourly pay.

These are average numbers, of course, but you get the idea.

Some Flat Raters take price-setting to an extreme, raking in up to $400 and hour, then laugh through their admission of guilt to fellow tradesman at the supply house. I've actually heard them there, at the counter.

It’s all about their marketing, paired with the desperate consumer’s emergency, otherwise, the entire business model wouldn’t hold up. The consumer pays a premium for the company’s means of letting you know he can have a technician there with the requisite parts, within an hour. But that doesn’t mean that a wholly qualified technician will show up at your door. Anyone can change parts. Besides, the more parts they sell you, the more often you pay that premium…until finally he fixes your problem. It’s almost always a net gain for the company, but a loss for the consumer. If the unqualified technician sells you 3 parts, or more, depending on the true problem and how long it takes to replace parts until the right one is found, the equivalent hourly rate quickly skyrockets to the aforementioned $400 an hour range. It’s math 101.

There is an army of these companies now canvassing the populous neighborhoods all supported by their big ads, hoping to add new customers, as many are one-timers, given the unwanted economic bath they took the last time. Speaking of being taken to the cleaners, how does $950 for a plastic Zoeller sump pump suit you? Maybe $1,900 for a 40-gallon electric water heater sounds attractive? I think not! Check Home Depot’s prices for those items the next time you are there. Flat Rate pricing seems to save the consumer from information they shouldn’t see. What they don’t know won’t hurt them?

More often these companies are franchises and they are popping up around the country, from California to New Hampshire. But a local company (though I suspect it is only a matter of time before they sell franchises) boasts of having 35 fully stocked trucks on the road, in New Hampshire! Surely there must be as many dead moose on the road.

Two Schools Collide

With pricing like that the Flat Rate Company can afford to pay their employees better than the non-Flat Rate competitors, thereby attracting the labor pool away from the Old School guys like me. However, guys with talent, skill, and ethical fortitude tend to work for themselves. The dilemma is omnipresent. I ask, why would anyone work for me if all I paid them was $40K a year, and meager benefits? The Flat Rate method answers this question, as it addresses the quandary of how to make self-employed tradesmen profitable, so they, too, can have the same benefits that their employees demand.

The New School, and Flat Rate have convinced me of the direction the trade has been headed in for some time, and that it will never return to the days when I began as an oil burner technician for fuel companies that had been around since the beginning of oil burners themselves, and coal-fired systems before them. Still, I choose to work by the traditional ethics that I was fortunate enough to be taught, at a time when the winds of change were shifting. I’ve let go of the idea that I would employ many and reap the profits they generated for me. Now I work alone and hire another self-employed guy when I need a second pair of hands to complete a job that requires more than one, rather than go Flat Rate and take advantage of the customer. I do believe in business ethics (surely some of you are laughing at my naiveté). Maybe I’ll never sway from the Old School approach, as I still have zero patience for the sub quality work done by the bottom of the labor pool barrel, and by some of these Flat Rate companies. Call it ego, or call it nostalgia, I call it freedom, freedom to choose to feel great about the work I did today, without having to scam anyone.

Presently, where once I charged only for the time on the job, I charge for the total time that I commit to my customer, including travel time both ways. Also, I charge for diesel fuel to get there. After all, the time and expense of traveling to my customer's site is not for my benefit; it’s to solve their HVAC problems – my primary business.

I know every task required to complete any HVAC job, and the order in which they should be performed. With 28 years experience, I feel unlike many of the Flat Raters who often only have a few. Really, many are simple parts changers in a neatly pressed uniform, behind the wheel of a moving billboard / warehouse, carting around 25 grand of inventory…and a Flat Rate pricing book.

Despite my many complaints about them, I feel the Flat Rate innovators were very creative and insightful when they formulated their solution to the ills in the trade. However, I feel their method is fraught with deception, and opportunity for fraud. Not all are bad, but take the following as example:

The Fraud

A case in point is my customer Cheri Whittaker’s experience with a Flat Rate company. Cheri called me for a “free estimate” to change the boiler in her home, in Exeter, after seeing my ¼-page black and white ad (that cost $450 per month), in the Portsmouth telephone book. Being a savvy and knowledgeable salesman, I knew enough to get a lot of information up front, before I agreed to give a free estimate - something everyone calling ads in the phone book expects. Estimates take a lot of time, if done carefully and accurately. The answers Cheri gave to my queries - namely who the (Flat Rate) company was that condemned her old boiler two weeks earlier - caused me to suspect she just needed an honest and experienced technician to diagnose the problem correctly. I felt I was her man, and agreed to give the estimate.

Upon arrival in her basement, I noticed that the air gate on the oil burner had been intentionally shut, causing the fire to burn incredibly dirty. Black smoke spewed from the chimney, and the boiler was plugged with soot. Before long, damage to the oil burner would result. Cheri showed me the invoice and recommendations the technician had left with her. There were many reasons listed on the invoice for condemnation of the boiler – every one false and designed to pressure Cheri into buying a new boiler from a “Comfort Advisor” they planned to send out to give an estimate. Had she gone along with their diagnosis and prescription, the technician would have received a $700 commission in his paycheck that week. Imagine him doing this more than once a week, and you can see how he would easily approach a $100,000 annual salary.

The last time the boiler and burner had been serviced, prior to the Flat Rate Company's visit, was over a year, so I knew the Company technician had sabotaged the boiler intentionally. Otherwise, an oil burner starved of air would have caused it to fail in a matter of weeks, and it was nearing that point. In a way, the technician's statement on the invoice was correct: "the boiler is due to imminently fail".

Cheri and her husband asked me to confront the Flat Rate Company, in their presence, so no surprise, I agreed. Soon, the technician and his service manager arrived at their home and we converged in the basement. Within 15 minutes, I proved false the Company’s claims in their invoice and of no wrongdoing. The Whitakers were not impressed with the hollow answers and guilty looks from the two, and evicted them from their home, telling them they would never return. I proceeded to clean the very dirty boiler and bring it back to good, safe operating condition for a few hundred bucks - a far cry from the $10,000 it would have cost to replace the boiler.

The Summation

Cliché’s abound for situations like the aforementioned such as, caveat emptor – “buyer beware”. And, “if it seems too good to be true, then it probably is.” Think of all the claims, promises, and guarantees in the phone book ads, then recall what they charged you. Was it a steep price? Had you ever been charged that kind of money for a service call in your past? What about the so-called Trip Fee, did you opt for that and disapprove of their Flat Rate? Did the technician fix the problem correctly the first time, or did you have to call him back? Gimmicks like disposable booties, and surreptitious slogans - "you approve the price" - are devised to dupe the layperson from thinking about the price for a repair. These companies are clever, and getting rich without doing much quality work for the money, but they do sell a lot of parts, which I suppose bolsters the economy.

My Mom and her husband in California were just hosed by a Flat Rate Company, paying twice the price for outmoded air conditioning equipment that is being phased out because its refrigerant destroys the Ozone layer. I wished I could have saved them from the wolf-in-sheep’s-clothing Comfort Adviser that sold them on the idea of replacing their functioning furnace and condensing unit, before that company loosed their disposable booties in their home. I don’t blame the one’s who’ve been bitten; I hold the snake charmer responsible for allowing the snake to bite.

But, hey, at least the owner of that one-hour flat rate company is content with not having to work for The Man – something we do have in common!