Snow and ice management is a tough industry. Long, odd hours, expensive equipment and materials, and all too often customers that take the hard work that goes into snow removal for granted. But it can also be very profitable and rewarding for contractors- as long as snow removal agreements are designed with that in mind.
So what type of proposal is the best type to go with for the contractor and the client? It depends.
Three Common Types of Snow Removal Contracts
Generally speaking there are three common types of proposals used for snow removal:
- Time and Materials
- Seasonal Flat Rate
- Per-Occurrence Pricing
Of course there are pros and cons associated with using each type of agreement, and the format depends on several important variables: location of the property, type of property and/or client, type of equipment and materials the contractor has to get the job done, and what the client asks for.
Contractors also might use one, two or all three of these proposal formats because the variables listed above will probably dictate the format that will work best.
So let’s take a look at some of the reasons why a contractor or client would prefer one type of proposal over another and when these variables come into play.
Time and Materials Snow Removal Contracts
A time and materials agreement (T&M) is pretty straight forward. The client pays the contractor for the time they spent servicing the property and the amount of materials they used. This usually isn’t the most favorable type of contract for either party for several reasons.
For the contractor, it’s not ideal because they have to be prepared if it snows. This means they have to order (and pay for) salt, make sure equipment is operable and ready, and keep their workforce busy and paid so they are ready when (or if ) it snows. Plus, there’s no guarantee it’s going to snow, which means no guarantee of income for the contractor through the winter months.
These agreements also leave the contractor vulnerable to disputes from the client as to why they spent so much time at the property, or why they used a certain amount of material.
Property managers and owners typically don’t prefer time and materials (T&M) agreements either because they don’t provide firm budget numbers they like to stick to. Plus, the contractor has no incentive to service the property in a timely manner. Some would say it’s actually to the contractors benefit to take their time servicing the property so they can increase the bill.
With that said, the property manager is in a pretty sweet spot with a T&M agreement. They’ve got someone they can rely on to service the property if it snows, and they only have to pay for what the contractor does during an actual event, not what he or she has to purchase in advance and maintain throughout the winter to be prepared for action.
Bottom Line: Money out to get ready for the season + no income unless it snows= one worried contractor.
Seasonal Snow Removal Contracts
Seasonal flat rate agreements can kind of cater to both parties. It’s not uncommon for a seasonal agreement to guarantee some income for the contractor during the winter months, which is great because they need cash flow to purchase de-icing materials and equipment, and pay their workforce during the winter months.
Property managers also like this type of agreement because they have a budget number and fixed price to rely on no matter what the winter brings. But this is also the same reason why these agreements aren’t necessarily ideal for contractors.
If it snows more than the contractor allowed for in their proposal, they can end up really hurting their margins and potentially losing money. Contractors can however include a ‘service cap’ in their agreement to protect themselves in this situation.
A seasonal agreement with a service cap means the contractor will set limits to what their seasonal fixed rate will provide. For example, they will agree to service the property for the fixed proposed rate until x number of inches of snow has been removed. After that, the client pays the contractor for the work they’ve completed above and beyond what the agreement calls for.
Bottom Line: Seasonal snow removal agreements can be very favorable for both parties, especially if the contractor protects their margins by including a service cap.
Per Occurrence Snow Removal Contracts
Per occurrence pricing calls for a flat rate every time the property is serviced (or however the contractor and their client decide what counts as an ‘occurrence’). This type of agreement can work really well for both parties.
Usually with a per occurrence model you can give the property manager or client some budget numbers for what a typical for a season will cost them so they can do some planning.
But like T&M agreements, per occurrence pricing can leave contractors vulnerable to Mother Nature and may not guarantee income.
One way they can get around the risk of relying on the weather to get paid is to charge for one occurrence per month no matter what. Our CEO Mike Rorie used the per occurrence format with a ‘snow ready fee’ clause when he was operating his Cincinnati, OH based commercial maintenance business.
He would charge every client for one service occurrence from November-March as a ‘snow ready fee’. If there was only one event in a month, the contractor and the client are even, nothing was owed to either party. If it snowed more, then the client owed. If it didn’t snow, he kept the payment as a ‘snow ready fee’.
Mike had great success with this model and he spoke about how to implement snow ready fees last spring on ‘Managing Snow and Ice with John Allin”.
Bottom Line: Like seasonal agreements, per occurrence agreements can be very favorable for both parties, especially if the contractor requires one payment per month whether it snows or not.
Don’t Forget About These Important Elements of Your Snow Proposal
No matter what type of contract you choose to go with, be sure you are armed with as much knowledge about the property and the market as possible so your hard work pays off. Property measurements, weather data and carefully reviewing the request for proposal, along with knowing your key performance indicators are all important aspects of an accurate and profitable snow removal contract.
If we can help you with anything as you gear up for the snow season, just let us know.
In the meantime, what type of contracts do you prefer? Share the snow removal contract you typically use and why in the comments section of this post.