Your Management Agreement, Your Operator and Your Monthly Statement
Dennis L. Cunning
Why do we in the parking industry have a management agreement between ownership and operator? The easy answer is both liability as well as the legal contract between two parties.
A harder question is: Who usually presents the management agreement? Almost always it’s the operator! Hmmm … seems a little self-serving and beneficial to the operator at the expense of ownership!
Here are just a few areas where “hidden” fees add up!
Ask how your workers’ compensation (W/C) is determined. If you
have a valet garage, then the W/C rate for attendant is justified. But what if you are self-park? You really do not have valet attendants; you may have cashiers, a dying breed with the implementation of pay-on-foot systems.
You may have janitorial type workers, sweeping the garage, mopping the stairs, emptying the trash. And, of course, you may have clerical type employees in the office as the clerk or manager of some employees in some far-off location in a call center. (By the way, the state where the employees are stationed should be the State of Record for the W/C rate, and their job is closer to telephone operator than valet attendant.)
All of these job classifications are at a lesser rate than a valet attendant rate!
Require a copy from the State Board of Insurance showing the W/C rate and “modification factor” for the operator. If it is high, then question why. It is obvious this employer does not adhere to safe workplace practices, and in the end, those bad practices cost you money.
When examining a monthly statement, the W/C rate was questioned as to why it was 2% higher that the state rate. The response was 1.5% corporate administration fees and 0.5% payroll process fees. On a $500,000 annual payroll, that is a $10,000 hidden corporate profit!
Consider the cost or health/welfare and pension costs. With the advent of the Affordable Care Act (ACA), even the garage unions have had to realign their sponsored H/W plans to conform to the ACA. At least in this instance, a published amount is posted in the Collective Bargaining Agreement (CBA), so you know your costs for the life of the agreement. However, what about employees not covered under a CBA?
The operator charges some amount of money for the employees’ coverage. Again, in a recent review of the Management Statement audit, the charge per employee was almost $1,300/month. The initial explanation was that it was for health and hospital, dental, vision, hearing, accidental death & dismemberment, and long-term short-term disability.
Upon a much closer examination of the supporting documents, my consulting firm found the actual coat of all the above was less than $550 a month. Plus, the employee was also making payroll contributions to their cost of health care.
After unraveling the ball of deception, the true cost of coverage to ownership was approximately $450/month, versus the almost $1,300/month per employee charge on the statement. That was an $850/month, or $10,200 annual, hidden corporate profit charge per covered employee!
I can list another half-dozen or more of the everyday markups that cost ownership money. Think about it like this: Do you really believe that the U.S. military actually spends $650 for a hammer? I think most of us have been to Home Depot or Lowes and know what a hammer costs.
Well, the same is true about operators. If you think you are paying a $500 or $1,000 a month management fee, the operator has to be making money somewhere else.
Think about operators and their “Preferred Platinum, Diamond, Gold or Silver” vendors. How did they get to be so honored? Typically, the vendor has paid a one-time fee, or an annual fee, or has provided some other service at little or no cost to the operator in exchange for getting that operator’s core business in their particular field of endeavor.
In the end, it is again the owner that pays for the “Pay and Play” requirements of the operator.
How do you resolve these issues? Hire a competent, knowledgeable person to present your version of the Management Agreement to the selected operator.
The Agreement is two parts: the “legalese” part, which a good attorney can protect your interests and abide by the local/state laws that apply. And the other part of the Agreement, the part that details how the facility will be operated — that is where the money is!
The Rules of the Game! Golf has rules – the USGA Rule Book (and no, there are no mulligans in it). And how about these: the NFL Rulebook, Official Rules of MLB. Even swimming has rules from U.S.A., YMCA, NCAA, FINA and IPC.
So, why not have rules to protect you, your investment, your property, your business, your operation and your money?
Contact Dennis L. Cunning, CAPP, a Consultant working out of New Jersey, at firstname.lastname@example.org. He welcomes all to attend his presentation at PIE 2016, which runs Feb. 28-March 2 in Las Vegas. For more information on the 20th anniversary show, go to http://pieshow.parkingtoday.com.