Chances are if your business is in the Northeast, you are seeing an inequity with several storms per year. Long-duration, mixed-precipitation events are becoming more prevalent, and the region’s customary per-inch pricing model is becoming profit-prohibitive. Contractors and their teams are working their hardest both mentally and physically during these types of events but are being paid the least due to the customary pricing models in the market.
Many contractors have taken the “You win some, you lose some and it all equals out in the wash” stance. I have been known to say the same; but what changed for me is that in recent years we have seen multiple such events in a single season, instead of one every couple of years.
I asked WeatherWorks President Frank Lombardo if our internal data indicating that these types of events were occurring more often year over year was correct. According to Lombardo’s research, although the average seasonal snowfall has increased across much of New England over the past 30 years, during the marginal months of the season, snowfall totals are down. He also noted that at the three locations he reviewed for a presentation to the Adirondack Snow Summit – Albany, NY, Boston and Burlington, VT – there was an increase in mixed events of sleet, freezing rain and snow during these marginal months.
He theorizes that one possible cause is the fact that the growing season in each of these locations has increased by 20 to 30 days in the last 30 years due to an increase in average temperatures. These mixed-event storms have historically been associated more with the Midwest, which could explain that region’s dominant per-push/per-pass pricing model.
Per-inch service issues
The problem with per-inch pricing in a market where mixed events occur is that the precipitation may flip from snow to sleet to snow to rain and back again. The service time increases, but the accumulation will be dramatically lower. The catch-22 is that you cannot offset labor costs by sending equipment operators and laborers home if the threat of snow or sleet returning is a possibility.
These events negatively impact profit margins and can cause a significant loss when using seasonal and per-inch pricing models. Seasonal pricing models are built from average hours expensed from per-event equipment production rates (usually bracketed in amounts of 1-3 inches, 3-6 inches, etc.). A multiple is applied to event costs for the average number of events that add up to the average inches of snowfall in that region per season. There is no diversifying the portfolio to reduce exposure to these events.
I recently spoke to a large multimillion-dollar snow and ice contractor just south of Massachusetts who had so many of these long-duration, mixed-precipitation events a couple of years back that his company actually had a negative year, resulting in cash flow problems that took two years to rectify.
Last year, JC Grounds had two such events that resulted in six-figure losses for the plowing portion of services rendered. Most clients don’t realize these events are hard to service, let alone that we worked 48 hours straight to lose over $200,000. The three inches of a sleet event is hardly noticeable three days later; whereas post-blizzard, clients can see massive piles of snow and think: “Wow, they worked hard!”
Our pricing structure and proposal hurt us; but our reputation, ethics and core values would never allow us to jeopardize service levels to reduce the burn these storms had on our margins. It was an eye-opening but costly learning experience.
Per-inch risks for the client
Many contractors will not be able to sustain continued losses from these events and may try to cut services during an event to mitigate the financial impact. They also could cut back on deliverables for the remainder of the season to try to regain some ground.
A couple of years ago I had a discussion with a nationally known hospital network we service. One of the facilities in their portfolio experienced a massive service failure from a prior contractor when ambulances had difficulty getting to the emergency room bay.
We were in final negotiations of a multi-year contract. I suggested we add a provision similar to the clause noted on Page 44 and allocate an additional piece of heavy equipment to ensure we had all of the resources at our disposal for extreme events. The hospital’s head of facilities suggested instead of the provision that we just build it into the budget. I was extremely impressed!
This buyer had the hurtful experience of poor service and saw how it affected the hospital, his team and the patients. He asked great questions, including how many of these atypical events were possible in the duration of our contract and if we were comfortable building in the expected outcome of those events over the entire term. We provided historical weather data to back up the predicted number of occurrences and added the costs into the program.
This level of teamwork is what creates harmony for both parties. Just think of the cost in terms of lost income to a large retail establishment that’s shut down for the day or a large trucking facility where packages can’t get shipped. Not to mention the possibility of an employee or client lawsuit or the long-term effect on reputation for not operating a safe place to go to work or shop, or the unquantifiable value of a person’s life being lost if an ambulance is delayed or unable to get to the ER.
Correctly accounting for the costs of these long-term systems allows for confidence that the contractor has reasonable resources for what is needed to successfully perform.
A change is coming
Mark Moore, CEO of NJ-based Winter Services Inc., services clients in New York, New Jersey, Connecticut, Delaware and Pennsylvania. “It is important to bring awareness and work with the client to create an RFP that covers the client by providing proper resources in the case of a long-duration event and will cover the contractor’s extra burden. The loss potential in these events can be substantial,” he says. “The stance of ‘We will make it up next time’ is not sustainable in seasons with reoccurring extended mixed-precipitation events. Communication before, during and after these events to the client is imperative so they are fully aware of the workload and the measures that are needed to ensure safety of the property during these events.”
I talked with Jeff Tovar, CSP, of Tovar Snow Professionals, the largest snow-only firm in the United States, who says: “If we do not adapt to new weather trends, we are all going to struggle.”
Snow and ice management is one of the most challenging businesses to produce a consistently good result. The number of variables is incredible and increases two-fold during a long-duration, mixed-precipitation event. Any seasoned plow contractor would rather plow 18 inches of snow than manage one of these events. You need to decide on deicer or mechanical snow removal and factor in the staying power and safety of your team while weighing the safety and emotional/economic toll if you fail your client. Rest plans, second shifts and redundancy help but by no means represent a total solution.
WIT Advisers’ Phill Sexton, CSP, ASM, and I had a great conversation on this topic. One thing that he said that resonated with me: “The actual storm execution of the snow and ice work is just a fraction of what the client is buying. The actual preparation, nightly monitoring/readiness and resources in equipment, technology, depth of team, systems and infrastructure is the majority of the contractor’s cost for winter services. Not all contractors are equal.”
Let’s get back to a win-win
At the end of the day, we are not looking to create a windfall from these challenging events. Our business has always operated on a win-win philosophy – our clients get great service and value and our company makes a reasonable profit that allows us to pay our team and vendors a reasonable wage. But with these events becoming more prevalent, the balance is shifting.
Is it time to rethink pricing models to add a per-push option on sidewalks and parking lots? Since this form of contract is not the norm in the Northeast market, it may take time to educate everyone affected and for acceptance to take hold, so we are looking at a clause to mitigate the risk of these events in the meantime to ensure best practice performance.
We are working with WeatherWorks on an objective, scientific approach to correctly determine the characteristics of these events and to properly document when these events occur. That team represents both the buyer and supplier side of this conversation and is an excellent non-biased professional organization to work with on this project. My objective is to find a common ground that will incentivize thousands of hardworking snow and ice professionals to continue to deliver exceptional service during these difficult-to-service events.
Please use this story and the contract language to help educate your team, whether it be on the buyer or supplier side. Feel free to reach out to share any questions, comments or concerns on this topic.
Jon Crandall, CSP, is chief visionary for JC Grounds Management and a member of SIMA’s Board of Directors. Contact him at Jon@jcgrounds.com.