How to Buy … Contract Hire

Published in Fleet World, January 2010

So, your business isn’t cash-rich, you don’t want your employees to have the hassle of sourcing their new cars or selling their used ones, you don’t want to speculate on the value of used cars and you like the idea of having a pretty tax-efficient form of finance. So you opt for contract hire. It can’t be a bad decision: vast numbers of other businesses do the same.

Should you buy from one contract hire company, search the internet to find the cheapest rate or use a broker to shop around for you? There is no one perfect solution. One contract hire company can’t always give you the cheapest rate in the market on a particular day but there are real advantages in dealing with one company. A broker will handle the whole process and add their commission into your rental.

You can add a lot to a basic contract hire deal. The supplier can include all servicing, maintenance and repair work, and roadside assistance. Ask whether there are any limitations on this cover. How many tyres will they supply during the contract? Does the roadside assistance include ‘At Home’ cover and a ‘Recovery’ service?

Accident management is a useful additional service. If your car is involved in an accident an expert will manage the insurance claims, repairs and uninsured loss recovery until it is back on the road. Make sure you know who is providing this service and how they get remunerated. If they get a percentage of the repair costs they won’t have an incentive to keep these low, and high repair costs will eventually affect your insurance premium.

Have you thought about asking your supplier for fuel cards? Fuel company reports will allow you to monitor fuel usage far more effectively than if you had to analyse piles of petrol receipts. Your contact hire company can extract the mileage info from the fuel card reports to enhance any exception reports they send you.

Need insurance for fleet-related risks?  Most suppliers can arrange cover for any charges that arise when you terminate the lease early (vehicle write-off, driver redundancy, etc).  Do a cost/benefit analysis to see if these might benefit you.

Make sure your contract includes a pooled mileage clause, and that any under-mileage on some cars is offset against over-mileage on others before you get charged for excess mileage. Always lease your cars for the correct mileages in the first place: if the usage of the car changes sharply during the lease period the supplier will gladly amend the agreement.

Make sure your supplier uses the BVRLA Fair Wear And Tear Guide as the standard to assess the condition of end-of-lease vehicles. However, the Guide doesn’t say how much suppliers should actually charge for damage. Some charge the cost (retail or wholesale) of repair, others charge for the diminution in the car’s value and others charge nothing below a threshold (perhaps £100). Avoid friction and disputes by finding out your supplier’s policy from the outset. Also, at the time of collection, make sure that all damage and is reported and photographed.

Is efficient fleet operation important to you? Maybe you expect to receive lease quotes within 12 hours, have all end-of lease cars collected within 48 hours or be notified if any car has exceeded contractual mileage by 15%? Build these into a service level agreement and ask the supplier to report their performance against these standards. Good suppliers will be gladly do this. They want to do a good job for you but it helps them if you define what ‘a good job’ looks like to you!

Professor Colin Tourick


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