Fair wear and tear: the basics

End of contract charges are compensation paid by the lessee to cover the cost of returning a vehicle back to the condition outlined in a lease agreement. It is unrealistic for a contract hire company to expect a working vehicle back in showroom condition, hence the industry term of “fair wear and tear”.

The British Vehicle Rental and Leasing Association (BVRLA) defines fair wear and tear as: ‘Deterioration that occurs during normal usage of a vehicle. It is not to be confused with damage as the result of a specific event or series of events such as impact, inappropriate stowing of items, harsh treatment, negligent acts or omissions.’

What constitutes damage will of course vary by operator, but dents to body work, severe scratching, broken lamps, chipped windscreens, missing spare wheels, ripped or stained upholstery and damaged audio and navigation features will all incur extra charges. Excess mileage over the agreed mileage cap will also invite further charges to compensate for the devaluation of the vehicle and the breaking of agreed terms.

Non-return of keys – both the master key and the “slave” key – can cause a further significant end of contract charge for fleets, and can be avoided by maintaining accurate records of each key’s location, particularly if a vehicle is shared by multiple drivers.

Honesty is key

Fleet operators must be honest with their vehicle leasing provider about the environment in which a vehicle will be used, advises Jim McNally, asset risk manager at vehicle leasing and management company, Alphabet.

‘Leasing companies don’t want to have end of contract charges,’ he says. ‘We would rather price for vehicle usage appropriately at the outset. If a fleet is going to use a vehicle in a quarry, then don’t tell us that it will be used on the motorway, because we will build the price strategy against that usage. Talk to your leasing provider who will structure a rental that works for you and them.’

McNally also urges fleet managers to ensure cars and vans are serviced in accordance with manufacturer schedules, saying this is key to a vehicle retaining its value.

‘De-hire damage is the biggest cause of dispute between leasing companies and their customers. Inspecting vehicles 10-12 weeks before end of contract means fleet managers have the opportunity to mitigate end-of-contract damage charges,’ he explains. 

Choosing the right policy

As well as being upfront about the environment in which the vehicle will operate, it is also important to be clear about how many miles the car is expected to cover. Any savings that may have been gained by choosing a lower mileage cap will be obliterated when the vehicle is handed back and excess mileage charges are levied.

‘It is important to ascertain the usage profiles and determine the annual mileage of each respective vehicle. We work closely with our clients to tailor contract mileage on an individual basis if necessary to accommodate various mileage parameters,’ explains Days Contract Hire director, Aled Williams.

‘By communicating regularly and reviewing the mileage of the vehicles throughout the contract, we are able to predict annual mileages for the vehicles and effectively mitigate any potential excess mileage charges for our clients.

‘We encourage our clients to update their mileages through our online client dashboard to not only control predicted contract mileage, but also provide accurate information to the fleet manager on when their vehicles are next due a service – reducing risk and any potential issues with the vehicle.’

Controlling mileage

While features such as client dashboards can help to keep track of the running mileage on a vehicle, telematics devices allow management to quickly identify areas of risk. These systems accurately record total miles covered through the use of GPS technology, and can even cross reference daily mileage with a specified route to alert the operator if a vehicle is accruing more mileage than is strictly necessary.

New technology also enables fleet managers to reduce the environmental impact of a fleet, a move which often goes hand-in-hand with saving money. Managers can track real-time vehicle journeys to monitor drivers’ behaviour and be alerted to any non-efficient driving patterns such as harsh breaking and speeding.

Whilst most advanced telematics systems will provide weekly or monthly reports to make all this data easier to understand, others will simply provide raw data for the fleet manager to process.

For larger fleets the quantities of data can be staggering, and it is vital in these instances that the operator does not feel overwhelmed.

One way to separate the wheat from the chaff is to use pivot tables. Pivot tables allow fleet managers to pinpoint employees who regularly return vehicles with damage or excess mileage, and refer them for disciplinary procedures or driver training as appropriate.

Driver training

In most cases, simply knowing that they are under surveillance in the cab will be enough to prevent drivers from racking up excess mileage with personal errands or driving erratically, but sometimes further action is required to improve driving style and attitude on the road.

Drivers who are insufficiently trained are at a higher risk of being in an accident and often incur a number of “knock on” expenses including tyres and brakes needing to be replaced more frequently; all resulting in higher end of contract charges.

Driver training can help to minimise the risk of a driver being involved in a collision and guard against more minor vehicle damage, such as curbed wheels and panel scrapes, by raising their basic skill level and familiarity with the vehicle.

Most risk management companies offer driver training programmes and the difference these tutorials make to driver behaviour can be astonishing – not only does confidence improve, but so does the driver’s efficiency, risk rating and fuel consumption – all key elements of a successful fleet.

Designed to protect

Coming back to your car to find a scratch or dent caused by another vehicle’s door is one of the biggest gripes of urban motoring, and manufacturers have started to take this issue into consideration with new vehicle design.

The Citroën C4 Cactus leads the charge with one of the most advanced defences to panel damage in the form of its innovative Airbumps – small air-filled bumpers that provide protection against small bumps and grazes at low speed impacts, with only minimal weight added to the vehicle.

For drivers of long vehicles or with poor rear visibility, or who just struggle with getting in to tight parking spaces, a reversing camera can save on expensive damage charges. Many new cars now come with a factory fitted reversing camera system, as well as sensors around the vehicle to alert to safety issues such as the vehicle drifting out of lane or unexpected objects in the road, further reducing road risk.

Damage control

While the risk of a vehicle being involved in an accident can be mitigated by management strategies such as surveillance and driver training, there will inevitably be some vehicle damage in need of repair at the end of the lease period.

Ogilvie Fleet claims to operate a total transparency policy for damage charges by telling customers what they will be at the outset of the contract, removing the risk of unexpected charges. The company operates a recharge matrix with the costs of each repair option presented in an easy-to read break-down format. Damaged panels can be replaced on an individual basis, helping to keep costs down and ensure the customer does not pay for unnecessary labour time.

‘The matrix is undoubtedly a unique selling point for Ogilvie Fleet because it shows to customers that any charges are very low compared to the rest of the industry. Many of our competitors use bodyshop pricing as the basis for end of contract charges and they can be very expensive and result in disagreements between the lessor and customers,’ explains John Hannah, operations director at Ogilvie Fleet.

Despite a greater number older vehicles returning in 2013 due to fleet replacement cycle extension as a consequence of the tough economic climate faced by many businesses in recent years, Hannah believes the company is benevolent towards customers in terms of end of contract damage charges.

‘It would be natural to assume that older vehicles would incur higher charges, but we want to be fair and reasonable to customers and we are more lenient towards vehicles that are four, five or six years old and have clocked up high mileages,’ he explains.