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Tuesday, 05 May 2009 14:09

California’s Invoicing Dilemma: Non-Compliant Systems Required

There has been a great deal of discussion recently about database manipulation. This manipulation can take many forms and exists at the expense of the collision repair industry and the rights of California’s consumers.

Estimating systems have long been held as a standard upon which the industry could rely for repair-related information that was accurate and impartial. This allowed the industry to function within a fair and competitive marketplace. Insurers require shops to use these programs while contracting for data from system administrators to create claims settlement policy. In analyzing today’s estimating systems, you could conclude that independence is being compromised.
The bundling of once separate job operations is becoming the norm with individual operations categorized as included operations. This process makes the documents generated from these systems non-compliant with California law. System providers continue to use a finish hour X hourly rate to compute paint and material cost, a calculation that has nothing to do with the goods and services used to repair the vehicle, again a process not compliant with California law.


A recent release of Mitchell’s RMC program is a further example of loss of objectivity. This program was released for usage in a format that is not compliant with current auto repair regulations causing shops to produce estimates and invoices that violate Section 3356 C.C.R.
Again, the utilization of a calculation of refinish hours (labor) X cost per hour is at best a guess. This program does not make the calculation on total refinish hours but seems to drop out a portion of the total time, what you might call a hidden capping process.
Additionally, the program does not fully itemize, but calls for included items that should be individually itemized. Adding insult to injury, the price allocations contained within the system appear to be wholesale costs that are then averaged across all brands and the rate is then established, not the retail costs appropriately due the repairer.
It also appears that this average is a national average, not one based on local costs. In fact page P-1 of the Guide states “These price lists represent the cost that the shop should expect to pay for the various products from their jobber as suggested from the paint manufacturer’s.”
The setting of material cost is the business of the shop. Why would a shop owner want to invoice a wholesale price in a retail transaction? This program encourages the shop to use the cheapest product available as there is no advantage to do otherwise.
Ironically the processes afforded within these systems fail to meet obligations of repairers that have agreements with insurers to obey all laws in the repair of vehicles.
By way of this article, the insurers should consider themselves informed that the systems that they require shops to utilize are non-compliant. We would have to assume that the insurers utilizing these programs had no prior knowledge and would never intentionally participate in a process that could cause a selected provider to violate state law and to intentionally withhold information from consumers of California.
On February 9, 2007, the Bureau of Automotive Repair (BAR) sent a notice to all registered automotive dealers in California advising them of changes to California Code of Regulations Section 3356. These changes were effective March 4, 2007. This new language required that the invoice separately list, describe and identify the price for each described service and repair. Simply put the invoice must be itemized, separately listing parts provided and separately listing job operations performed.
In the Statement of Reasons the Bureau filed in support of the necessity for this change, the Bureau stated: “the changes will help ensure that all consumers will have full and complete disclosure and itemization of all charges in their dealings with ARD’s. This is not only consistent with BAR’s principal mandate to protect the interests of the public, but is consistent with the spirit and intent of those provisions of the Automotive Repair Act that relate to open disclosure and itemization in estimates, work orders and invoices.”
BAR stated, “current regulations do not expressly require that individual prices for each part or service be listed on the invoice. This results in the consumer being denied important information when an unscrupulous repair dealer has something to hide.”
“The foundation of the Automotive Repair Act is set on the concepts of full disclosure and informed authorization.” While collision repair shops are trying to comply, the systems that they are required to use do not afford such disclosure. If they modify the system to properly reflect the repair and related costs, the insurers accuse them of system manipulation.
On May 19, 2008, a letter was sent to Mitchell International advising them of California shops’ inability to comply with statutory requirements due to the bundling of job operations within the company’s system. There was no response regarding this letter.
On September 30, 2008 a letter was sent to the Chief of the BAR reminding her that sample documents that demonstrated the non-compliant aspects of the estimating systems were provided to her staff on July 9, 2008 and that upon their review, they indicated that the documents were non-compliant, in that they didn’t itemize or specifically list job operations.
The Collision Repair Association asked the Chief to do one of two things. Either advise the estimating system providers to conform their systems to statutory requirements, or simply notify the industry that collision repair facilities utilizing these systems will be exempt from the regulatory requirements of Section 3356 C.C.R. BAR never responded to this inquiry.
Recently documents were again shared with BAR by a member shop regarding the Mitchell RMC estimating system. A BAR employee, after reviewing the documents, advised that the documents and process utilized were non-compliant because the amounts were based upon a hours X money calculation and also contained included items not specified. Then  the employee stated they could do nothing.
The insurers drive the systems, but consumers are not given full disclosure and shop owners are held responsible for it and the outcome.
Meanwhile BAR stands idly by and allows it to happen. These non-compliant processes facilitate short payment by insurers for costs directly related to bundled job operations (included operations) and for short payment of materials costs which can adversely effect the customer. The shop in both cases takes a hit to its bottom line while holding all the responsibility associated with non-compliant documents that could result in lengthy and costly litigation.
BAR’s Mission Statement is “ to protect and serve California consumers by ensuring a fair and competitive automotive repair marketplace…”
The BAR, since adopting the new regulations, appears to have lost its way and instead of protecting consumer interest, they are protecting insurer interests.
In the meantime, the shop is left holding the bag, never knowing when BAR will decide to enforce the provisions of 3356 against a shop and subject the registrant’s license to discipline.
BAR’s lack of action on this issue could lead one to wonder why the agency is uninterested in this consumer issue if it went to the trouble of changing the regulatory requirements?
Is BAR’s motivation to ignore these issues overshadowed by insurer influence? Or were these regulatory changes not intended to protect consumers in collision repair transactions? You decide!
As previously stated, the solution is simple, put system providers on notice that non-compliant programs utilized by registrants will not be tolerated, or modify the requirements of C.C.R. Section 3356.
When the regulator performs its function, the playing field is level and consumers are protected.

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