Hire and Rental News - February 2019

Granted, there are some cases where an argument for stand downs could be seen as valid. For example, compaction equipment cannot be used in wet weather. Stand Down policy – where did it originate and is it still valid? Mid last year, Gary Radford, CEO at Rhino Power commented on LinkedIn about the absurdity of the industry’s ‘Stand Down Policy’, especially when compared to other rental markets like car hire, and questioned its ongoing validity and value to the industry. Flagged by the HRIA, Hire and Rental News took up the challenge, looked into the policy, discovered some interesting intel and also asked industry members for their official stand on the hire industry’s ‘Stand Down Policy’. G ary Radford’s LinkedIn comment I started in equipment rental straight out of school. I have been in or around it ever since. One thing that has always perplexed me is the concept of stand downs. For those of you outside the industry, a stand down is when a customer has a piece of your equipment on rent and tells you it is not being used that day and therefore asks you to ‘pause’ billing. When you’re inside rental it seems like just a part of life; an annoyance that affects your projections and bottom line, but most of us accept it as a part of the game. When you stand back and take a look at it though, it is quite incredible. If you rented a car from Avis and decided not to go driving on a particular day, the idea of being able to ring them and tell them you’re not paying for that day just seems ludicrous. You couldn’t even ring up and stand down a $30 DVD with Blockbuster (showing my age) by saying you don’t feel like watching it today. Yet in equipment rental, a customer can often stand down a piece of plant worth hundreds of thousands of dollars. What is really happening is the customer is putting a hold on a big chunk of a rental company’s capital and preventing them from renting it elsewhere. I’m sure it seems surreal to those of you outside the industry. How this became the norm is a long and convoluted story, but with the extreme consolidation of the industry at the big end, what is more surprising is the practice has endured. So why does it continue? My view is there are three reasons: 1. The customer has come to view it as the norm: As per the above, the same customer that views this practice as a right in equipment rental would not dream of doing it to Avis; 2. Competitors use it as a selling tool: This is a broader problem in rental with a general lower level of sophistication on pricing and its effect on margins. There is a palpable fear in the bidding process that “if we don’t allow stand downs, someone else will.”; 3. The big players have not put their foot down: The $2bn B2B rental market is dominated by a few large players. Decisive action by these players on stand downs has been slow in coming. Granted, there are some cases where an argument for stand downs could be seen as valid. For example, compaction equipment cannot be used in wet weather. When it rains, the customer literally cannot use this gear, but more importantly, the rental company would also be unable to rent it out elsewhere within that geography. It is my view however even this is a product of becoming used to the practice of standing equipment down. I personally find this practice interesting in it seems to be fairly unique to equipment rental. I would love to hear others’ thoughts from both within and outside the industry. Yes, Gary we would love to hear the industry’s comments too. So we asked. We also got some interesting feedback including the origin of this industry policy. Origin of the hire industry’s Stand Down Policy Access Hire’s Managing Director, Tim Nuttall said he was probably at the front of the queue when Stand Downs were first introduced and established in the hire industry. Tim said the first incidence of Stand Downs occurred back in the late 1970s around ’78-79 when the very large Loy Yang construction project was underway. “The Loy Yang job was a $5bn job which was the biggest job in construction at that time. (If it was equated to today’s monetary terms we would probably be talking about a $20bn job. That’s big.) The country was in recession and that was the only job in Australia really cranking. “There was some bad weather and Loy Yang asked for the rates to be cut for the days they couldn’t use the equipment as a result,” Tim said. “Now one of the hire companies supplying to the project had originated in the construction industry themselves so they had strong sympathy for the plight of the project, and conscious of the goodwill to be generated, accommodated the request. “So the policy came out of the incidence of bad weather at the Loy Yang project back in the late 1970s and progressively flowed across the country as construction companies used them as a competitive bargaining tool. “Stand Down policies then flowed to RDOs (rostered days off), actually becoming industry standard, with strike days, strong wind days also accommodated and also progressing to include public holidays,” Tim said. However there was an eventual push-back by the industry. “Sometime around the late 1990s or early naughties, Coates Hire pushed back and tried to limit the damage to its bottom line by establishing some solid ground rules,” Tim said. “By this stage, there was a real mixed bag of Stand Down policies in place throughout the industry. Some companies offered a ‘time out, time used’ or ‘non-use day’ stand down policy clause which could see contractors calling to ask for rates to be cut because they didn’t expect to use the equipment on a particular day even though they had hired the equipment for that period. “This equipment was obviously tied up under the original hire contract and unavailable for rehire, effectively becoming an unused and un-hire- able asset for the hire company for that period. “So once Coates Hire and other industry members pushed back against this policy, an EWPA led industry policy was drafted and set and now exists on the EWPA website. It has become the industry standard for ‘Stand Down Policy’,” Tim said. So what does the industry say about Stand Down Policy and how do they accommodate it within the scope of their own businesses? Mark Scarce, Managing Director at Camden Hire in Sydney said its Stand Down Policy is limited to specific circumstances. This includes: • Wet Weather – but this only pertains to certain items, mainly earthmoving and compaction; • Public Holidays or RDOs; • Special Circumstances – maybe a long term hire (2+ months) and the company may have some sort of a problem; we may P24 HIRE AND RENTAL NEWS FEBRUARY 2019 INDUSTRY IN FOCUS