A Comprehensive Guide to Fleet Tracking Systems


Chapter 13

What are the things that you would need to know when it comes to fleet management systems contracts and license agreements? Here are some points:

What are the types of fleet tracking contracts and license agreements?

There are two transactions involved in fleet management systems. And that is to lease or to buy. When you lease, you pay for the use of the fleet management systems, but you will not own it. You will be able to use the fleet management systems then return it when you are done. There are different kinds of leases as well. The closed-end lease involves a fixed term. For example, you agree to lease the fleet management systems for three years and you pay a fixed monthly fee to the provider or some other rate terms that you agree on. In this type of lease, the lessor bears the risk of the residual value of the fleet management systems.

Another type is the open-end lease, which has a shorter term such as a year or 18 to 24 months. After the initial contract period has lapsed, the lessee can continue to use the fleet management systems month after month until the company decides to terminate the lease. In this type of lease, the lessee bears the risk of the residual value of the fleet management systems.

With leasing, the provider would take care of administering the fleet management systems and you do not have to worry about how to dispose of the systems when you are done with it.

Then there are also companies that choose to purchase their fleet management systems.

Another way to name leasing and buying contracts are:

  • Perpetual license
  • Subscription-based

In this light, you can look at it this way: In perpetual license, you buy the devices and the software and use it forever. When you go subscription-based, you are basically leasing the equipment and the software for a period of time. Perpetual licensing has very high costs upfront, but you can save later on because there are no recurring fees to bother with. Meanwhile, you pay minimal initial costs with a subscription, but you would need to take care of the monthly, or recurring, costs.

What are the things you should look out for, such as hidden costs and some miscellaneous fees, of fleet tracking systems?

There are things outside of the monthly fees and the costs of the device and the software that you would need to keep in mind when deciding on a fleet management systems. That includes the hidden fees, such as roaming charges for vehicles with routes that go out of the country’s boundaries, or charges that you incur if you transfer the tracking devices to new vehicles. You might also have to deal with termination fees should you decide to leave your current provider. You can avoid hidden costs by asking your provider to put all the charges and fees on the contract and telling them that you would not pay more than the stated amount. You might also want to consider customizations and integration costs. You might be opting for a solution that is very inexpensive and cheaper than competitors, but you end up paying more because you spend countless of hours and manpower just to have it work with your current systems.

Furthermore, support is also a consideration. You need to consider the costs of setup, installation, training and other types of support that you might need when it comes to using your software.

How to negotiate a fleet management contract or agreement?

A fleet management contract or agreement is one of the easiest ways to ensure that you will be satisfied with the service provider in the long run. The good news is that you can negotiate most parts of the agreement or contract, which means that you could get what you want and what you need out of it easily, and therefore priming you up for success.

There are two major items that are included in the fleet management agreement, and that is

  1. services and
  2. leasing.

The leasing part should also include purchase or disposal of the systems.

Leasing is a financial item, while services is an operating item, yet both have clauses, costs and processes that are largely negotiable. Find out which ones are non-negotiable and which ones are up for discussion, to make sure that you can get the most out of the agreement or contract.

The contract should cover the cost and the contract service.

The cost involves the factors that constitute the lease payments. This may include other fees that are included in the transaction. Meanwhile, the contract service outlines the responsibilities of the vendor.

And between these two items, the contract or the agreement should also cover price, performance and legal issues.

Going back to knowing what is negotiable, we need to focus on TRAC leases. This open-ended type of lease is the most commonly used in fleet management. A TRAC agreement allows you to pay for the original cost of the fleet management systems in installments. You will be able to terminate the lease at any time, provided that the minimum required term, or lock-in period, has elapsed. Lease payments would include the monthly amortization of the equipment, depreciation charges and administrative fees. And this usually involves capitalized cost, which you could negotiate. Ask that the lessor minimize the holdback amount and base the capitalized cost on net cost, rather than factory invoice cost. Or perhaps to use a lower lease rate factor. You should negotiate for a flexible depreciation cost, as well as avoid a single amortization rate. Other factors you could negotiate are fixed vs. floating money cost charges, lower rate bases and lower markups. Lastly, negotiate for an administrative fee that is at par or lower than the administrative fees paid by other fleets of a similar size to yours. Cost related items that are not negotiable includes the minimum number of months that you would need to keep your fleet in operation.

In short, negotiate for the lowest payments and costs as possible, while also getting more and more services included in the contract as your business may need.

How to introduce the new systems to your team?

You can negotiate for the lowest costs and the most number of features, avoid hidden charges, and all that stuff to ensure that you get the best deal out of your fleet management systems. But all of that would be for nothing if your employees do not use the systems, or worse, resist it. And this is the reason why you should take time to plan on how to effectively introduce the new systems to your employees.

By law, you would need to inform your employees when you plan to put tracking devices into your vehicles. Not only that, you would need to get their consent as well. You might expect some resistance from your team because of privacy issues and the fear that these devices might be used against them and threaten their employment.

The first thing you should do is to inform them what the company plans to do with the data you get from your fleet management systems and what these are going to be used for. Be honest in communicating with your goals, which may include fuel savings, corrected bad driving behavior, and promote safety on the road. It could be because your company wants to provide better customer service or is looking for value added services to incorporate to the fleet and its business.

It would also help if you could inform your employees just what types of information are going to be gathered by the systems, and how these data could be used to achieve your goals.

Then communicate the benefits that a fleet management systems can give you. That includes safety benefits, such as being able to schedule maintenance smartly, and being able to locate stolen vehicles. Or you could focus on service benefits, and the overall savings that such a systems can give you.

Furthermore, you would need to answer any questions that they might have. This might include how fleet management systems might affect their work and how to use it. This is also where concerned employees might be able to voice out their misgivings about the new systems, and is a great venue for you to reassure them that data from your fleet management systems would not be used against them, rather to help them improve their performance.

Lastly, do make sure that you provide your employees with training on how to operate the equipment. Your drivers might want to learn how to operate and troubleshoot the tracking device. If your tracking devices come equipped with a privacy button, they will want to know how to activate and use it. Those employees in the office will want to know how to use the dashboard to get the information they need, as well as how to generate reports and get insights, among other things.