Does a Lower NTE Mean Lower Costs?

Overview

Not To Exceed (NTE) thresholds for sign service work are contracts between the customer and service provider that set limits on work that can be performed without receiving additional permission. Many customers make the incorrect assumption that lower NTE’s save them money in the long run. That’s not the case and here’s why.

Key Challenge

If NTE’s are set too low the local crew is always going to be asking for permission to charge more. Time is wasted as they wait for a response or, worse yet, get no response and must return for a second trip. Additional trip charges and travel time can add hundreds to an invoice very quickly. If NTE’s are set too high customers think they are giving the service provider a blank check to charge anything they want. There’s a sweet spot and here’s one way to find it.

Proposed Solution

If you don’t have access to average service call invoice data for the last 12 months, ask your service provider. One method of setting the NTE is to use the 80/20 rule. Set an NTE that covers 80% of the invoices and require follow-up permission for the other 20%. Make sure the there’s a primary, secondary, and even tertiary contact person so crews don’t sit in their trucks wasting time. You’ll be paying for that wasted time one way or the other. Revisit the new NTE in 6 months to analyze the impact on average invoice cost, mean time to completion, first trip fix percentage, and average onsite repair times. Your NTE is not set in concrete. Finding that sweet spot may require some testing.

Lessons Learned

The goal is to set a reasonable NTE that works for both you and your service provider. Regardless of the method used, be sure to create metrics or KPI’s (Key Performance Indicators) that you and your service provider periodically review. Quarterly or semi-annually will work nicely. It’s amazing that just knowing data is being reviewed on a regular basis tends to make the numbers improve.