vehicle lease

7/29/2019 vehicle lease

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Central Unit on Purchasing HM Treasury

Thi s i s one o f a s e r i e s o f gu i da nc e s p r e pa re d pro fe s s i ona l p r a c t i c e . D e pa r t me n t s s hou l d

by CUP on pu rc ha s i ng a n d s upp ly p roc e du re s c o n s i d e r i n c o r p o r a t i n g t h i s g u i d a n c e i n t o

and p rac t i ce s . The gu idance i s no t a l ega l t h e i r in t e r n a l p u r c h a s i n g a n d s u p p l y

d o c u m e n t b u t a s t a t e m e n t o f g o o d m a n u a l s .

1. INTRODUCTION

1.1 This guidance provides advice to departmentsthat are operating, or considering the introduction of,car contract hire or lease schemes, whether vehiclesare for departmental use only or also for private useby employees.

guidance can only provide general advice onevaluating, introducing and managing such schemes,It does not represent a comprehensive guide to fleetmanagement requirements.

1.2 Departments should be aware that a contracthire scheme will not in all cases provide the bestvalue for money for the provision of vehicles. A cost

assessment model has therefore been issued asguidance no. 24b which will assist departments whenassessing the costs of possible alternatives. Thismodel can also be used to assess the performance ofexisting schemes.

2.3 This guidance gives advice on the generalprinciples of the task of managing a scheme (seesection 6); but it does not cover the in-housemanagement of departmental car fleets. It alsoprovides advice on the management of contract hireschemes which are in operation. This is an important

area, often neglected, which is essential if a schemeis to be managed properly against the statedobjectives in performance and cost terms.

1.3 Although contract hire is a service, theprocurement of goods and equipment, in this way,above certain thresholds is covered by the ECSupplies Directive and the GATT Agreement onGovernment Procurement (GPA). In particular, thereare specific rules covering advertising, tenderingprocedures, technical specifications, the selection of

tenderers and the award of contracts. Departmentsshould ensure that they comply with these rules andshould refer to Guidance Notes on Public SectorPurchasing: International Obligations SuppliesContracts issued by PSP Division, HM Treasury.

2.4 It is also designed to explain the modeldocuments in the companion guidances (nos. 24b-e)and to indicate the scope for alteration thatdepartments will need to consider. However, themodel documents are inter-linked and therefore ifdepartments make changes to the provisions of anyof the individual documents, they must ensure thatthey make the necessary changes to other related

documents.

2. SCOPE

2.1 This guidance is intended as a practical guide toassist departments in the evaluation andimplementation of contract hire and lease schemesfor the provision of vehicles used either as officialcars or supplied to users under an employee

participation lease scheme. It also covers, whereappropriate, the provision of commercial vehicles.

2.5 It is recommended that departments award atleast three separate contracts to competing suppliersand as these do not guarantee any individualsupplier a minimum amount of business, competitivepressures should limit price levels for new vehicles,However, once a vehicle is on contract, increases inrental are only permitted under specificcircumstances.

2.2 In view of the wide variety of vehicles requiredand the varying operational requirements, this

3. DEFINING FLEET REQUIREMENTS

0fficial cars

3.1 Where there is an existing fleet of official cars(defined as those provided exclusively for businessuse), this should provide sufficient definition of the


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fleet size and composition. The principalconsiderations for the use of contract hire will thenbe the financial savings which may result fromleasing as an alternative method of funding and thepotential for improved fleet management.

3.2 Where departments are consideringestablishing a fleet, whether by outright purchase orcontract hire, the number of vehicles will be

determined by the estimated usage of each vehiclecompared with the alternatives (eg spot-hire, publictransport etc).

E m p l o y e e S c h e m e s

3 .3 The introduction of employee schemes requirescareful research in order to establish the potentialfleet size. Any proposed scheme must first bedefined in some detail before it becomes possible todetermine how many cars are likely to be required,a checklist is attached at Annex A.

3.4 Having established how many employees arelikely to be eligible, it may be necessary to conductresearch on historical mileage claims to establishhow many of these will in fact qualify within thedefined minimum criteria. A further exercise shouldthen be undertaken to assess the potential employeetake-up amongst those who are eligible and likely toqualify for participation, perhaps by questionnaire.Once these factors are established then an indicationof the likely fleet size can be obtained. This will be asignificant factor in determining the necessarymanagement resources required.

O bj ec t i ve s

3 . 5 Departments should determine and recordclearly the objectives of any scheme for the provisionof leased or contract hired vehicles, whether officialvehicles or cars to be provided to staff under anemployee participation scheme.

Typical objectives might include:- reducing the cost of paying standard rate MMA;- improving staff recruitment and retention;- reducing vehicle service, repair and

maintenance costs;

-

providing more effective vehicle fleetmanagement;

- reducing the cost of funding and acquiringvehicles;

- improving control over the provision andreplacement of vehicles;

- improving staff productivity.

Types o f Le a se / H ire Ag re e m e n t

3 . 6 There are a wide variety of agreementscurrently available, many of them designed to meetparticular requirements in the private sector. The

attraction of each depends upon the specificrequirements of the hirer, eg- whether VAT registered or not;- the value of vehicles to be purchased;- the need for off balance sheet funding ie where

the hired vehicles are not considered as assets ofthe company using them;

- restrictions on cash available for purchase;- the need to realise cash currently tied up in

vehicle assets.

However, many of these factors are not directlyrelevant to the public sector, where leasing shouldbe seen as a means of improving the efficiency of

fleet management, and not as a source of additionalfinance.

3. 7 The principal methods of commercialacquisition are outlined below.

O u t r i g h t P u r c h a s e

Acquisition confers an immediate right of ownershipand all risks associated with ultimate residual valueare borne by the owner.

Hire P u r c h a s e

Regular payments of capital plus interest ultimatelygive ownership of the vehicle, with similar risks andbenefits to outright purchase.

Le a s e P u r c h a s e

Similar to Hire Purchase, save that a forecastedresidual value (balloon) is calculated, reducing theregular repayments of capital until the end of thecontract when there is a final amount consisting of aballoon payment usually derived from the saleproceeds. Initial cash flow is improved comparedwith Hire Purchase.

F i n a n c e L e a s e

The principal difference between a Finance Leaseand an Operating Lease (see below) is that in aFinance Lease the lessee participates in the residualvalue risk and may have the option to acquireultimate ownership.

O per a t i ng Leases

These are defined as agreements where the hiringcompany takes the substantial part of thedepreciation risk. In practice the ownership of the

vehicle remains with the hiring company throughoutits life and the hirer merely pays rentals, having noultimate claim to ownership nor participation in theresidual value risk. Other forms of agreement areless attractive to government departments as therentals are higher, with the ultimate ownershiptransferring to the hirer.

(i) C o n t r a c t P u r c h a s eThis method of acquisition has merits forbusinesses that are not VAT registered, or whoare unable to recover the VAT on rentals. A

further attraction is the more favourable taxationtreatment when cars costing in excess of 8,000are acquired. For these agreements to beconsidered true Operating Leases, the contractmust clearly state that the hire company is


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(ii)

taking the residual value risk and not the hirer,However, they are likely to be of little benefit todepartments.

Contract HireContract Hire is a form of Operating Lease. Itmay or may not include provision formaintenance costs, licences and associatedoperating costs. All contract hire rentals attract

VAT. The costs to a hirer upon prematuretermination can be high, particularly in the earlystages of a contract.

Conclusions on Methods of Acquisition

3.8 Other than outright purchase, an OperatingLease arrangement, such as contract hire, is likely tobe the most advantageous. This is because it is likelyto offer the best value for money and can provide aninclusive charge for maintenance, road fund licenceand associated running costs of the vehicles. Inaddition, all risks associated with the sale of the

vehicles are borne by the hiring company.

and receipts. Where a department chooses anannual payment profile, it may still be possible tovary the payment periods without additional cost sothat balanced payments occur in each financial year.For example, on a new 3-year contract commencingin month six it should be possible to profile thepayments to obtain four payments instead of three:the first would be for six months, followed by twoannual payments and finally one six monthlypayment. This will result in much more realisticbudgeting than permitting a full 12 months paymentin month 6 of the first year.

Drafting Tender Documents

3.12 Exercising care in the preparation of TenderDocuments is essential, Having identified the preciseservices required, these should be detailed in aclear and unambiguous manner within thespecification of the tender. The almost inevitabletendency for tenders to become verbose andunintelligible should be resisted. Where potential

suppliers are unable to understand the intent of thedocument, then its purpose is destroyed. At worstsuppliers will withdraw and not respond. At bestthey will respond, but ineffectively, thus eliminatingthe true purpose of a competitive tender.

Public Expenditure Definitions

3.9 The terms operating and finance lease areused in this guidance as these are terms which areunderstood by the hiring companies. However,departments should be aware that similarterminology is used for the purposes of PES. TheTreasury recognises two types of lease: financial andoperational. For a lease to be operational its periodwould usually be short in relation to the usefuleconomic life of the asset and undertaken for

operational reasons rather than as a source of extraincome. A lease which does not fulfil the criteria of anoperational lease is a financial lease. In practiceleases defined in private sector usage as operatingleases are nearly always also operational leases.

3.13 Provide all the information that potentialsuppliers are likely to require, but at the same timegive them the opportunity to demonstrate theirinitiative in the provision of services. As an example,when requesting quotations for contract hire be sureto specify the appropriate levels of utilisation andtype of vehicles required. However, leave it to thesupplier to determine which makes/models theyoffer and also the optimum term for the period ofhire. These may well vary according to the type ofvehicle and the degree of utilisation demanded.

Vehicle Specifications

3.10 As a general principle, better value is obtainedwhere vehicle requirements are kept in line with themanufacturers standard specifications eg fitted sunroof, car radio etc. Where an enhanced specificationis required it is preferable to choose a model

equipped to the required standard by themanufacturer, rather than attempt to enhance thespecification through the inclusion of optional extras.This is because optional extras and accessories haveonly a very small effect on ultimate residual value. Inpractice, the extra cost of all such items will be fullyamortised over the vehicles contract life andconsequently increase the true depreciation. Higherspecification models from manufacturers do, on theother hand, generally obtain better residuals upondisposal.

Budget Preparation3.11 Full provision for all anticipated expenditureand income should be made in annual budgets.Attention should be paid to the timing of payments

3.14 In addition to simply obtaining rates forcomparison, it is also important to ensure that apotential supplier reveals details of how the servicewill be provided and maintained. To aid the processof evaluating tenders, provide a standard format forthe submission of quotations containing all theessential requirements. Guidance on tendering

procedures is contained in guidance no. 2 4 c

Advertising Requirements(Initial Invitation to Tender)

3.15 Effective advertising requires careful selectionof the appropriate medium. For contract hire on anational basis advertising should also be on anational scale within the appropriate trade journalsor magazines. Advertisements should reflect theintentions of the tender and the details of thespecification as far as is practicable. Carefully statedrequirements will eliminate time wasted in

processing applications from those companies thathave misinterpreted the requirements and at thesame time attract the attention of those companiesable to provide precisely the service required.

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Evaluation ofTenders most practical method of resolving this dilemma. A

3.16 Departments should refer to guidance nos. 1& model agreement (the Master Hiring Agreement)

19 on Post Tender Negotiation. In this context, it is and schedule (for each vehicle hired under the

essential to follow up references and obtain first hand agreement) which departments can use has been

experience of companies that are shortlisted as issued as guidance no. 24d. This agreement should

suppliers. Also, detailed investigation of suppliers cover all the services that departments are likely to

financial health is critical. Contract hire and leasing require and at the same time afford the contract hire

are effectively funding operations requiring company reasonable security and protection.

substantial financial backing and efficient However, it is not weighted as heavily in favour of the

management. Awarding a contract to a supplier whoHire Company as are many such agreements and

subsequently goes into receivership or bankruptcy contains no clauses that are unreasonable to either

runs a high risk of financial losses (see also party.

paragraph 4.37).

4. VEHICLE LEASE/HIRE CONTRACTS

Contract Terms

4.1 Vehicle hire contracts can vary considerablyfrom company to company and there are very fewstandard types. However, the British Vehicle Rental

and Leasing Association (BVRLA) does provide astandard form of contract and this is used by somesmaller companies. Most of the larger nationalcompanies have their own forms of contract whichmay be varied according to the needs of thecustomer. All contracts need to be very carefullychecked to ensure that no unreasonable or unfairclauses are included and therefore it is imperativethat sufficient time is provided for all clauses to beread in detail well in advance of entering into such acontract.

4.2 Conventional practice is for both parties to sign

a Master Contract of a specified duration-

normallyin the range of 1 - 3 years. This contract will containall the essential terms and is likely to modify thestandard terms of the Hire Agreement, one of whichwill be completed for each vehicle hired. It isimportant to note that the Master Contract should notcontain a commitment to hire any specific number ofvehicles nor confer any exclusivity that wouldpreclude the use of alternative suppliers (see alsoparagraph 4.18).

4.3 Where contracts are entered into with a numberof suppliers, each utilising a separate agreement,practical difficulties can arise. For example,employee agreements need to reflect the terms ofthe Master Contract. Where these vary it is eithernecessary to produce a number of separateemployee agreements (increasing confusion to bothemployees and management) or the employeeagreement cannot be sufficiently precise. Confusionis likely to result and errors made when the terms ofthe various contracts are invoked. Furthermore, thegreater the differences in the terms of differentcontracts, the greater the difficulty in comparingthem in order to determine which offers the best

value for money.

4.4 The adoption of a standard form of contract, towhich suppliers give their assent, is potentially the

4.5 Furthermore, the associated model EmployeeAgreement (issued as guidance no. 24e) reflects theterms contracted with the hire company and thusreduces the departments exposure to anyunforeseen or additional charges. The use of astandard agreement between contract hirecompanies and a department will greatly simplifyadministration, permit the use of a standardemployee agreement, and allow proper cost control.

Collection & Delivery Costs

4.6 Whilst these are not always charged, it is quitecommon to find that if suppliers are charged for anyreason, such costs are suddenly imposed for thecollection of vehicles coming off contract and canamount to a significant figure. It is preferable toeliminate these charges through clear delegation ofresponsibility in the contract or at least to insist thatthey are included in the contract price at the outset.

Purchases by Staff4.7 A feature often offered by contract hirecompanies is the opportunity for the employee to buythe vehicle at the end of the agreement. It maytherefore be useful to have a maximum value for thepurchase of the vehicle declared in the agreement atthe outset. This would indicate to employees themaximum amount they will be expected to pay ifthey wish to purchase their vehicles,

Term of the Agreement

4.8 Contract hire companies will provide vehiclesover terms ranging from 6 months to 5 years. Most oftheir customers usually opt for a term such as 2 or 3years linked to the anticipated utilisation. However, itis better to ask contract hire companies to indicatewhat they would consider to be their minimum rentalfor any projected rate of annual utilisation. This mayproduce a hire agreement period different to thatoriginally planned but could produce useful savings.For example, where the total utilisation does notexceed 12,000 miles per annum, a term of 4 or even 5years may provide a lower monthly rental than thestandard 3 years. Conversely, where utilisation

exceeds 20,000 miles per annum, a term of 2 oryears may be more appropriate to achieve a lowermonthly rental. Actual costs will also vary withindividual makes/models of vehicle.

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Va r i a t i o n s i n R e n t a l

4 . 9 Once an agreement has been signed for thesupply of a particular vehicle there should generallybe no increase in the rental during the term of theagreement with the exception of the road fundlicence, where this is included. The only otherpossible exceptions are any changes in taxation laws(eg entitlement to capital allowances) or allowancesthat may be beyond the control of the contract hire

company but nevertheless could affect the rentalspaid. With these exceptions the risk of all othervariables rests with the contract hire company.

4.10 Where schedules of rates are provided for newvehicles these will be increased at regular intervalsby the contract hire company to reflect increases ininterest charges, vehicle purchase costs andmaintenance. These should be challenged andwhenever interest rates reduce or vehicles areavailable at preferential prices (with rebates,additional discounts, bonuses etc), the hire company

should be requested to reflect these in the rentalsbeing quoted.

F i x e d P e n a l t y N o t i c e s (e g P a rk i n g F i n e s e t c )

4 . 1 1 The procedure that should be followed if theemployee does not pay such penalties and they aresubsequently recharged by the hire company shouldbe clearly defined. The recharge may attract anadministration fee and in any case will attract VAT onthe original fine. Ensure, where fines or penalties areissued in error, that these are not paid automaticallyand that there is the right of redress against the hirecompany where it pays the fine without checking

whether or not it had been correctly imposed.

4.12 Many suppliers limit the maximum number oftyres that can be fitted during the vehicle agreement.Quite often this is only 4 or 5 replacement tyres in a 3year contract. Such clauses are unnecessary and, if asupplier contract is used, should be deleted as allcontracts are negotiated on the basis of definedmileage and the supplier must make cost allocationsappropriately.

F a i r Wear & T e a r4.13 This clause is often inserted into suppliercontracts to give suppliers the opportunity torecharge certain repair and maintenance itemswhich they consider are not fair wear and tear andhave not been included in their maintenance budget.Examples are prematurely worn tyres, clutches,brakes etc. Such clauses should be deleted, wherepossible, due to the difficulty of applying them on anequitable basis, These terms are effectivelyredundant where the definition of abuse, neglect ormisuse is included.

Miscellaneous I t em s

4.14 It is common for suppliers own agreements toexclude items such as glass headlamps, lenses,

reflectors etc from the maintenance agreement.Damage to such items is therefore chargeable to theclient. In the case of glass and windscreens, costs areusually recoverable under insurance without loss ofno claims bonus. However, items such as brokenheadlamps or rear lamps can be expensive and arefrequently recharged to clients. Where commercialvehicles are hired, the list of exemptions can bemuch longer and frequently includes items such as

batteries, maintenance or repair to any of thebodywork on the vehicle and any items orequipment mounted or fitted by the client. All theseexceptions need to be studied in great detail andonly accepted once they are fully understood andconsidered reasonable within the terms appropriateto the use of the vehicle.

P a y m e n t P ro f i l e

4 . 1 5 Many suppliers providing contract hire orleasing facilities to departments offer the benefit ofreduced rentals in return for annual rental payments

in advance. Compared with the more traditional 3months advance payments followed by 33 monthlypayments, there is a significant cash flow advantageto suppliers, A reduced payment frequency alsoimplies a saving in administration costs. However,before assuming that the reduction in rentals offers areal cost saving to the department, an assessment ofthe impact on the departments cash flow should bemade, using the guidance in guidance no. 24b.

Ve h i c l e Ag r e e m e n t s (Hire A g r e e m e n t s )

4 . 1 6 U n d e r many supplier agreements, when each

vehicle is hired under an overall master contract, anindividual agreement is completed and signed by anauthorised person. These agreements contain alarge number of terms and conditions which may ormay not be varied by the terms of the overridingMaster Contract. Whilst the terms of suchagreements should not vary during the currency of acontract, it is essential to understand fully theimplications of these terms and their applicationeither during or at the termination of a hire period.Simplified administration will result from the use ofthe standard form of contract/agreement in guidanceno. 24d.

P r e m a t u r e T e r m i n a t i o n

4 . 1 7 It is quite normal for the terms of prematuretermination to be very expensive for the client withcharges to be paid ranging from a minimum of 6months rental to the balance of all outstandingpayments for the duration of the agreement. This is aclause that needs particularly careful attention.Where possible, departments should try to agree acharge for premature termination that diminishes asthe contract ages. Terms that rely on the supplier todispose of the vehicle and obtain a value to offset the

amount owed by the client should also be viewedwith caution as this value could vary considerablydepending on the efforts made by the supplyingcompany to achieve a reasonable sale price

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Premature termination should only be considered asa last resort where the contract cannot be re-scheduled or the vehicle re-allocated.

Limitation of Price Increases

4.18 Fixing the costs of future agreements to providecars under contract hire is extremely difficult. As thecost is calculated on a combination of factorsincluding interest charges, original cost of the

vehicle, residual value etc., it is not practicable tolink movements of rentals to indices or even, forexample, to the purchase cost of the vehicle. It isessential therefore to have a number of suppliers, atleast three, each offering comparable models. Theuse of competitive services is the only effective wayto limit increases in rentals for future hiring.

Limitation of Excess Mileage Charges

4.19 This somewhat innocuous figure is generallyignored at the start of an agreement as the user willoptimistically consider that the vehicle will be

returned within the anticipated mileage limit,However, terms are often included which permitthese excess mileages to be charged on an annualbasis in the currency of the agreement. Therefore avehicle which had utilisation even in its first year inexcess of the contracted norm could attract anexcess mileage charge. Such charges can vary fromaround 4p to as much as 30 or 4Op per miledepending on the vehicle. As this figure is intendedto cover only the additional maintenance anddepreciation costs of a vehicle which runs beyond itscontracted mileage every attempt should be made tonegotiate these to the minimum acceptable level.

4.20 Ensure in any existing contracts that there isprovision for aggregating the mileage on all vehiclesreturned within a specified period, say a calendarquarter, All vehicles below contract mileage shouldbe included and all those with not more than say 25-30% above should also be (see also paragraph 6.12).Due to the inherent complexities of administering theaggregation it is proposed in the Master HiringAgreement (guidance no. 24d) that a charge orcredit will be calculated on each contract as it isterminated and these can then be netted quarterly.

Replacement Vehicles

4.2 1 In the case of schemes for official cars,departments may well consider it good value formoney to include the provision of a replacementvehicle. However, it is important to remember thatthe full costs of this provision are included in theinitial contract price and therefore this option shouldonly be taken where there is a justifiable reason.

4.22 Whilst a replacement vehicle is not generallyappropriate for employee schemes, where

employees participate and are required to providetheir own insurance cover, it should include the costof a replacement vehicle under the policy if requiredas a result of an accident. Look carefully at thequalifying period to ensure that a replacement

vehicle is going to be available when it is needed.Typically they are not available for at least 24 or 48hours after the vehicle is taken out of service.

4.23 There may also be an upper limit on the totalnumber of days hire permitted on any one occasionor in the course of a year or the duration of theagreement. These limits should be deleted wherepossible. A clause may also be inserted allowing

additional hire charges over and above the limitsimposed to be recharged to the department. Thisshould be resisted or at least negotiated so that thecharges are known in advance. Where areplacement vehicle of the appropriate category isnot available and the supplier substitutes analternative or a higher specification it should beensured that any charges made as a result of adifference in daily rental are not the responsibility ofthe department.

Fleet Ins u ran ce

4.24 Vehicles acquired for official use will becovered by Crown Indemnity, which may beextended to the official use only of lease carsprovided to employees. Under these circumstanceshire companies may require a suitableindemnification clause to be included in the contractso that they can recover the full costs of anysubsequent accident damage or total loss notattributable to a third party.

4.25 Where a department obtains a warrant inrespect of its employees liability for insurance for

private use, a similar indemnity may be required.Note: Under the Motor Vehicle (Third PartyRisks Deposits) Regulations of 1967 any personmay make application to the Secretary of Statefor Transport for a warrant to enable a deposit of215,000 to be made with the Accountant Generalof the Supreme Court. This may be done as analternative to providing an insurance policy.

4.26 Where comprehensive cover is provided by aninsurance company, departments should ensure thatthe insurers are aware that the vehicle is hired to the

department and made available to an employee forbusiness and, if appropriate, private use, in return fora contribution towards the cost of hire. Departmentsshould also ensure that the full cost of replacementwith a new car will be provided in the event of a totalloss occurring within the first six months of a vehicleentering service to offset any claims resulting frompremature termination received from the contracthire company. Fleet insurance rates can varyconsiderably and departments are recommended toobtain alternative quotations prior to every renewal.Premiums are determined largely by the value of the

fleet and its previous claims experience. Where afleet is being acquired for the first time and noprevious claims experience is available, insurers cantake very different views on the degree of risk andconsequently the premiums required.

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Employee Participation Schemes

4.21 Where employees are to be provided with ahired vehicle and reimbursed for its business use,further options are available if it is decided to insurefor the official use element. One option is to requireemployees to provide their own privatecomprehensive cover with the inclusion of businessuse on the policy. Employees can then bereimbursed either by annual lump sum or in relation

to their business mileage.

4.28 As civil servants are able to participate in anumber of unique insurance schemes devisedespecially to meet their own requirements atcompetitive premiums that reflect the low riskstraditionally associated with this employment, manyemployees may favour this option.

4.29 Another option is to extend any cover currentlyprovided for the departments own vehicles to coverthe business use only of cars provided to employeesunder a lease scheme. Separate cover could then beprovided (either by the department or by the user)to insure the private use element separately. Wherethis is provided by the department the cost wouldneed to be recovered in full.

4.30 A major disadvantage of departments providinginsurance cover is the level of additionaladministration required, not only to provide andrenew cover, but also to obtain, process andprogress accident claims, including the recovery ofuninsured losses from third parties. Where thisresponsibility is transferred to the employee there is

a useful saving in administrative cost plus an addedincentive to employees to take every care of theirvehicles and thus avoid any claims under theirinsurance.

Premature Termination Cover

4.3 1 For a fee, departments can obtain cover toprotect them against the financial penaltiesassociated with premature termination of a hireagreement. Terminations can occur in situationsbeyond the control of departments, where it wouldnot be reasonable to require the employee to make a

contribution, but would nevertheless exposedepartments to a possible financial liability.

Vehicle Renewals

4.32 Renewal of specific vehicle agreementsrequires considerable forward planning if it is to beachieved without cost penalty, and can take adisproportionate amount of administrative time. Theprocess of renewal needs to start at least six monthsbefore a new vehicle is required, possibly longer inthe case of a commercial vehicle. In the case of

vehicles operated by the department, replacementtypes and specification should be easy to identify,thus enabling an order to be placed with theappropriate supplier in good time.

4.33 Where a vehicle is subject to an employeeagreement it is necessary to determine at the earliestopportunity:- whether the employee wishes to enter into a

further agreement;- the type of vehicle required;- the cost and employee contribution;- the specification, colour, extras etc required.

4.34 Timely progressing of the order with thesupplier is then essential to ensure that deliveryoccurs when the vehicle is required. Any delay mayresult in penalty charges, such as excess mileagecharges on the return of the old vehicle, particularlywhere an alternative supplier is being used.

4.35 Vehicles being returned to suppliers ontermination must be inspected by departments onreturn by employees. Any damage, defects ormissing equipment must be listed and agreed withboth the employee and the collecting hire companybefore control of the vehicle is relinquished. Without

this check, charges that cannot be disputed mayarise for defects or damage. Due to the amount ofstaff time that vehicle changeovers absorb, renewalsshould be phased as far as practicable, avoidingpeaks of simultaneous replacements.

Contract Termination

4.36 When a Master Contract terminates, thedepartment may opt to retain existing vehicles untilthe natural termination of the individual agreements.It is not necessary to return vehicles prematurely andto do so would generally be considered a prematuretermination by the hirer, with all the implications for

the associated penalties provided in the contract. Atthe end of each vehicle agreement, particular careshould be taken to ensure that supplementarycharges for vehicle collection, incidental damage,excess mileage, cleaning etc are not invoiced by thehire company unless previously agreed.

4.31 Where a contract hire company or leasecompany ceases trading, becomes bankrupt or isplaced in the hands of a receiver, departments arevulnerable. Any vehicles supplied remain theproperty of the hire company and it is possible thatthe receiver may re-possess them in order to realise

the assets of the company. If a department has madepayments in advance they will be difficult, if notimpossible to recover, In addition, departments mayalso face costs in respect of- the immediate loss of the hired vehicle;- the provision of a temporary hire car for the user;- obtaining a further lease/contract hire vehicle as

a replacement,

Expert Determination

4.38 The Master Contract should provide that anymatter or dispute to be determined by an expert

shall be referred for determination to a personsuitably qualified. The department and the suppliershould each have the obligation to supply all suchassistance, documents and information as the expert


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may require. Such experts should be deemed to actas an expert and not as an arbitrator and thisdetermination shall be conclusive and binding onboth parties. The costs of the expert should be borneequally by the parties unless directed otherwise bythe expert.

5. EMPLOYEE AGREEMENTS

5.1 Where a vehicle is to be supplied to an

employee for private use in addition to businesstravel it is essential to have a formal agreementdrafted to regulate this situation in detail. The modelemployee agreement, issued as guidance no. 24e, issuitable for use by Crown bodies. However, if theemployer is not a Crown body it may need to belicensed, and the employee agreement made toconform with the requirements of the ConsumerCredit Act 1914.

Agreement Terms

5.2 The employee agreement should reflectprecisely the terms which the department has

agreed with its vehicle suppliers. More specifically-any liability on the part of the department under the

Master Contract for additional charges or penalties,excess mileage charges, termination charges,vehicle condition on termination, replacementwindscreens and glass, replacement headlamps andlamp lenses, lamp bulbs, incidental damage,damage through neglect or abuse, abnormal tyrewear etc is accurately reflected in the employeeagreement, thus ensuring that the departmentmanages any liability for these charges.

5.3 Similarly the terms of any insurance policy,

including any excess, must be detailed for thebenefit of the employee. Any intention to recoverexcess or charges made by the insurers forbetterment (ie reinstatement to better than pre-accident condition) must be clearly indicated. Theconditions attached to premature termination,particularly when cessation of employment isinvolved, should be clear and unambiguous,including those circumstances under which a costcontribution will be required from the employee.The document should be written in plain english,resisting the temptation to couch it in legal jargon,and contain provision for employees to state that theyhave read and fully understood all the terms. For thesake of clarity and to reassure employees that theagreement is not weighted entirely in favour of thedepartment, it will assist if the responsibilities of bothparties are identified separately.

Car User Handbook - Advice to Drivers

5.4 All contract hire companies will provide driverswith a simple instruction book or similar documentthat provides essential information on how to obtainbasic services such as maintenance, repairs,breakdown assistance and tyre/windscreenreplacements. Such documents should be examinedin detail to ensure that they are suitable for thepurpose and do not contain any instructions that mayconflict with the Master Contract or the intentions ofthe department. Where the instructions provided are

inadequate, confusing or need to be supplementedby additional instructions, the department shouldconsider issuing its own Employee Handbook.Suppliers may be prepared to co-operate in thepreparation and/or printing of such a document, tobe provided in each hire car supplied. Referenceinformation can then be included on such matters as:l drivers maintenance responsibilities,

procedure at the scene of an accident,

accident reporting procedure,fitting of accessories,overseas travel,submission of mileage returns,reporting vehicle defects,user identification to maintenance agents, etc,authorisation procedure for repairs,replacement vehicle procedure.

5.5 Where reference is made to matters such aspersonal taxation, road safety and overseas travelarrangements, care should be taken to ensure thatany information provided will not readily become

outdated, necessitating a reprint. As a general rule, itis not necessary to reproduce information that isavailable from the vehicle manufacturers handbook,the Highway Code or other readily availablepublications.

Foreign Travel

5.6 Instructions to employees on the procedure tobe followed before using a hire vehicle abroadshould reflect the terms of the MasterContract/Agreement. In many cases this will requirethat the hire company is notified in writing of theintent to use the vehicle outside the UK and may

contain a limit on the number of days travel that ispermitted. Whilst the existing insurance will beacceptable for travel in other Member States, thelevel of cover may be reduced. To eliminate thispossibility, all employees should be required toobtain a green card prior to travel. Registrationdocuments for the vehicle, together with a letter ofauthority from the Hire Company (whose name willappear in the Registration Book) should also beobtained by the employee before travelling. If thereis no insurance cover, for example if CrownIndemnity is used, the department should ensure thatsuch arrangements are acceptable in the countries tobe visited.

5.1 Although not required by the hire company, asits responsibility for repairs, breakdowns etc isusually still limited to the UK even when it givespermission for a car to be used abroad, mechanicalbreakdown insurance from a reputable companymust be provided. It is important to note that this isquite separate and independent from the accidentinsurance referred to previously. Without theprotection of mechanical breakdown insurance, thedepartment could be liable for the repair costs orrecovery charges incurred in returning a brokendown vehicle to the UK. Responsibility for ensuringthat the vehicle fully complies in all respects withlocal regulations related to its use in the countriesvisited should be clearly described to the employee.

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6. FLEET MANAGEMENT

6.1 Fleet management in the context of thisguidance is limited to the management of lease andcontract hire arrangements where maintenancemanagement is included within the contractedservices. In assessing the number of staff required toadminister and manage a fleet, full considerationneeds to be given to the range of tasks required. Isaccident claim administration or fuel cost control

included? Is the fleet comprised entirely of cars orare there commercial vehicles included? When theprecise nature of the task to be undertaken has beenclearly defined, the efficiency of the fleet managerand the supporting resources will also influence thesize of fleet that can be controlled. As a generalguide, one person (given suitable training andexperience) can effectively administer a fleet of 200cars, including accident claim/insurancemanagement and control of fuel cards. This assumesthat the typical replacement cycle will be in thescale of 2 to 4 years.

6.2 However, as there is a need to providecontinuity of service to users, it is unlikely that asingle employee can be effective. An assistant ordeputy will need to be appointed in order to ensurethat the service is maintained through periods ofholiday, sickness or other absence. This effectivelycreates an efficiency threshold in terms of fleet sizeof between 300 and 400 cars.

6.3 Provided that appropriate support in the form ofcomputer hardware and suitable software isprovided, together with secretarial facilities, payroll

administration and purchase ledger functions, twoexperienced fleet management staff can manage acontract hire fleet of up to 1000 cars, For larger fleetseconomies of scale help to reduce the average manhours spent per car in administration and thus thethresholds at which additional staff can be justifiedare raised proportionately.

6.4 It is very important to recognise that wherelease and contract hire companies offer to providean administration and management service on behalfof departments, this cannot totally replace the needfor this function to be performed by a member of thedepartments own staff either on a part time or fulltime basis, When the duties of a fleetmanager/administrator are studied in detail -providing advice and guidance to users, interpretingthe departments own policies, pursuing accidentclaims and authorising departmental expenditure - itbecomes apparent that this should never bemanaged solely by the lease or contract hirecompany. Where commercial vehicles are included,the administration and management tasks involvedtend to escalate.

6.5 As a general rule most departments usingvehicles over 3.5 tonnes will be exempt from theneed to obtain an Operators Licence. However,departments are expected to apply and maintain

equivalent standards and it is therefore worth notingthat where maintenance is included within thecontract, it does not absolve the holder of anOperators Licence from the statutory obligationsrelated to vehicle condition and maintenanceimplicit in the grant of a licence.

Administration

6.6 In the general sense the fleet manager will be

responsible for applying the scheme as agreed anddefined by the department. Users will therefore lookto the fleet manager for assistance in interpreting theprovisions of the scheme and for providing regularinformation related to current costs and factorsinfluencing the performance of the scheme. Closeliaison with personnel and finance sections isessential and it must remain the fleet managers dutyto ensure that both of these sections fully understandthe scheme being used and support its functioneffectively.

6.7 A good fleet manager will have sufficient

experience to be able to predict necessary actionsand take appropriate measures, thereby influencingthe course that any scheme may take, rather thanreacting only to events as they occur. Tasks mayinclude the negotiation of supplier terms, advertisingand evaluating tenders, negotiating insurancerenewal terms, providing cost information updates,monitoring expenditure, recovering non-budgetexpenditure and providing regular managementreports.

Monitoring Contract Performance

6.8 It is recommended that the following aspects ofall lease or contract hire agreements are monitoredon an on-going basis:- details of all vehicles on hire, including make,

type, registration number, contract cost,contracted period, contracted mileage, servicesincluded (or excluded), commencement date andallocated user. It is also useful to record such dataas the road fund licence expiry date and date ofannual MOT/DTp test;

- utilisation rate of all vehicles on hire, based uponregular cumulative (not just business mileage)odometer readings. These should be projected tothe normal termination date, based upon theaverage to date, to predict any utilisation over orunder the contracted distance;

- expenditure - including all regular contractedpayments and any other expenses incurred - onan individual vehicle basis. Any expenditureincurred on behalf of the user should also bereadily identifiable;

- where any sums are recovered from thelease/hire companies, employees or third parties,these require to be fully accounted for, creditedto the individual vehicle account and readily

identified when outstanding or overdue;

-

replacement programme - determined by theagreement expiry dates, a schedule identifyingall vehicles that need to be returned/replaced

9


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within the next six months should be availableand regularly updated;

- suppliers prices for new vehicles should beregularly compared. A league table showingcomparable vehicles and utilisation periods overa range of suppliers will reveal fluctuations inquoted costs. Such an analysis is a prerequisite ofselecting the correct supplier;

- termination costs - for all vehicles returned at the

completion of an agreement, any terminationcharges or excess mileage charges should beadded to the total expenditure incurred duringthe currency of the agreement for the purpose ofdetermining the true cost of operating thecontract;

- supplier performance - in addition to the criteriadefined above, a file should be maintained oneach supplier to record any shortcomings arisingfrom late delivery user complaints regardingrepairs/maintenance, late or non-arrival ofessential documents (eg RF licence discs),efficiency of administration and the level ofresponse to requests for assistance, re-scheduling, premature termination etc.

6.9 Many of the above monitoring tasks can befacilitated through the use of a simple computerprogramme and there are a wide variety ofprogrammes readily available commercially for thepurpose of fleet management. These may contain anumber of non-essential items, but their basic datacapture and analysis features will provide all thenecessary reports. A typical system designed tooperate on an IBM compatible PC will currentlyretail for between 52,500 and 4,000. Suchprogrammes can usually accommodate a fleet of1,000 cars or more without difficulty. On a practicallevel, fleets of this size generally dictate multipleaccess and therefore the potential for multiplescreens or networking should be ascertained wherethe fleet is likely to be large. As with all computersystems, a precise operating specification should bedetermined before attempting to compare theproducts available.

6.10 For smaller fleets (up to 500 cars) a PC with a 20mb hard disk drive will suffice. Where the fleet is

larger, a hard disk drive of 40 mb should beconsidered the minimum. For many departments,hardware already acquired for local use will proveperfectly acceptable for the operation of a fleetmanagement package. Due to the need for readyaccess and regular analysis reports, it is notgenerally recommended that mainframe computercapacity is used for this particular function.

Monitoring Vehicle Utilisation

6.11 To maintain effective control over contractedvehicles their utilisation should be regularlymonitored, generally on a monthly basis. It is also acondition of all contract hire agreements that thevehicle utilisation is declared at regular intervals. Toensure that vehicles do not exceed or significantlyunder-run their contracted mileages, a regular

10

check on utilisation to date, plus a projection of likelymileage at contract termination is essential.

6.12 Where vehicles are identified as having variedtheir utilisation pattern and are likely to achieve avery different mileage than that contracted,departments should approach the supplier andrequest that the contract be re- scheduled. Whilstthis may increase the hire charges, it is likely that the

overall cost will be less than incurring excessmileage charges and in any case the Master HireAgreement will define a maximum mileage limit. Re-allocation of vehicles between employees shouldalso be considered in this situation.

6.13 Employee agreements permitting private useand requiring a contribution towards the cost,generate a need to monitor the business and privateuse elements of the total mileage separately becauseof the implications of excess mileage charges etc.This can be achieved through requiring employeesto submit the vehicle odometer reading at the end of

each month, together with their business mileageclaim.

6.14 Vehicle cumulative mileages can also beobtained from fuel cards, although this method is nottotally reliable as many filling stations do not requestthe figure from the user or ensure that it is completedon the voucher. Suppliers or maintenancecontractors will also receive information on vehicleutilisation direct from the garages carrying outrepairs or maintenance. They will usually ask for thefigure prior to authorising any work and will also

expect to see it declared on all invoices. Wherevehicle entitlement is related to business usage, amonthly record will need to be maintained andcompared on a regular basis.

6.15 Where a large number of vehicles require to bemonitored, the use of a suitable fleet managementpackage will greatly assist the recording andanalysis of utilisation data, including the projection oftermination mileages, Such systems can alsoaccumulate business mileages by individual users ona number of different vehicles. Such a feature will beparticularly useful when completing employers

Pl1D returns-

a further function of fleetmanagement.

Accident Management

6.16 Where departments are providing theinsurance cover, in whatever form, it becomesdepartments responsibility to:-

-

-

provide to the insurance company acomprehensive schedule of vehicles, includingtheir registration numbers, values and locations;provide regular updates of this list as required bythe insurers;keep a list of drivers, including details of theirdriving licences and endorsements, current at alltimes.


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6.17 All employees should be provided with blankaccident report forms for retention in the vehicle.The procedure for completing these should beexplained in the drivers hand book/agreement.Departments are responsible for ensuring thataccident claim forms are completed accurately in allrespects and then forwarded without delay to theinsurers.

6.18 Where a vehicle requires repair in excess of anagreed limit, an engineer assessor will be requestedto authorise the repairs. For minor repairs, thedepartment will need to obtain one (or more) writtenquotations for the repair and then authorise the workto proceed. A replacement hire car may also need tobe arranged for the employee.

6.19 When repairs are completed, the repair costwill normally be charged direct to the insurers.However, charges for any excess and VAT may bepayable. Where a third party is responsible, furtherclaims against that partys insurers for recovery ofexcess, car hire, or any other incidental costsincurred by the employee or the department mayneed to be pursued. Accident management is a veryspecialised task, making further demands on thefleet manager. Very often it is neglected, resulting insignificant losses to the insured. The use of brokersand specialists in recovering uninsured losses canreduce the time spent on administering andprogressing accident claims. There is a cost for suchservices and each department must determinewhich option offers the best value for money.

Fuel Management

Bulk Fuel

6.20 Fuel may be provided in a number of ways; byissues from bulk stocks, by the provision of fuel cardsor by employee reimbursement of business mileage.Issue of fuel from bulk stocks is only appropriate forofficial vehicles as no fuel is provided for private use.Apart from the conventional routines of checkingstock levels against drawings and deliveries with fullaccountability for any variations, all issues should berelated to individual vehicles in terms ofconsumption. A target mpg should be set for eachvehicle type and any variations should beinvestigated, including abnormally low consumption-which will usually reveal that some issues have notbeen recorded. Fuel usage can also be monitored aspence per mile (ppm) where fuel cost is also takeninto account. For such calculations, the average priceof fuel purchased in a given period (perhaps amonth) will be used.

Fuel Cards

6.2 1 Fuel cards can take many forms. It is possible topurchase fuel using conventional credit cards such

as Visa or Master Card. However, the vouchers arenot sufficient evidence that only fuel has beenpurchased - these cards being available for thepurchase of goods of any type. The high interest

11

charges on accounts of this type may deterdepartments from using them for fuel purchases.

6.22 Fuel credit cards are available that restrictpurchases to fuel or lubricating oil only. These maybe of the restricted type issued by many fuelcompanies that provide a fuel purchase credit facilityonly at appropriately franchised filling stations - orthe unrestricted card which is more widely

accepted. In each of these cases additional data suchas mileage readings may be obtained and includedin regular reports/invoices. The price paid for fuel isthat charged by the retailer. A further type of fuelcard is the Agency Card, usually restricted to DERVpurchases and giving the benefit of credit for fuelsupplied from authorised outlets at a nationallyadvised price - usually lower than normal pumpprices, but appreciably higher than bulk fuelpurchase rates.

Fuel Reimbursement

6.23 Where vehicles are utilised for both private and

business use, this method is to be preferred.Employees remain responsible for all their fuelpurchases, for obtaining fuel at the most beneficialcost and maintaining the consumption rate of theirvehicle. As an example, a fixed rate of reimbursingfuel costs can be obtained by:-

-

-

-

selecting a typical vehicle in each enginecapacity range;determining the average consumption using themanufacturers published fuel consumptionfigures for urban, 56 mph and 75 mph driving. Asa general example:

(2 x urban mpg) + (1x 56

mph) + (1x 7 5

mph)4

= average consumption in mpgby dividing this average mpg figure into theaverage cost of fuel as published in the PetroleumTimes - a cost per mile in pence (ppm) will beobtained;to this may be added a maximum of 0.2ppm fortop-up lubricating oil, antifreeze and otheressential fluids provided by the driver betweenservices.

With fuel prices of 1.89 per gallon (incl VAT) and a

typical average consumption of 32 mpg anappropriate reimbursement rate would be5.9p + 0.2p = 6.1 pence per mile. A separate ratewill need to be calculated for each capacity band,typically -

up to 1400 cc1400 - 2000 cc

over 2000 ccplus a further rate for diesel engined vehicles.

6.24 Where a policy of using unleaded fuel isadopted, the reimbursement rate may be calculatedusing the appropriate fuel cost. Revisions to these

rates need not be carried out each time there is avariation in fuel prices, but only when the averagepublished price in the Petroleum Times varies by,say, 10% from the previous rate.


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General

6.25 All the above methods of providing fuel arepotentially open to abuse or fraud. Due to the highvalue of fuel and the high rewards that are associatedwith the improper supply of fuel, great care shouldbe taken in monitoring and auditing fuelsupplies/reimbursement. All fuel used should berelated ultimately to defined standards of fuelconsumption (mpg) or fuel cost (ppm) as a means of

confirming all issues made are charged for.

Maintenance Management

6.26 The principal task of maintenance managementunder a contract hire agreement will remain with thehire company. This guidance relates only to such anarrangement and does not attempt to define the totaltask of maintenance management where this isprovided in-house or separate to the hire terms.

6.21 Under contract hire, departments remainresponsible for ensuring that all reported defects are

promptly rectified and that preventive maintenanceis carried out at the appropriate intervals. Failure todo so may invalidate any subsequent warranty claimsas well as making the vehicle potentially unreliable.The standard of repair/ maintenance provided iscontrolled by the employee who will sign asatisfaction notice on behalf of both the hirer (thedepartment) and the owner (the hire company). Thisresponsibility should be drawn to the attention of theemployee in the agreement between thedepartment and the employee. Responsibility forplanning any statutory vehicle test also rests with thedepartment.

6.28 Departments are advised to ensure that allvehicles undergo an inspection to identify anydefects one month prior to the expiry of the normalwarranty period. This will avoid any risk ofunexpected repair costs occurring just outside thewarranty period. Departments are also advised thatin law they may remain responsible for themechanical condition of any vehicle used by anemployee where it can be shown that they causedor permitted a vehicle to be used in a defectivecondition.

Vehicle Acquisition/Renewal/DisposalProcedures

6.29 Much of the procurement and disposal function,including delivery and collection, may be arrangedby the hire company. However, departments willneed to establish their own and employeerequirements well in advance of any replacementsbeing required. Formal procedures should beoutlined for the methodical and sequenced approachto identifying requirements in terms of make, model,specification, colour, date, number etc. Employeesmust be advised of the options open to them at least 6

months prior to a vehicle being returned, replacedor renewed. Where an option exists for theemployee to acquire the vehicle, values need to beobtained from the hire company and the employeeinformed.

1

6.30 A well planned replacement programme willpermit expired vehicles to be collected and newvehicles delivered without incurring supplementarycharges or excess mileage costs, All new vehiclessupplied should be thoroughly inspected upondelivery to ensure that the required specification isfully met in all respects, Any defects or omissionsshould be remedied prior to acceptance. Only whenthe department is satisfied should the vehicle be

handed to the ultimate user and an acceptance noteobtained.

6.31 All vehicles should also be inspected by thedepartment prior to allocation or return for disposal.A note should be made of any defects and in the caseof a returned vehicle, the employee required toconfirm their existence. Where defects are inevidence it is usually more cost effective for thedepartment to have these repaired before returningthe vehicle, rather than have the hire companyexecute the repairs and charge the resulting costs.Records should be retained of all vehicles returned,including the final odometer reading, for at least 12months after disposal. This will be of assistanceshould any subsequent enquiries be made.

Limiting Exposure to Non-Budgeted Costs

6.32 By advising all employees of theirresponsibilities and liabilities in the employeeagreement or similar document, much of the risk ofsubsequent damage may be eliminated. Employeesshould understand in particular the extent of anyliability for accidental damage, for insurance coverexcess, or any items not covered by insurance. Any

exposure to the department within the MasterContract or Vehicle Agreement to additional costsshould be fully covered by related clauses in theemployee agreement, transferring liability whereverpossible. Master Contracts should be couched interms that give sufficient protection to the Hirer (thedepartment) should there be any negligence oromission on the part of the Owner (the HireCompany).

Recovery of Non-Budgeted Costs

6.33 Non-budgeted costs for the department may

arise in any or all of the following areas:-

-

-

-

incidental damage, neglect, abuse, non fair wearand tear items that are clearly the result of someaction or negligence by the employee;accidental damage, not the responsibility of theemployee and within any policy excess;premature termination or penalty costs arisingfrom decisions or actions by the department andnot recoverable in full or part from an employee;excess mileage charges levied as a result ofover-utilisation (compared to contracted mileage) orextending the usage beyond the contracted term,

where this is defined as resulting from decisionsor actions by the department;- any charges for betterment charged by an

insurance company, where this cannotlegitimately be recovered from the employee;

2


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any shortfall in the cost of acquiring a newreplacement vehicle where the contractedvehicle is subject to a total loss claim, is morethan six months old and the valuation by theinsurers is less than the cost of the replacement;costs of providing a replacement vehicle where:-

-

-

-

-

-

no replacement provision is included in thecontract;the replacement provisions in the contract areexceeded;the insurance cover does not extend to areplacement vehicle;the employee is not responsible for the loss ofuse of the contract vehicle;there is no opportunity to pursue a third partyin respect of uninsured losses;no manufacturer support, either warranty orpolicy, is available to fund a replacementvehicle;no local dealer support is available to reducethe cost of a replacement vehicle;

Road Fund Licence rate increases where the cost

is passed on to the hirer;modifications or improvements to the vehiclerequired by legislation which result in a costbeing transferred to the hirer;provision of a temporary hire car where deliveryof a new contract vehicle is delayed or notimmediately available.

Full consideration should be given to the level ofexposure that the department may experience tothese or any other areas contained in thecontract/agreement with suppliers,

6.34 By formulating a vehicle policy and anemployee agreement that recognises these risks,provision can be made for recovery of costs inspecified circumstances. Cost exposure resultingfrom premature termination where staff aretransferred, promoted, resign or take extendedabsence may be mitigated through the provision ofappropriate insurance cover. Previous experience inthis area will dictate whether the premiums can be

justified. Many of the remaining costs cannot beeffectively recovered and therefore budgetprovision should be made, having regard to the

likely level of exposure under each heading within afinancial year.

Attribution of Car Provision Costs

6.35 Where official vehicles are acquired viacontract hire or leasing arrangements, the full costswill be accepted by the department and allocated tothe appropriate user budget. VAT is usually chargedon rentals (see paragraph 3.1). Where vehicles areacquired for use by staff on a contributory basis,departments will have determined the method ofcalculating such contributions.

6.36 AS an operational starting point, the net cost tothe department, after deducting the employeescontribution and the cost of administration and

insurance, should not exceed the calculated cost ofreimbursing the employee at the appropriate motormileage allowance rate. Annual administration costsare not likely to be less than l00 per vehicleagreement, typically for three years; at current costlevels and volumes they could be considerablyhigher.

6.31 The formula used to calculate employee

contributions should be flexible enough to cater forvariations in the rentals of new vehicles, movementsin fuel prices or Road Fund Licence, changes inmotor mileage allowances, increases inadministration costs and variations in the projectedratio of business/private use.

As an example of how such a calculation may beachieved:

Annual Rental Cost = RAdministration Cost = ARF licence cost (if not included in rental) = ELContribution to Non-Budget Costs = E

Total Annual Cost to Department =

Where the contribution made by the department islimited to the current cost of Motor MileageAllowance -then this can be calculated as follows:-

Motor Mileage Allowance (pence per mile) = MMAFuel Cost Reimbursement (pence per mile) = FCRAnnual Business Miles (miles) =BM

Department Contribution pa

6.38 The Employee Contribution must therefore bethe difference between the Total Annual Cost andthe departments contribution. This may then bedivided into twelve monthly payments for thepurposes of salary deduction. VAT must be added tothe employee contribution figure at the appropriaterate, after calculation.

6.39 Whilst departments may opt for variations on theprecise method of calculating the employeecontribution, the basic principles outlined aboveshould be followed so that the ultimate cost ofcontributing to the cost of vehicles provided for

business and private use is no greater than wouldhave resulted from the payment of MMA.

6.40 From the above calculation it is possible toascertain the actual mileage break-even point forany particular model of vehicle where the maximumcontribution ceiling has been previously defined bythe department. The aim should be to demonstrate acost saving through the provision of such schemes.The departmental contribution as calculated abovecould for instance be reduced through theintroduction of a Cost Saving Factor. For employeeswith very high mileages, the MMA rate to be utilisedwill vary according to the total claimed. In suchcases, a separate departmental contributioncalculation should be made for the appropriatemileage claimed at each rate.

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6.41 There is no requirement to limit the level of if.2 Staff Qualifications

private use permitted, as any increase above the A number of professional institutes provide a fullbusiness mileage will be contributed in full by the training syllabus and cater for the needs of fleetemployee. Employee agreements should contain managers including:some provision for employee contributions to be _ The Institute of Road Transport Engineers (IRTE)amended should the need arise.

1.1

REFERENCES

Useful Bibliography

Car Fleet Administrationand Finance (Peter Cooke)

Croners Croner- Road Transport Operation Publications Ltd

Croners- Operational Costings forTransport Management

Croners

-

Elements of RoadTransportManagement

Freight TransportAssociationYearbook

Transport and DistributionManagers Guide(David Lowe)

Workshop StandardsHandbook(Institute of Road TransportEngineers)

Glasss Guide to Car Values

Glasss Guide toCommercialVehicle Values

CAP Black Book (Guide to Proctor Nolan &

Car Values) Partners Ltd

CAP Red Book (Guide toCommercial VehicleValues)

Tolleys Company CarTax Guide

ISBN 0 946559 023

CronerPublications Ltd

Croner

Publications Ltd

ISBN 0 90299 132 9

Kogan Page Ltd

ISBN 0 95 1362 1 19

- The Institute of the Motor Industry - (IMI)- The Institute of Traffic Administration (IOTA)- The Chartered Institute of Transport (CIT)- The Institute of Municipal Transport (IMT)-

National Guild of Transport Managers Ltd

Examinations and courses of study are provided atmost Colleges of Further Education and TechnicalColleges leading to the award of certificates by:- City and Guilds of London Institute (CGLI)- National Council for Vocational

Qualifications (NCVQ)- British Technician and Engineering Council

(BTEC)- Royal Society of Arts (RSA)

Other trade bodies:

-

Association of Car Fleet Operators (ACFO)

-

Automobile Association (AA)- British Vehicle Rental and

Leasing Association (BVRLA)- Freight Transport Association (FTA)- Institute of Logistics and

Distribution Management (ILDM)- Motor Agents Association (MAA)- National Association of Training Groups

Road Transport Industry Training Board(RTITB)

- Royal Automobile Club (RAC)-

Society of Motor Manufacturers and Traders(SMMT)

November 1990

Glasss GuideService Ltd

Glasss GuideService Ltd

Proctor Nolan &Partners Ltd

ISBN 0 85459 304 7


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PRIVATE USE OF OFFICIAL VEHICLES(EMPLOYEE CAR LEASE SCHEME)

In drafting a scheme, it will help departments if thefollowing essentials are defined in a clear andunambiguous manner.

(i) Aims and ObjectivesWhat are the purposes of an Employee Car LeaseScheme? What are the potential benefits? Are thereany potential disadvantages?

(ii) Funding

How is the scheme to be funded? What are theforecasted costs? What level of contribution will berequired from both the department and employees?What is the forecast level of non-budgetedexpenditure?

(iii) Staff DemandWhat is the attitude of staff to such a scheme? Whowill qualify to participate? What is the likely level ofcost to employees? What is the potential level of take-up amongst eligible participants?

(iv)Administration

What additional administration resources will berequired and at what cost? Are there suitablyqualified and trained staff available to do this task?What burdens will be imposed upon accounting,payroll and personnel sections? What investmentswill be required in data processing equipment?

(v) Introduction/Withdrawal

What is needed to introduce the scheme successfullyand at what cost? What would be the implicationsshould it be decided subsequently to withdraw sucha scheme?

For those departments producing or drafting anemployee car lease scheme the following isprovided as a checklist of items that should beincluded. This list is not exhaustive and should beused as a framework for constructing a scheme that

will meet departmental objectives.

A. Elig ibility

Who qualifies to participate in the scheme and onwhat basis?

What happens when a participating member nolonger remains eligible?

When will the rules for eligibility be reviewed?

B. Vehicles

What range of vehicles are to be provided?

Are any limitations to be imposed and if so, how willthese be defined?

ANNEX A

What additional or supplementary services are to beprovided?

How will the period of hire be determined?

C. Ins ur ance

What levels of insurance cover are to be provided

and who will be responsible for obtaining them?

Will employees provide their own insurance forprivate use or make a contribution towards coverprovided by departments?

D. Fuel

How is fuel to be provided for business use?

What method of reimbursement will be applied?

How will reimbursement rates be maintained in

relation to actual fuel costs?

E. Employee Contribution

How is the employee contribution to be calculated?

Will the contribution be fixed or variable?

How will the employee contribution be related to thelevel of private use?

What additional charges may be incurred by anemployee?

Under what circumstances will the rental vary fromthe original calculation?

What are the accounting arrangements for VAT?

What is the procedure for re-scheduling anAgreement?

How are employee contributions re-calculatedsubsequent to re-scheduling?

What penalties may be incurred by an employeeupon premature termination?

When are rental payments due to be paid?

Procedure for recovering arrears of rentals,

What is the employees income tax liability?

How is excess mileage charged?

F. Expenses

Procedure for submitting/authorising expensesrelated to the use of a leased vehicle.

G. PersonnelNew staff- procedure for transferring in an existingleased vehicle.


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Staff departures options available for vehicle transferor premature termination.

Internal transfers procedure for meeting theemployees liability where internal transfer causesloss of eligibility.

Maternity leave procedure to be adopted whenmaternity leave is taken and the employee gives

notice of an intention to return to work.

Loss of driving licence agreed procedure foremployees who become disqualified from driving.

Motoring offences - recovery of fixed penalty fines,administration costs and any other costs from anemployee.

Foreign travel requirements to be fulfilled byemployees using cars overseas for private use.

Temporary transfer-

rates of travel reimbursementto be paid to lease car users when requiredtemporarily to travel longer distances to/from work,eg additional private mileage.

H.Administration

Define internal procedures for the submission of- car hire application (by employee)- car hire authorisation- advising salary deductions- employee mileage returns- employee accident report- vehicle condition report- foreign travel application

-

request for premature termination

-

application to purchase vehicle (at expiry of hireperiod).

The information required in some of the aboveexamples can be interpreted from the modelEmployee Agreement. However there are manyother aspects which are purely a matter ofdepartmental policy or procedure which need to beclearly defined. Care should be taken to ensure thatthese do not conflict with the terms of either themodel Master Hiring Agreement or the Employee

Agreement,