Working with third party administrators is pretty much a normal way of life for restoration contractors in the U.S. Only a select few companies have chosen the path of completely finding work on their own, and bypassing TPA work. This is a topic frequently addressed at restoration industry conferences and meetings, and just like any topic in this industry, there are people for, against, and in the middle of the road about program work.

Here’s my take on the good, the bad, and the realities of working with TPAs.

Areas of Change & Improvement

1. Accountability & Communication: TPAs have increased contractor accountability to the policyholder. The contractor has learned to better communicate with the policy holder. As a result, the contractor has applied the lessons learned to the rest of their business. An example of improved communication is that the policyholder knows when the job will start and when it will finish. This has taken a lot of the anxiety out of the relationship with all concerned.
2. Technology & Communication: Another feature that has helped with accountability has been the continuous improvement of software. This has allowed the speed of communication to increase and as a result it has accelerated the job completion time.
3. More Program Work: TPAs have generated sales and increased sales to those on the program. The TPAs are increasing the amount of work that they are handling. This has caused contractors who are not on the program to experience a decrease in sales. The opposite is true, that by being on the programs the contractor is getting work that in the past would have gone to contractors not on the program. If the program works for the insurance company, they have increased the amount of losses they have been handling themselves and instead have given the jobs to the programs.
4. More Organization: The TPAs have caused the contractor to become more organized. As a result of keeping track as to when they have assigned the loss to the contractor, they start the clock on when the job should be done. This has caused the contractor look at their internal systems and determine how they can do the job more efficiently, while not losing money in the process.
5. Software Systems: They have caused the contractor to improve their software systems. As an example, it has moved the contractor to improve the flow of the job with less paper. It has motivated the contractor to use mobile devices throughout all the processes in the company. The mobile device is now the computer that field people use. This allows all company members to know what needs to be done, when it needs to be done, and who needs help in getting their work done. Everyone in the company can now see who’s doing what they agreed to do in order for the job to get done as it was promised to be done.
6. Getting Paid: One program pays the contractor electronically in full when they are assigned the job. This has been a game changer for a lot of contractors. This is the only part of the construction industry that will wait until a job is completed to ask to be paid. A few contractors feel an ego boost by not asking for money until the job is done. Companies that are in the business to make a profit know how critical it is to be paid in a timely manner; without a profit, a company will not survive, employees will not be able to have a stable lifestyle and the warranty work that might need to be done in the future will fall back on the TPA when the company is out of business.

Areas to Improve

1. Handling Grievances: The programs are in need of a grievance procedure that is fair to all sides. Let me give you an example. A policyholder was convinced that the new floor put in by the contractor was a bad job. The TPA believed as the contractor did, that the policyholder was being totally unreasonable. The TPA unilaterally gave the contractor two options; a) redo the job and eat the $18,000 cost or b) they would be thrown off of the program. My suggestion would be that there be a review process with a representative from the TPA, a representative from the insurance company, a representative from the pool of TPA contractors and a policyholder from the pool of policyholders that have experienced a loss and it was handled with this TPA and the insurance company. The results would govern the outcome.
2. No More Win-Lose: Some programs operate on a win-lose basis with contractors. I would suggest that it be operated on a win-win or no deal. Everyone in the TPA relationship has skin in the game. Everyone understands who is in charge, but not everyone understands the lack of respect or fairness when decisions are made without all participants having input to the outcome. An example of this was a TPA raising the fees they charge the contractors while continuing to tell the contractors they are charging too much for their services.
3. Profit Problems: The profit yield on program work is decreasing. In order for a contractor to run an efficient, effective and profitable TPA job, it takes an office person to be specifically assigned to monitoring the program requirements inside of the contractor’s office. Another way to say it is that a lower yield job is requiring a higher cost to monitor and complete the job. Program work generally requires more supervision and higher cost and it’s a lower yield job than other work.
4. Judged on Time: The time schedule to complete a job is one way. There are times though when “stuff happens” through no fault of the contractor. As a result, the grading score of the contractor is affected and it might have been as simple as the policyholder was unreachable and nothing could be done to advance the progress of the job. In order to better understand the process and ways to improve the process, I recommend my clients read and implement “7 Habits of Highly Effective People”.
5. Getting Paid: The payment process is not as good as it could be. Cash flow is critical to any business. It’s also easy to say that a company should be able to start a job without any money. Indeed, there are situations that an emergency job must be started right away and contractors understand that. The rub comes when it’s not an emergency job and there are costs of labor, material and subcontractors. The stories are many that describe a completed job and the contractor is then offered payment of less than what their estimate was approved for. It sometimes appears that the adjuster is unwilling to live up to what they said in order for the contractor to do the job.

So where does this leave us? Well, I think that TPA’s and contractors have a great opportunity to make the relationship better. The question is, are all of the parties in the relationship willing to be fair in their dealings and promises?