The flat-rate equation

Editor’s note:
Last fall, Land Line published an article about a flat-rate carrier from Emory, TX, that seemed to make up his own rules. Other flat-rate carriers cried foul, saying, “We’re not all like this. You need to do an article.” So, how are they different? Here is what we found out.

What are they?
Most carriers receive a percentage of their owner-operators’ load revenue, but not flat-rate carriers. Flat-rate carriers charge the leased owner-operator a designated amount per week or per month. The flat fee, often referred to as an administration fee, usually includes liability and cargo insurance, which the carrier is required to maintain, along with licenses, permits and placards.

Flat-rate carriers often advertise, “Receive 100 percent of your load revenue,” but owner-operators are sometimes charged a factoring fee and must pay their monthly flat-rate fee out of this revenue. Plus owner-operators pay out an average of $1,400 a month to the carrier. If an owner-operator brings in revenue of $14,000 a month, the flat-fee figures out at about 10 percent. Owner-operators may start with 100 percent, but after subtracting 3 percent for factoring and 10 percent for the flat fee, what’s left? The answer is 87 percent, not 100 percent.

Who are they?
The idea of the flat-rate carrier started in the mid-1990s with a company that contracted with a few owner-operators, including Randy Millsap of Emory, TX. Shortly after the company owner’s death, the company dissolved and Millsap started his own flat-rate company, Millsap & Son Trucking, in September 1997 and the idea snowballed from there.

Millsap’s dispatcher was his brother-in-law David Neal. David’s brother Larry was leased with Millsap & Son. Later David, Larry and Archie Neal started Neal Brothers Trucking in July 1999. Larry handles the Canton, TX, company’s finances, while Archie and David dispatch the trucks and negotiate loads with brokers.

In November 1998, former Millsap owner-operator Mark Goodson started Perfect Match Transportation Inc. a flat-rate carrier based in Maypearl, TX. According to Goodson, Perfect Match has a nine-acre terminal with two acres of truck parking, a full administrative staff with a safety department and dispatchers on call 24 hours a day, seven days a week.

A third Millsap owner-operator, Jeff Ducote and his father Thurman Dunn started Double D Transportation in October 1999. Ducote told Land Line that the one good thing that came from his brief time with Millsap was meeting David Neal, who inspired him to start his own company.

In October 1998, former Millsap owner-operator Edward Richert created Rocking R Enterprises, based in Pecos, TX. Most recently, Stephen and Sandra McDonald left Rocking R and started White Tiger Enterprises, a flat-rate company in Mims, FL.

Signing on the dotted line
Lease agreements, by law, must comply with federal truth-in-leasing regulations. An owner-operator’s best line of defense is first knowing what your responsibilities are and what you’re entitled to under the lease regulations, then reading and thoroughly understanding your lease. Lease regulations are found in Title 49, Chapter 3, of the U.S. Code of Federal Regulations.

While some flat-rate lease agreements are short and to the point, others go on and on. Rocking R’s lease is a little more than one page, while Millsap & Son, Neal Brothers and Double D use almost identical two-page agreements. Perfect Match, on the other hand, uses an extensive 14-page Independent Contractor Agreement, complete with Schedules A-D.

Land Line reviewed lease agreements from five of six flat-rate carriers – Millsap & Son, Neal Brothers Trucking, Perfect Match, Double D Transportation and Rocking R Enterprises. Particular attention was paid to compensation, payment periods, insurance coverage and early termination fees.

A few terms used in lease agreements often create confusion. Lessee, carrier and company all refer to the party acquiring the use of equipment from another. Lessor, contractor and owner-operator refer to the party granting the use of equipment to another.

Compensation to be specified
Paragraph (d) of federal lease regulations states, “The amount to be paid by the authorized carrier for equipment and driver’s services shall be clearly stated on the face of the lease or in an addendum which is attached to the lease.” All flat-rate carriers state in their leases that owner-operators receive 100 percent of load revenue, but this is before paying certain administrative fees, factoring fees, insurance costs, bookkeeping fees and escrow fund payments.

“Although we advertise that drivers receive 100 percent, our factoring company holds 10 percent to cover claims and their fees,” Goodson explained. “In the contract, it’s called a revolving escrow account. At the end of 45 days, the factoring company deducts a 3 percent factoring fee and refunds the other 7 percent to the driver.”

Some lease agreements specify the flat-fee amount the owner-operator must pay the carrier, but some agreements do not list a specific amount. Millsap’s agreement indicates a $1,375 per month fee be held for each truck leased by his company. Neal Brothers’ agreement specifies $1,430 per month. Perfect Match charges its individual owner-operators $350 and teams $400 a week. Based in Pineville, LA, Double D’s agreement did not specify a fee amount. According to Ducote, fees were negotiated, so some owner-operators paid different rates than others. Rocking R’s lease agreement specifies the fee amount, $690, but does not specify whether this fee is paid weekly or monthly.

Payment period
Paragraph (f) of lease regulations states, “The lease shall specify that payment to the lessor shall be made within 15 days after submission of the necessary delivery documents and other paperwork concerning a trip in the service of the authorized carrier.”

Only one of the lease agreements reviewed specifies payment within 15 days, but the owner-operators must pay a 3 percent factoring fee for something they are legally entitled to in the first place.

Millsap & Son Trucking indicates in its agreement that payment for loads will be paid on the first and 15th of the month “for all loads that lessee has received payment on.”

Neal Brothers Trucking’s lease specifies that owner-operators will receive their payments “within 30 days.” According to Larry Neal, his company pays truckers for each load “as soon as the check comes from the shipper or broker.” Either way, the payment system does not meet the 15-day time limit as indicated in federal regulations.

Perfect Match owner-operators get paid every week for invoices submitted by Tuesday of that week, but it costs them 3 percent of their load revenue. The company uses a factoring company, which purchases the outstanding invoices for a fee.

Double D’s agreement says, “Payments shall be made within 45 days after submission of the necessary delivery documents and other paperwork.”

Rocking R’s agreement states, “Payment of said compensation is due and payable to lessor as soon as we receive payment from broker.”

Paragraph (j) of federal leasing regulations states, “The lease shall clearly specify the legal obligation of the authorized carrier to maintain insurance coverage for the protection of the public...” The carrier is obligated under these regulations to carry public liability (sometimes called primary liability) insurance themselves.

In the lease agreements, Millsap, Neal Brothers and Double D recognize their “legal obligation and responsibility to maintain liability and cargo insurance coverage for protection of the public,” but required the contractor to pay these insurance costs. Rocking R requires its owner-operators to pay “the agreed insurance rate” at the anniversary of their lease date or from settlements. Perfect Match, however, pays insurance for its owner-operators, plus bobtail, cargo and occupational health insurance.

Early termination fees
Finally, pay attention to the length of the lease and any “early termination” fees or fines.

Paragraph 13 of Millsap’s agreement specifies a $500 fine if the agreement is canceled within the first year. This money is withheld from the settlement to pay for permits. The agreement further states, “The lessor shall pay all insurance and fuel tax cost before final settlement is made.” In paragraph 14, Millsap requires the return of the company’s broker list, permits and IFTA stickers, or a $1,000 fine will be deducted from the owner-operator’s final check.

Neal Brothers’ owner-operators commit to a one-year agreement, which may be canceled or terminated at any time by either the carrier or the owner-operator with written notice. The next sentence in paragraph 14 states, “There will be a $700 fine for signs/permits if lease is broke before one year.” The wording makes it seem as if the fine is applicable no matter who breaks the lease, the owner-operator or the carrier.

Perfect Match’s one-year agreement defines its “early termination fee” in paragraph 18c as “the monies expended by carrier on behalf of contract in obtaining all contractor’s operating permits and road authority, together with the cost of one month’s insurance.”

Double D’s lease agreements do not hold owner-operators or the carrier to a specific time frame. Because the agreement remains in effect until terminated by the lessee or lessor, early termination penalties are not mentioned.

Rocking R’s one-year lease agreement does not include any information about early lease termination. Owner-operators often are charged their monthly flat fees for the remainder of the lease.

Some early lease termination fees are likely to run afoul of the federal leasing regulations. In November 2000, a federal court in Kansas City, MO, found that an early lease termination fee imposed by Ledar Transportation Inc. was unlawful and the court enjoined Ledar from enforcing that provision.

Millsap family tree
In “Owner-operators say they’ve been had” (Land Line, August/September 2000), three owner-operators accused flat-rate carrier Randy Millsap (d.b.a. Millsap & Son Trucking) of not paying them for loads hauled under the authority of his Emory, TX, company and “renting” his authority. As a result of the article, other flat-rate carriers complained that owner-operators might think all flat-rate carriers did not pay their owner-operators.

Millsap’s business did spawn quite a family tree. When you look at their leases and OOIDA member complaints, it appears some apples don’t fall very far from the tree. OOIDA Business Services has received complaints from owner-operators on five of the six flat-rate carriers.

Millsap scored 27 complaints from OOIDA members. To date, all 27 complaints are unsettled, and OOIDA members claim Millsap owes them more than $241,000. Millsap opened Emory Freight Brokers LLC in August 2000. Emory Freight Brokers is currently out of business. Millsap & Son maintains its federal authority and insurance, but currently is not operating.

Neal Brothers earned one OOIDA member complaint, which has been settled.

Perfect Match tallied four OOIDA member complaints, of which three have been settled.

Double D garnered two OOIDA member complaints, of which one has been settled. Double D Transportation filed bankruptcy at the end of 2000. In September 2000, the same individuals opened Dunn Brokerage Inc., a property freight forwarder.

Rocking R racked up eight OOIDA member complaints, which to date remain unsettled. The company recently filed Chapter 13 bankruptcy on Dec. 13, 2000, but is currently running magazine advertisements. The ads tout an expansion to include a second terminal in Florida.

White Tiger had no complaints through OOIDA Business Services.