When good deals go bad – Print21 magazine feature

Buying printing equipment used to be so simple. Digital equipment can be complex since the deal often involves a usage charge, maintenance agreements and the finance can often come from the vendor itself, or disguised by a third party. As a result, disputes in the digital arena happen more often than with plain vanilla offset, and the sums can be terrifying. The last place you want to end up is in court. Andy McCourt investigates.

Commercial disputes between customers and suppliers arise in all fields of business and the burgeoning market of digital presses is no exception. Indeed, the process by which digital presses and their systems are often sold differs so markedly from conventional presses that disputes are likely to happen more frequently.

Both supplier and customer can forestall any future dispute issues by ‘getting it right’ at the beginning of the transaction and resisting compromise in order to make a quick sale for the supplier, or to start playing with ‘new toys’ on the customer side.

Having been involved with the supply of capital equipment to the imaging industry for over 30 years, I have seen many examples where deals were doomed from the start. The reasons can be varied; the supplier is over-stocked on a particular machine and wants to ‘push’ it onto the customer even if it is not the ideal solution; the sales person needs a quick sale to ‘make budget’ and is economical with the truth; insufficient analysis of both current and future monthly print volumes leads to frequent break-downs due to exceeding duty cycles; last-resort financing is offered that locks customers into untenable contracts.

For print equipment buying customers, selecting the right new digital equipment can be a daunting task. All suppliers make extravagant claims that their technology is the best. Incentives are offered to sales staff to ‘churn’ customers from a competitor to their side. The choice and sub-categories of technology are ever-expanding.

Trade exhibitions, showroom demos and advertising portray digital equipment at its very best, flawlessly humming along, ‘printing money’ at 60, 90, 120, 270 or 320 A4 pages-per-minute and, for web digital, up to 3,000 full-colour, all-singing-and-dancing variable data pages a minute.

Wipe the hype

Marketing hype can easily overwhelm cold logic, and emotional attachments to a particular model (and not just the ‘model’ who may be demonstrating the kit in the way flashy red sports cars were once demonstrated at motor shows!) can form and mask the reality behind the façade. Equally, highly-trained and skilled sales people can exploit trust and friendship in the classic ‘would I lie to you?’ mould. Yes, he would and yes, they sometimes do.

One of my mentors in ethical equipment sales inculcated a maxim into my brain at an early stage. The late Ken Visca of Hanimex Industrial where we sold Durst, Fuji, Noritsu and other professional photolab/graphic arts gear, was a marvellous man with a genuine humanitarian streak and sharp commercial mind. At our first meeting, so long ago I was wearing flares and sideburns, he averred: “Once we sell something, we like it to stay sold.” In other words, get it right for the customer from all angles so there is no prospect for dispute. If things go wrong, as they often can do with new technologies, work out the problem and fix it.

What makes digital press sales so different to conventional presses is the complexity of the relationship between supplier, customer and finance company.

It’s often not just a case of buying a press, paying the instalments and pumping out the pages. The supplier may charge a ‘click’ rate per A4 or A3 impression in return for service. There may be a monthly maintenance contract based on a certain number of impressions. Multi-tiered service levels are offered; plain office hours Monday-to-Friday or 24/7, 365 days a year.
Being part of the IT industry, digital presses are dependent on the quality of data reaching the printheads or OPC cylinders.

This can mean massive workflow and RIP systems under separate maintenance agreements and uptime limits. Variable data for transactional printing adds further complexity.

Unlike offset presses, digital presses are often sold together with finishing options as a complete system. This means third party folders, staplers, booklet makers, unwinders, rewinders, collators and trimmers are bundled with the system and may depend on service from those third parties unless the press supplier has the expertise to handle this aspect as well. It all adds up to TCO—Total Cost of Operation —and it is essential that any digital press buyer understands this fully, that it is accurately calculated and that no ‘hidden costs’ are left uncovered.

One thing for sure is that in the majority of cases, the printer does not own the digital press, and probably would not want to. Whoever is financing the press owns it and this can be either your own bank, the vendor if they genuinely have their own finance arm which takes the risk (some have the appearance of offering house finance but there is a bank or financier behind the veil), or a third-part finance group.

Money-lending is the biggest business on the planet so when you lease or rent a digital press, the financier’s only interest is… interest, of course. Regular payments from thousands of customers is the grease that lubricates international finance and pays the million-dollar bonuses so miss these or stop paying because the kit doesn’t work and these money behemoths take a pretty dim view of it.

The idea for the digital press vendor is to churn you over to a new press inside the finance period which is typically 60 months. The finance company then renews the agreement for the new kit and either realises the old asset by selling it off, or the vendor buys it back at a greatly reduced price and re-markets it. You may even get an offer from a competitor digital press vendor to ‘pay out’ another firm’s lease, install their kit and churn you over on a new 60 month lease. This is all to access the holy grail of digital press selling: monthly volumes or recurring revenues via the ‘clicks’ and MMCs.

A question of ethics

Having set the scene as best I can for the stage of today’s digital press selling, let me flag up some of the potholes you may encounter. It must be stressed that, in this digital world, there are companies and individuals who practice the highest ethics when supplying equipment, but I know from experience and past observation that rogue elements can create havoc and it can get quite ugly as the dispute escalates.

For suppliers of equipment, these questions might be relevant:

• Is it ethical to misrepresent digital equipment in its performance or capabilities? If a customer has a need for 1 million impressions in a peak month, is it ethical or even sensible to advocate a press with a 300,000 maximum monthly duty cycle? Are the print quality and ‘uptime’ you have promised during demonstrations really achievable in a production situation?
• Is it ethical to misrepresent the true age of equipment in order to get another ‘cash cow’ into the market? If a machine is second-hand or ‘has a history’, by all means disclose this to both customer and finance company and let them decide. But should efforts be made to disguise the true age and use status? Finance companies depreciate based on manu­facture date, just as with cars, so a, say, three-year old machine is already a loss-making situation for them when residual value time comes around.
• Is it ethical to ‘fudge’ the numbers you present to the finance company, compared with what the customer is actually buying? While a rare occurrence, it has been known to over-price a capital item in order to include some other equipment in a deal, and this then leaves the finance company with an inflated asset on their books and no knowledge of the ‘extra’ equipment that it technically owns but has no record of.
• Is it ethical to aggressively supply equipment to production ‘pay-for-print’ customers and then with equal aggression attack their very customer base by offering Managed Print Services, Business Services, Facilities Management etc to organisations who previously sourced their print from commercial digital printers? If Boeing started flying paying passengers around the world, would airlines still buy Boeing aircraft? (A figurative example.)

Smart buying for printers

Of course, there is a responsi­bility on the part of printers to exercise caution when investing or leasing new equipment. Caveat Emptor—let the buyer beware is still an overriding dictum despite modern buyer protection legislation. The following ‘Dos and Don’ts’ might be helpful:

• DO your homework and verify all claims and repre­sen­tations made concerning the equipment you are looking at. Talk to other users wherever they are. Get reviews but most importantly, test yourself. A ‘canned’ demo is no indication of the performance of a digital solution. Find out general trends by attending conferences, online forums (e.g. ) and trade shows. Research widely.
• DON’T get emotionally attached to the equipment or the company. Be objective and don’t take supplier claims carte blanche. Question them all.
• DO get both legal and accounting opinions on the proposed deal if the sums are significant. You will never regret the additional cost.
• DON’T be tempted into shady deals to gain finance. I have seen equipment double and even triple-financed with three banks thinking they own the asset when it all goes pear-shaped. I have discovered false ‘boiler plates’ attached to old equipment to finance it as new. Cash-backs may be okay but kick-backs are not. Play a straight bat with the banks and finance companies, but be tough in negotiations.
• DO keep impeccable records of everything that transpires from the first sales call to the purchase order and then the service record of the equipment. If you end up in dispute, it’s often the party with the best documentation that wins. “But he said this and that” is no defence—it is hearsay.
• DON’T go for the cheapest deal because it is the cheapest. Understand your workflow, staffing, customer needs, growth prospects and buy a ‘right-sized’ solution that satisfies both current and future needs.
• DO identify important issues early, in writing and in a clear, business-like manner. Suppliers want to keep your presses working up to scratch because that means revenue to them, so a frank and frequent dialogue between the two parties can rectify several small problems before they become one almighty mess.
• DO get a Service Level Agreement and/or a Customer Expectation Document. Read and understand them both and ask for changes if you are not happy.

How to stay out of court

An harmonious, mutually respectful relationship between a press supplier and customer is a very pleasant thing indeed —the ‘partnership’ often touted in corporate mission statements. However, things can and do go wrong and there have been several high-profile cases in our industry over the past decade involving very expensive litigation.

As a busy printer, whether an SME or larger, you need to avoid court and go for mediation wherever possible (or give me a call!). Digital press suppliers are huge listed trans-nationals and, although acutely sensitive to their public image, have the resources to hand a problem over to lawyers and keep you tied up in dealing with it for years.

Consider that rates for junior law clerks are around $120 an hour, a solicitor $200-$300, a partner in the firm up to $800 an hour, junior counsel barrister up to $4,000 a day and senior counsel or QC up to $12,000 a day. Add to this out-costs, court fees (including $1.50 per A4 B&W copy!) and you can easily be up for several hundreds of thousands of dollars to defend or prosecute your claim. Of course, if you win these costs are typically paid by the losing side but there is often the principle of ‘Party-Party’ costs whereby a judge will award only partial costs if he or she believes contributory negligence may have occurred. Of course, if you are absolutely certain you are right, go for it; that is what the commercial legal system is there for.

In conclusion, I can find no better ethics principle for suppliers than GAMAA’s Code of Conduct, where it mentions relationships with customers:

The customer is the basis of our business existence. We have a responsibility to our customers and to ourselves to foster a relationship of trust and respect which ensures a long-lasting mutually profitable association. To achieve this goal: We will strive at all times to provide quality products and services. We will advise our customers wisely on the products and services we market and their suitability to our customers’ needs. We will not knowingly mislead or misrepresent our products and services in pursuit of competitive advantage.

Amen to that.