Contractingbusiness 842 Dave Piccione

Delisted and Confused

Oct. 1, 2009
Much like the star of the 1993 movie, Dazed and Confused, many HARDI distributors are uncertain to what and to whom they should commit because they can't

Much like the star of the 1993 “retro” movie, Dazed and Confused, many HARDI distributors are uncertain to what and to whom they should commit because they can't trust who really cares about their best interests. Randall “Pink” Floyd (played by Jason London) is a Texas high school quarterback unsure whether he'll play his senior year because his coach is insisting all players sign a new code of conduct commitment before getting on the field. For now, let's ignore that the required commitment simply forbade a lot of already-illegal activities and turn to the larger metaphor. “Pink's” conflict lies in his general mistrust of the coaches' concern for him and that they just want to control him — to his perceived detriment — only to serve their own purposes.

HVACR distributors have many commitments already required of them; stocking requirements, product support and training requirements, minimum orders, freight liabilities and so on, and then came a wave of incentives for high-efficiency HVACR equipment. New market demands for higher tier equipment that had previously been modest at best caught many equipment manufacturers unprepared and gave rise to an explosion in AHRI Certified mix-matched HVACR systems using third-party coils. HARDI distributors were encouraged by their OEM in some instances and sometimes required to invest in third-party coils to remain competitive in their market; and they relied on the AHRI Certified Product Directory to identify which third-party coils in which to invest.

Without any advanced indication of a problem and at the very end of June, AHRI's Executive Committee voted to require the rerating of mix-matched systems to maintain their certification by July 15 and announced that they would no longer certify mix-match combinations that exceeded six percent of the OEM's rated efficiency as of that date. Citing concerns over the integrity of its certification and the need to catch up in its sampling testing, AHRI justified their decision in a letter responding to HARDI's criticism of the method, timing and implementation of their decision by stating they did so “with awareness of the short-term inconvenience that will be caused by what is intended to be a temporary measure, but also of the fact that action was needed to preserve the continued quality of the mix-match coil certification program.”

Many HARDI distributors responded with some understandable indignation that this “short-term inconvenience” could cost them tens of thousands of dollars in inventory that was seemingly devalued overnight by the wave of AHRI's Executive Committee's hand. While it was initially concerns over the federal tax credits for residential HVACR improvements that sparked panic, utility incentive programs proved to be the more pressing issue. This despite AHRI's assertion that “while widely used, AHRI certificates are not, and have never been intended to be, the only method that can be used to document equipment performance for tax credits and utility rebates. Each manufacturer independently rates the performance of their equipment and systems.” While that may have been the case, we've seen no indication that AHRI had done anything to deter utilities around the country from relying on their certification to provide verification for their HVACR energy-efficiency incentive programs.

AHRI's rash decision left utilities scrambling to deal with the administration of outstanding and future rebate claims on systems delisted after July 15, and questioning the integrity of the performance ratings of those systems previously and currently certified by AHRI. HARDI and many of our distributor members worked fast and hard to convince utilities to continue to accept systems that were delisted on July 15 through the rest of this cooling season, providing an opportunity for distributors and contractors to exhaust their inventories of third-party coils that had suddenly lost their value (without any quantified or substantiated performance degradations, by the way).

None of this is (or should be) news to any equipment distributor, but this story is worth retelling as a reminder of the dysfunction that continues to plague our industry. As HARDI stated to AHRI in our initial protest to their decision, “while we support the logic behind the need to make such a determination, we are extremely disturbed and concerned by how the decision was made and timelines were established without consultation with or consideration of your industry partners. Once again, those who will make the greatest sacrifice with respect to productivity, profitability and customer creditability are not given the opportunity for input on the potential long-term consequences to the channel and our industry.”

Like federal legislation to fund and drive energy efficiency through HVACR upgrades (generally useless commercial buildings tax deductions and ridiculously high qualifying levels for the residential HVACR tax credits), reasonable increases in performance standards (the 2006 increase in federal SEER standards), and the establishment of new equipment performance standards (commercial walk-ins repair versus new install confusion), our industry appears to be experts at turning good ideas into major disruptions due largely to its inability to work together.

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Much like "Pink's" struggle with commitment, perhaps HARDI's greatest concern for our distributor membership is the erosion of confidence in our channel partnerships including manufacturer to manufacturer partnerships, given how this recent coil delisting decision played out. Knowing the HARDI HVAC Council's continued consternation over the delisting issue, HVACR Distribution Business' editor, Tom Peric, solicited two of the largest manufacturers of third-party coils for comment. (See sidebar).

Frankly, channel relationships are challenging enough in any line of trade as competition increases day in and day out. Self-inflicted wounds may be unsustainable in the near future, especially if economic conditions don't improve. To be clear, the integrity of any third-party certification system in our industry is essential, but so too are consideration and cooperation between channel partners. Every OEM has some version of a Distributor Advocacy Council (DAC), and while they don't guarantee distributor-friendly decisions by manufacturers (nor should they since any business must act in its own interests), they do ensure an opportunity for any organization to see how their interests might best be served when aligned with those of channel partners. HARDI recommends that AHRI consider establishing its own DAC to provide broader perspectives to its policy decisions.

This delisting issue has also reinforced HARDI's efforts to forge a closer relationship with the utility community. Nearly two years ago, we started working with utility energy-efficiency programs after identifying the consistently increasing role efficiency incentives were playing in the HVACR residential and light commercial markets. Distributors are a linchpin for the success of these efficiency programs, and many utilities relied on distributor recommendations to determine how to address this delisting issue. Had HARDI and our members not stepped up, many utilities may have chosen to disqualify delisted products on July 15. As HARDI continues to engage with regional and national utility organizations, so too should equipment distributors with the utilities in their territories -- even more so than many of them already do today.

Finally, it stands to reason that HARDI needs to redouble its inter-industry advocacy efforts. The manufacturers have been the industry's recognized stakeholder for decades on most regulatory and legislative affairs (proving highly effective on many occasions), but this delisting issue raises new questions about AHRI's capacity to fully consider the interests of the industry's distributors and contractors. An enhanced advocacy position for HVACR wholesale distributors can be a tremendous asset for AHRI when efforts are coordinated and aligned. We don't believe any industry organization is working intentionally to the detriment of any other industry segment, but rather all of the organizations can do a better job of following the spirit that gave rise to the HVACR Industry Alliance established shortly after the HARDI consolidation. Just as HARDI has done in this Alliance, and strives to do today with policy issues, we will continue to reach out to industry partners as challenges arise. If all industry organizations could agree to similar lines of communication, we could avoid these kinds of oversights while maintaining each organization's ability to advocate the best interests of their respective memberships.

By the end of Dazed and Confused, it's hard to believe that "Pink" was really going to walk away from the football team. The camaraderie with teammates and the love of competition are hard to forgo, and one can say the same about industry partnerships. It's so clich¨¦, but trust is essential in any relationship. The three small measures outlined here all share a common theme of communication that could go a long way toward rebuilding this trust and forging a stronger industry. Otherwise, we could find ourselves continuing to waste resources and going backwards to fix things rather than looking forward to create new opportunities.

Donald L. Frendberg is executive vice president & COO of HARDI, and Talbot Gee is vice president. Contact them at 614/345-4328, [email protected], or [email protected].

A HARDI Member Responds

David Piccone, president of Aspen Manufacturing was gracious enough to answer the following questions about this issue:

Question 1: Some in the industry argued that AHRI's decision to delist thousands of mix-match combinations was forced on them by impossible performance claims being made by independent coil manufacturers. What's your company's response to that?

"AHRI's official explanation contradicts this rumor and is as follows: 'This action was taken in response to a dramatic increase in recent months in product listings entered in the AHRI directory by participants in this certification program. This increase over a short period of time has challenged the ability of AHRI to keep pace with adequate verification testing under current program rules.'"

Question 2: What has Aspen done to help distributors who had stocked products that were delisted in July?

"Since the July 15 ruling came as a surprise to Aspen and to the industry in general, it generated a great deal of confusion and turmoil. Aspen's engineering and sales staff and our field sales representatives worked very hard to keep our customers informed as quickly as possible. We gave our customers the opportunity to cancel or revise any open orders without penalty, including several already in various stages of completion. We worked 24/7 for several weeks to make the data submittals necessary to comply with the ruling and to finalize our section of the directory. After Aspen requested clarification of AHRI's certify-all rule and how it relates to this situation, AHRI decided to suspend this rule until October 1. Consequently, our tax certificate will continue to show delisted combinations until this date. This allowed a few extra months for our customers to sell-through. If a coil is delisted with a given condensing unit, it can still be matched with many other outdoor units. We are assisting our customers in finding alternative uses for coils that are delisted."