A maintenance contract is an agreement between you and your service provider that outlines the tasks, schedules, and frequency of the maintenance services they provide. It’s hard to pin down the exact number, but some estimate only around 10% of organizations do all their routine asset and equipment maintenance themselves. The other roughly 90% rely on third-party providers for at least some or all of their work, making these maintenance contracts and service agreements an important part of planning and scheduling maintenance.
But before you can negotiate the right maintenance plan for your facility, you need to know the possible benefits of outsourcing maintenance, the types of maintenance contracts there are, and the terms and conditions you likely want to include.
What is a maintenance contract?
A maintenance contract is a legal agreement between your organization and a maintenance service provider that outlines the work they’re going to do, when they’re going to do it, how quickly, and to what standard.
Whether it’s general upkeep or more specialized maintenance and repairs, the agreement must specify all the terms and conditions for everyone involved. It should include everything from, for example, the extent of the provider’s responsibilities to the service completion times and compensation if the provider damages your equipment or property.
You should carefully negotiate the terms of the maintenance contract before you commit to working with a service provider. The more you spell things out in the agreement now, the easier it is to resolve any issues in the future. And when you feel you need it, make sure to invest in good legal advice.
How do you know you need a maintenance contract?
When it comes to the maintenance of your equipment and facilities, you have four basic options. You can use:
- In-house maintenance teams
- Original equipment manufacturer (OEM) technicians
- Third-party maintenance service providers
- Any combination of the above three options
It’s most common for organizations to need at least some outside help either because of workload or the costs associated with hiring experts full-time for tasks that should only ever be periodic or infrequent.
For example, in many locations, only certified specialists can do inspections and testing on your fire suppression systems. For elevators and escalators, you also very likely need someone with a lot of specialized training. But because, hopefully, you only work on the sprinklers and elevators a few times a year, it doesn’t make economic sense to have these techs on the team all the time.
So, if you have work you cannot do yourself because of a lack of resources or because it’s specialized work your team cannot do either legally or safely, you need maintenance contracts.
What are the benefits of maintenance contracts?
Not everyone has a large, fully staffed in-house maintenance department, and even if you do, you may have specialist assets or equipment no one on the team is officially qualified to inspect, test, maintain, or repair. The obvious solution is to outsource a part of your maintenance responsibilities to licensed, certified experts.
By choosing an outside provider, you can bring in experts who understand your assets and equipment and can provide a level of service you can’t match, freeing you to focus your time and resources on what you do well.
Maintenance agreements can also help to reduce your organization’s legal liability. A service provider should have insurance in place to cover them in the event of an accident. Liability, responsibility, and coverage limits are something to discuss when negotiating the terms of your service agreement.
Handing the responsibility for your maintenance over to a contractor can also help to reduce inventory costs. They have the tools and spare parts they need to keep your equipment in the best possible condition, so you can direct your limited budget elsewhere. So, for example, the team that inspects your sprinklers are the ones who invest in the required specialized hardware and software. For them, it makes sense because that’s basically the only work they do. But for you and your maintenance department, pouring money into tools you only use a few times a year is a poor investment.
What are the different types of maintenance contracts?
Annual maintenance contracts (AMC) and comprehensive maintenance contracts (CMC) are the two general types. Both cover the service charges for ongoing maintenance and emergency repairs. The main difference between the two are the levels of service they provide.
Annual maintenance contracts vs comprehensive maintenance contracts
An AMC is an effective way to cover the basic maintenance of your equipment, but it only covers the service itself. You have to pay any additional expenses you might incur during the maintenance process separately. A CMC covers all the costs of performing the maintenance work as well as all parts and labor, the transportation for technicians, and any other costs that crop up.
With every aspect of the service covered, comprehensive maintenance contracts cost more initially, but you don’t have to worry about any of the additional invoices you’re likely to receive with an annual maintenance contract.
Once you’ve decided whether an AMC or CMC is the best fit for you, you can then think about finding the right type of maintenance contract for your overall maintenance strategy. For example, you may only want to bring in outside help when there’s a problem. On the other hand, you may be looking for a preventive maintenance provider who can help you avoid problems in the first place.
As the name suggests, this is a service agreement that’s activated when something goes wrong. Equipment downtime is expensive, so the provider must act quickly to restore the asset to its normal operating conditions. The unplanned nature of the work means this type of maintenance agreement usually costs more.
Here, the maintenance provider regularly carries out planned maintenance to identify and repair minor issues and prevent them from becoming big problems. Your provider must complete pre-defined checks and tasks at scheduled intervals to help you avoid failures.
By analyzing past failures, you can predict how and when future failures are likely to occur. You can then instruct your maintenance provider to carry out maintenance tasks based on our predictions.
Of course, if you want to make informed decisions, you need reliable data you can leverage into actionable business intelligence. Start by managing the asset data throughout its life cycle using an EAM like ManagerPlus®. You can then capture good data, keep it safe and accessible, and run automated reports to leverage your raw data into actionable business intelligence.
Here, your provider monitors the condition of your equipment and performs maintenance when it’s required. First, you need to install sensors on your critical assets, and then set them up to deliver a flow of real-time data to specialized software that looks for anomalies. For example, a simple temperature sensor on a motor can tell you when the asset is running too hot. Or a vibration sensor on a fan can tell you when there’s too much wobble. It’s usually best to use this type of maintenance in conjunction with other types of agreement.
How long do maintenance agreements typically last?
The initial term for AMCs and CMCs is usually a year, although you could put a three or five-year deal in place with your provider if you’re happy with their work.
Long-term contracts can benefit both your organization and the maintenance provider. From your point of view, having a reliable contractor in place gives you one less thing to worry about for the length of the agreement. A long-term contract can also lead to a consistent level of service, often at a discounted price, helping to reduce your annual maintenance cost without sacrificing quality on parts, processes, or people.
From the provider’s point of view, long-term contracts give them a regular source of income and allow them to build strong relationships that can lead to case studies and valuable recommendations. They also have an incentive to provide an excellent level of service, which in the end also benefits you.
How do you set a price for service agreements?
Regardless of the benefits, important maintenance decisions almost always come down to a consideration of cost. Lots of factors determine how much you’re likely to pay, such as the number of assets you have, the contract length, and the maximum amount of breakdowns you want to cover.
Different pricing methods can usually be negotiated with your provider, including:
- Per device pricing: You agree on a price with the maintenance provider for servicing a single asset for the duration of the contract. The total cost is the price per asset multiplied by the number of assets you have
- Time-based pricing: Your contract may specify a fixed hourly rate. You multiply the total man hours by the hourly rate to find the total cost
- Asset lifetime pricing: Your provider may charge more for older assets, which typically require more regular maintenance
- Replacement vs. repair: The price you pay can change depending on whether you want to repair or replace certain assets or components when they break
As a maintenance manager, you should be able to negotiate a pricing structure that works for you. Below are a few tips to help you negotiate better terms.
What should you look for before signing a maintenance agreement?
A good general maintenance agreement needs flexibility, clear expectations, and a fair conflict resolution process. But that might be just the start.
Clear description of the services
It sounds obvious, but at the most basic level, you need to make sure there’s a clear description of the services you’re going to receive in the contract, including schedules, with no zero ambiguity. When an asset or piece of equipment fails, the last thing you need is to discover the contract doesn’t cover them.
Appropriate measure of service level
Maintenance contractors usually have their own objective measures, response times, and service availability, but do they reflect what’s important to your business? If they don’t, suggest some that do. What makes sense for the provider might make less sense for you, and because you’re the customer, providers should be accommodating you, not the other way around.
Flexible services and pricing
Things change in business. You could take on new sites, establish new service lines or drop others. Your maintenance agreement should have enough flexibility built into the pricing and services to manage those changes. From a purely business point-of-view, service providers should generally want you to expand because that means more work for them. But, in some cases, a provider is already at or close to their limit for time and other resources right at the start of the contract. It might make sense to go with someone who is in a better position to scale up with you.
Built-in ability to walk away for poor service poor
The last thing you want is to be tied to a service provider that consistently fails to achieve service levels without a way to exit the agreement. Most maintenance contracts contain a general termination right if the provider is in material breach, but think about whether you may want more specific rights for performance defaults. You should also look at any language in the agreement about conflict resolution. Could you escalate to court if you needed to, or are you locked into a form of mediation that favors the other party?
Clear exit schedules
Treat the exit as part of the overall project, and the assistance you get at the end of the agreement should be well documented. As well as the handover of physical equipment, think about the transfer of knowledge, such as equipment data. It’s also good practice to review and update the exit schedule annually to make sure it reflects any changes.
What should your facilities maintenance contract include?
A facilities or building maintenance contract should contain:
- Full names and details of both parties
- Types of maintenance
- Scope of the work
- Equipment details
- Service schedules
- Response times
- Service completion times
- Payment terms
- Warranties, guarantees, and compensation
- Contract termination details
For the full name and details of both parties, this is on some level just a question of covering your legal bases. Make sure to include the names of your organization and the service provider, your registered addresses, the location, where the service is going to be delivered, and details of signatories. Then make sure you add the type of maintenance. The contract should clarify the type of maintenance you need, whether it’s on-demand, preventive, or condition based, for example. For the scope of the work, expect to see a clear outline of the services the provider is going to perform, making sure to describe the jobs explicitly to avoid any ambiguity in the future. You also need equipment details. And here, include the technical specification, location, operating conditions, and any other relevant information about the assets you want the provider to service. The more they know about your assets, the easier it is for them to help you keep everything up and running.
That covers the “who” and the “what.” But you also need to include the when. For the service schedule, make sure to include when your provider is going to perform the work. For preventive maintenance, you can specify the intervals. For response times, clearly define the maximum response time from the contractor, especially for critical assets. Next, look at service completion times. You need to know that the provider can complete the work within reasonable timeframes.
Next, you need to cover the “how much.” For payment terms, ask yourself, “How much are we paying for the work and when are we making these payments? You should also establish how you’re going to make the payments. It may seem like a smaller aspect, but keep in mind that every payment method comes with some combination of convenience and complexity. When looking at warranties, guarantees, and compensation, make sure you have some form of protection in place if the contractor fails to meet the service standards you’ve agreed on or they damage your assets or equipment.
And finally, the details on contract termination. Every service agreement should include a clause that clarifies when and how you or the contractor can terminate the contract.
How can ManagerPlus help you manage maintenance agreements and vendors?
If your organization uses multiple contractors as part of your facilities maintenance program, you’ll know that things can get very messy, very quickly. Keeping all that information straight, searchable and accessible can seem like a never-ending hassle, particularly when you have daily work orders. That’s where the easy-to-use, full-featured enterprise asset management (EAM) software solution from ManagerPlus® can help.
ManagerPlus can easily handle every aspect of your facility maintenance data. You can upload files, including facility maintenance contracts, so you have all your maintenance-related information in one spot. Aside from the agreements themselves, you can access vendor details like names, addresses, emails, and phone numbers quickly, which can be very helpful when you have contracts with multiple vendors across several locations.
To streamline communication with your contractors, you can even give them limited access to your EAM software. You can then send work orders to them directly along with attached work instructions. They then perform the work, enter the time and spare parts used and close the work order. This way, you have a clear record of a contractor’s time spent, parts used, invoices, and other data. You can also generate reports, track how much money you’re spending on each contractor, and keep an eye on whether they’re reaching the agreed service levels.
Want to find out how ManagerPlus® can help you handle all aspects of your facility maintenance data?
A maintenance contract is an agreement between you and your contractor that outlines the tasks, schedule, and frequency of the maintenance services you receive. You can choose an annual maintenance or comprehensive maintenance contract to match your maintenance strategy – whether it’s corrective, preventive, risk-based, or conditional.
Maintenance agreements are an effective way to access the specialized skills you may not have in-house, free up your techs to perform other work, and reduce your inventory carrying costs. However, you must make sure your service agreement has flexibility, clear expectations and a fair conflict resolution process in place in case there are any issues.
ManagerPlus can help you handle every aspect of your facility maintenance data, including your service agreements. You can upload files, including facility maintenance contracts, so you have all your maintenance-related information in one spot. You can even give your contractors access to your software and send them work orders directly along with attached instructions. They can then perform the work, enter the time and spare parts used, and close the work order. This way, you have a clear record of a contractor’s time spent, parts used, invoices, and other data – everything you need to stay on top of your maintenance contracts.