Understanding Service Maintenance Contracts: Key Elements and Best Practices

What is a Maintenance Contract?

A maintenance contract helps to avoid the risk (and stress!) of unplanned downtime. It is a legal agreement between you and your customer, which outlines the terms and conditions for the upkeep of machinery/equipment. It should detail the frequency and tasks associated with regular checks, who holds responsibility for specialist repairs, and state agreed rates and service level agreements (SLAs).

Industries that use Maintenance Contracts

Maintenance contracts are used in any industry where machinery/equipment is used. For example:

• Forklifts
• HVAC Maintenance Software
• Lifts
• Materials Handling
• Medical Devices
• Plant & Asset Management

Types of Maintenance Contracts

There are 4 types of maintenance contract – preventative, corrective, comprehensive and annual. Choosing the right one, which could be a combination of options, usually comes down to how important the equipment is to keep your customer’s business operational.

1. Preventative Maintenance Contracts

A preventative maintenance contract aims to keep equipment in good working order, to avoid unplanned downtime and extend the life of the asset. You will perform inspections, minor repairs and routine servicing at regular intervals, for example monthly or quarterly. With Service Geeni you can also schedule maintenance based on usage, so you ensure the hardest working equipment is serviced more regularly.

2. Corrective Maintenance Contracts

In contrast, a corrective maintenance contract kicks in once there is a problem. This type of agreement is usually tailored to the customer, based on the impact downtime will have. For example, they may be able to get away with not having a forklift for a day – especially if they have several others available. But a medical device, which is tracking someone’s health, would need immediate repair. Also, a corrective maintenance contract should aim to fix the issue first time, not just apply a sticky plaster to get your customer back up and running quickly.

3. Comprehensive Maintenance Contracts (CMC)

A preventative maintenance contract covers routine repairs. But what if your engineer spots worn parts or a fault during the service? This is when a comprehensive maintenance contract comes into play, ensuring you don’t get stuck performing additional work without receiving additional pay. A preventative maintenance contract covers more in-depth repairs – as well as emergency call outs – to keep your customer’s equipment online, all the time, for one monthly fee.

4. Annual Maintenance Contracts (AMC)

Finally, an annual maintenance contract is a cost-effective way to cover basic maintenance. As the name suggests, it’s one visit every 12 months. And a bit like a car MOT, you’re there to check everything is in safe working order, and flag up potential issues that may be on the horizon.

Key Elements of a Maintenance Contract

A maintenance contract makes clear who has responsibility for what, how often equipment is serviced, when that service takes place, and at what cost. Therefore, at a minimum, your maintenance agreement should include:

• Contact details: for you and your customer.
• Equipment details: technical specification, location, operating conditions.
• Type of maintenance contract: preventative, corrective, comprehensive, annual.
• The scope of work: what is included AND activities not covered.
• Service schedule: how often maintenance work is carried out.
• Expectation setting: response times, how long fixes are expected to take, preparations for onsite engineers.
• Payment terms: how services are charged, their cost, whether late payment penalties apply, and discounts for direct debits or payment upfront.
• Warranties and guarantees: to cover you if your equipment is damaged and set out the processes for what customers should do if they’re unhappy with the standard of work.
• Contract termination: when the maintenance agreement becomes void, for example, non-payments or breach of contract.

Benefits of Having a Maintenance Contract

Ultimately, a service maintenance contract is about keeping your customers up and running by fixing small issues before they become big problems. It’s also about providing hands-on support from the right engineer for the job (because you wouldn’t send a car mechanic to service a boiler!). When you’re trying to sell a maintenance contract to your customers, think about highlighting the following:

1. Cost Savings and Predictability

First up, a service maintenance contract will help your customer with budgeting because they pay a fixed monthly fee for a specific set of services (this also helps with your cash flow, since you’ll know how much you can expect to receive for the service each month).

But there’s another side to cost savings.

Did you know…an HVAC system that is not regularly maintained uses 20% more energy?

Regular maintenance ensures equipment operates efficiently, which impacts additional lines, like utilities, on your customer’s profit & loss statement. As well as highlight the predictability of maintenance costs, these knock-on savings help create a compelling business case to help your customer get internal sign-off.

2. Prolonged Equipment Lifespan

Global management consultants McKinsey & Co say predictive maintenance has the potential to extend asset life by up to 40%. Think of it like a car. If you don’t change the oil every year it can damage the engine (a VERY costly fix). Fail to check and top up the fluids, and the car is prone to breakdowns. When the tyres or brakes become worn, you risk crashing the car…the list goes on.

Rather than wait for equipment/machinery to break before taking action, a service maintenance contract keeps it in good working order so it stays operational for longer – and therefore avoids your customer needing to lay out more in capital expenditure before it’s absolutely necessary.

3. Minimising Downtime

The #1 challenge European companies face is unplanned downtime and emergency maintenance. On average, businesses experience 800+ hours of equipment downtime per year – that’s over 15 hours per week! According to the Aberdeen Group, each hour of unplanned downtime costs $260 (£205). This means a service maintenance contract, which aims to minimise downtime, could save your customers an incredible $208k (£164k) per year – not to mention you’re helping them to avoid grumpy customers and earning a bad reputation.

4. Compliance with Regulations

In our industries, regulations exist for the best reason: to maintain a safe working environment. Data from the National Safety Council reveals the most dangerous industries to work in are construction, which has the most workplace deaths, and transportation and warehousing, which has the highest recorded injury rate. Proactively managing equipment through a service maintenance contract reduces the risk of accidents (which also helps you avoid potential, costly legal action) – as well as helping your customers to stay compliant with safety standards.

Common Pitfalls to Avoid in Maintenance Agreements

Small print can be a pain in the posterior when you fail to dot every ‘i’ and cross every ‘t’. Therefore we urge you to triple check these 3 key areas in your maintenance contract:

1. Lack of Clarity in Scope

Check you’ve explicitly stated what is/isn’t covered under the terms of the maintenance contract. For example:

• Equipment/Machinery: its age, usage, operating environment, and manufacturer-recommended maintenance schedules.
• Services: a list of maintenance tasks with descriptions, including response times for service calls – and whether this is to triage or fix the issue.
• Schedule: how often each piece of equipment/machinery needs routine maintenance – this could be by time or usage.

Also, check the language used is clear and unambiguous so nothing can be left to interpretation. For example, ‘regular servicing’ vs. ‘servicing every 5,000 hours’. Getting the scope clear upfront is key to setting expectations with your customer.

2. Overlooking Hidden Costs

Be clear on what’s considered extra work. For example, parts, investigation costs, or having the engineer look at something else while they’re onsite. This helps to establish liability between you and your customer, and avoids any awkward conversations or heated misunderstandings once the issue is fixed.

3. Define Service Levels

When equipment suddenly fails, your customer wants the guarantee of a timely response and accurate timeline for when it will be up and running again (the last thing you want is a hysterical customer on the phone every 5 minutes). Therefore, be sure to bake SLAs into your maintenance agreement, which may differ depending on what equipment/machinery is covered. Remember, there are 4 types of SLA you can offer:

• Customer-based: based on metrics relevant to the customer’s business.
• Service-based: defines the levels of service you deliver for a specific offering.
• Operational: based on performance targets, such as uptime.
• Multi-level: a blend of all three.

When defining service levels, the maintenance contract must work for both parties, and again, make the expectations crystal clear, so they cannot be challenged.

Best Practices for Drafting and Managing Maintenance Contracts

Rather than pull a standard template that’s full of legal jargon nobody understands, create something simple to suit your business needs. Think about:

Involving Key Stakeholders

Make sure everybody involved in delivering your maintenance services has provided input into the process, understands what expectations the agreement sets out, and can deliver that service. For example, if the contract promises 1 hour response times 24/7, are your operations set up to provide emergency support at 3am?

Your maintenance contract doesn’t have to be complicated. Use simple descriptions, avoid ambiguities, and be consistent in how you refer to equipment/machinery, services, and both companies within the document.

Regularly Reviewing the Agreement

Firstly, you want to ensure your customer feels they are receiving good value for money, so when it comes to renewal time, they simply sign again on the dotted line.

Secondly, as a business grows the requirements evolve too. Monthly reports to track your customer’s KPIs alongside meetings to discuss their current and future needs, mean you can identify early on when they may require additional equipment/machinery to increase their capacity.

Leveraging Software for Contract Management

To avoid any unnecessary admin, look at how contract management software can help you keep track of all customer agreements. By automating processes, like contract management, renewal notifications, and reporting, it’s an efficient and effective way to ensure you get the most from your investment.

Also, if you’ve not already done so, take a look at service management software, because it goes beyond maintenance to help with:

• Asset management: so you know what equipment you have, where it is, and in what condition.
• Scheduling: to ensure engineers with the right skills are sent to each job.
• Mobile app: to give engineers access to all the information they need to complete a first time fix.

How Can Service Geeni Software Help Manage Maintenance Contracts?

If you’re in the 44% of companies that spend 40+ hours a week performing maintenance, perhaps we can help lighten the admin load that comes with it.

Our service management software helps manage maintenance contracts, so you avoid numerous repeat visits, duplicating administration, inaccurate reporting and not being unable to capture the right data. We help you to see all there is to see about your service operations – and make it really easy for your engineers to go into the detail of every job, every piece of equipment/machinery, and a full inventory of stock while they’re onsite.

See what Service Geeni can do for you…

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