Equipment distributors and similar companies in the business of selling or leasing equipment, machinery and hardware that require upkeep often augment their sales and financing activities with service contracts. For the business buyer or lessee, a preventive maintenance and service contract can provide protection against equipment failure.
Preventive maintenance involves the periodic and systematic inspection of equipment, machinery, tools and other assets used in operations that wear with time and use. Preventive maintenance includes light repair work performed according to a schedule, the detection and identification of issues in advance and the correction of any problems discovered. Preventive maintenance stops larger failures from occurring, potentially saving a company significant time and money. The service component usually includes any corrective work done on an asset to restore it to its prime operating state.
Purpose of Contracts
Many companies enter into preventive maintenance and service contracts on equipment they can’t service internally. The equipment may be costly for a firm to repair, especially in an emergency, so preventing large repairs can be highly cost effective. In addition, any downtime caused by equipment failure may be expensive; these agreements can help maximize uptime. Preventive maintenance agreements, when structured accordingly, can help a company remain on budget while meeting specific operational and productivity goals.
How It Works
A firm often can enter into a preventive maintenance and service contract with the company that sells or leases it the equipment. Alternatively, the firm can contract with a maintenance service provider that specializes in servicing the type of equipment the firm owns. The contract must clearly state the included services and delineate any expressly excluded services. For example, for computer hardware, services may include initial onsite and remote setup, remote monitoring, monthly on-site visits and 24 hour call-in technical support. An agreement may charge a lower set price for additional site visits during normal business hours and a higher price for after-hours site visits. The agreement may expressly exclude servicing any hardware not listed in the agreement.
A thorough preventive maintenance and service contract outlines what happens if the equipment breaks due to natural disasters or terrorist acts. It also addresses what happens if it breaks due to an issue undetected during the preventive maintenance. It should specify what happens in the event of a disagreement between the firm and its service provider and what, if any, of the firm’s actions could void the contract. In addition, the agreement must specify the length, pricing and payment schedule.