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How to Choose a Service Contract

How to choose a service contractCapital equipment is almost always a long- term investment. Once in place it will need to provide the output that justified its cost, which often means years of reliable service.

Although most capital investments are based on shorter payback times, it is common for equipment to still be in service after 10, 20 or even 30 years, particularly in the electronics industry. Sometimes it starts out at the front line of production, then is gradually moved to support smaller batches of older product, before finally providing an occasional service for spares and repairs.

So how do you best protect your investment, particularly when your needs may change over time? Most equipment suppliers offer several options for service contracts. Which one to go for essentially depends on how critical the equipment is to you. Here are a few of the options that you will find most often:

‘Ad-Hoc’ or ‘Pay-As-You-Go’ Support

Many companies will offer a service where repairs, maintenance, calibration and other support is paid for as required. If no help is needed, then nothing is paid. This might be a reasonable choice for equipment that is relatively new, inexpensive to fix, or little used.

The main disadvantage is that labour and parts may not be available when you need them. Customers with service contracts are likely to take priority, so you may have to wait. You might also need to raise purchase orders before the work is started, and call-out fees and parts are likely to be at full price.

Calibration Only Contracts

Annual calibration is usually a basic requirement of your quality system. An agreement can be made to ensure calibration is performed at the required time, ideally with a basic health check too, and preventative maintenance. Any other support is then supplied on an ad-hoc basis. This is a good approach to ensure the basics are done and to minimise the risks of something going wrong. Again though, there is no guarantee of getting things fixed on time if a fault does occur.

Bronze, Silver and Gold Contracts

These come in a variety of different forms according to the equipment provider, so you will need to check the details, but most follow along the same lines.

A bronze contract is usually quite basic, similar to a calibration only contract, but with some added benefits such as telephone support. This will be covered by a single annual fee, with any other services provided at extra cost.

A gold contract (or even a platinum contract) usually covers unlimited parts and labour for a single annual payment. Parts and labour are often guaranteed to be available within a fixed time, for example 24 hours. This is great for critical equipment that must be fixed quickly if it goes wrong. However, it can be expensive, particularly for older equipment, as the risk is higher for the supplier. Gold contracts may not be available for such kit, or there may be exemptions for certain (perhaps obsolete or particularly expensive) parts.

You might also be advised or required to buy a set of basic spare parts and have someone on site trained to fit them, though this is a smart idea anyway if you need to get up and running quickly.

As with insurance, if nothing goes wrong it can be a significant outlay for just a basic service and calibration, though it does come with peace of mind.

Silver contracts are somewhere between bronze and silver. Response times may be longer than gold contracts, parts may be at a discounted cost rather than included, or there may be some parts that would need to be fully paid for. This can offer a reasonable compromise if a level of guaranteed service is needed on a limited budget.

Pot-Funded Contracts

These are an innovative and popular compromise if you can find them.

A ‘Pot Fund’ contract involves an agreed amount of money paid up-front to the supplier. This provides a service ‘pot’ for use when a system develops a fault, or for annual calibration and preventative maintenance.

As the money is in place, suppliers can respond quickly to arrange labour and parts as required. It may also allow a discount on standard labour and parts costs.

The benefit of this approach is that any pot fund money remaining at the end of the agreement carries over to the fund for the following year. The payment is not lost, as with a standard service contract. However, if the repair costs exceed the available funds then additional payment will have to be made, so it is not ‘fully comprehensive’ like a gold contract for example.

Guarantees

New equipment will always have some form of guarantee, but it is worth checking what this includes. If you are looking for a ‘gold’ service standard then you might need a service contract from day one.

Upgrades

Updating or upgrading equipment is generally not included in service contracts, though broken parts may be replaced with newer equivalents as necessary.

Occasionally service contracts may include a regular ‘obsolescence report’ to highlight those components that are, or are about to become, obsolete. It is then possible to plan for newer replacement parts, or perhaps agree to hold a stock of the obsolete parts for future repair needs.

Selecting equipment that can be updated, for example by replacing modules with more modern and/or capable variants is certainly key to ensuring long equipment life and reasonable maintenance costs.

PC based systems also need careful consideration, as IT security requires use of relatively modern operating systems which in turn need compatible hardware. This can involve added costs, for example changes to application specific software.

 

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