How to Evaluate an Equipment Service Contract


Advice for getting the right plan for your facility.

A facility's investment in capital equipment may never pay off if the equipment isn't protected with service contracts that ensure that the equipment will hold up for the long term. Understanding and negotiating service contracts can be a complex task, and often, a contract may seem to be airtight when it really isn't. We spoke to a number of experts to determine what to watch out for in service contract language and if and how you can negotiate favorable terms. Here's what they said.

Types and costs of contracts
Almost every piece of new equipment comes with a manufacturer's parts and service warranty-depending upon the type of equipment and the manufacturer, it can be for 90 days up to two years, but one year is more or less standard. According to expert sources consulted for this article, service contracts generally are formed in one of two fashions. For equipment that requires a major investment or involves complex technologies-for example, OR tables, OR lights, C-arms, microscopes and lasers-the facility will often buy extended service contract at the time of purchase. Alternatively, a service plan can be purchased some time after the equipment itself, from either the manufacturer, its affiliated distributors, or from a third party service provider.

As a rule of thumb, the first year of an extended service contract for a new piece of equipment costs 10 percent of the purchase price of the equipment. The second year, the contract cost may go up slightly. In each successive year as the equipment ages (and the likelihood of needing major repairs increases), the costs rise significantly relative to the purchase price. It is fairly standard, for example, to pay at a 14 or 15 percent rate for the third year of a contract, accoarding to Ross Van Antwerp, DOMPH, medical director of the Laser Surgery Center of Maryland in Severna Park, Md.

What a contract includes
Larry Perez, director of technical services for Skytron, a major capital equipment manufacturer, explains that every service provider has its own formula for designing service plans. For most, the formula is based upon the expected usage frequency for the equipment and the extent of service it will need in each year after the time of its manufacture. A standard contract may spell out some of the following terms:
  • What is and what is not covered. Services not covered typically include certain specified parts (accessories, replacement bulbs, etc), and services such as recalibration of equipment optics. There will also typically be contract language pertaining to "misuse" of the equipment, which would put the repair cost burden on the facility.
  • How many preventive maintenance visits per year are included. Typically, the scheduling is determined by the provider, not the facility.
  • How many emergency service calls are included. If equipment failure renders it inoperable, the provider will have an authorized representative come to the site within a specified period of time (36 hours, for example).

Service companies often present their clients with options for different levels of service, ranging from partial to comprehensive coverage. The greater the shared risk-in other words, the more guaranteed parts and labor coverage under the terms of the contract- the more the service plan will generally cost. It is up to the client to determine the level of coverage the facility needs.

Explains Dr Van Antwerp, "When you are negotiating an extended service contract, you'll typically get ?menus' of options. You can pay for a contract that covers everything or one that will cover most of what you need with major exceptions. Some contracts cover a certain number of service visits per year before additional charges apply. The contract may or may not cover replacement of parts, depending on the level of coverage you choose. If it doesn't cover parts, it may offer them at a reduced charge."