Kashmir eServices

Kashmir eServices

Guide to Annual Maintenance Contract

In any transaction where a seller sells equipment or products to a buyer for which periodic servicing or maintenance is required for its proper functioning, it is advisable to enter into an agreement between both parties on the terms of servicing that equipment or product. These agreements, commonly referred to as an Annual Maintenance Contract (AMC), are essential to formalizing this process.
Customers appreciate AMCs because they protect their investments in products and services, ensure against unplanned downtime, and guarantee that they will always have a service professional within arm’s reach. As a service provider, AMCs help you plan what your year’s service schedule will look like, estimate how many techs you need, and ensure that you build positive, long-term relationships with a loyal customer base.

What is an Annual Maintenance Contract (AMC)?
An annual maintenance contract is an agreement between a company and a provider that sets expectations for the ongoing maintenance of machinery or property that the company purchases from the provider. The annual maintenance contract ensures that the service provider will repair or replace equipment or products sold to the customer either when they are not functioning or as otherwise agreed between the two so as to minimize the consequent impact on downtime or irregularities in ensuring business continuity.
Annual maintenance services can apply to buildings, landscaping, computers, machinery, technically-enhanced furniture, and any other technology or business systems that require post-purchase service and maintenance. In specific industries, AMCs are certainly more prevalent than others. For instance: manufacturing, food service providers, healthcare, and retail have more annual maintenance needs than, say, an office.
For example, an office building may enact an AMC with the HVAC company that built their HVAC system. The contract would detail information like which equipment was covered, how often maintenance would be done, and what the costs of maintenance would be.

The typical annual maintenance contract format includes:
The name and address of the involved parties, usually a business and the company providing the service
Price of the contract
Annual maintenance contract terms and conditions
Penalties for breaking contract or contract termination
Expectations for how frequently your techs will need to service products
Definition of whether the deal is a comprehensive maintenance contract (CMC) or otherwise
List of the equipment covered for service
Timeline for how long service will last and how long it will typically take
A spot for both parties’ signatures and the date

What’s the difference between AMC and CMC?
While an annual maintenance contract is a great way to cover basic service on products, a comprehensive service contract (CMC) covers any additional spare parts, labor, or transportation costs that come up for techs while servicing those products. A non-comprehensive agreement will only cover the services themselves—any other expenses that might come up during the process are the business’s responsibility.
Given this breadth of coverage, comprehensive contracts often cost more than an AMC would. CMCs are typically good for a year after signing, but occasionally both parties agree to extend the range up to between three and five years. To get maximum coverage, many businesses will choose CMCs over AMCs, though AMCs require less commitment on the service provider side.

How does pricing for annual maintenance services work?
There are several different ways that companies and service providers choose to structure annual and comprehensive maintenance contracts. They are generally negotiated based on what works best for both the business and the service provider. Pricing can be structured based on a single parameter or using a hybrid model. For instance, you could price based on your hourly rate, or you could combine your hourly rate with an additional cost for transportation or replacement parts. Some of the most common types of pricing for AMCs are:

Contracts set an hourly rate or rate for specific time units (weeks, months, days, etc.). A fixed unit of price is associated with each hour of work, which is calculated annually for the total number of hours. This pricing model is usually used in situations where man-hours are the most important resource for maintenance.

Per Device
Contracts add a line-item cost for each device or piece of equipment that will be covered under the contract. This type of pricing is useful when the criticality of sourcing or repairing parts is high.

Based on the life-of-equipment
Contacts can include a prorated cost based on the expected lifetime of the device or equipment that is covered. For instance, if something is coming close to the end of its lifetime, the AMC could be more expensive.

Replacement vs. Repair
Contracts may differentiate based on the type of service offered. For example, an AMC may include different criteria for replacement and repairs of broken machines or components, with replacement traditionally being more expensive.

Additional Services
Contracts can include additional conditions based on services you provide to your customers. Several extraneous offerings can be covered under the contract, such as transportation of replacement parts. The business could choose to pay more to have transportation and replacement parts included within the contract, rather than separately billed.

Benefits of having an annual maintenance contract
Regardless of the terms and conditions of an AMC, the service provider and their clients can benefit greatly from it. Here are some other benefits for companies for having an annual maintenance contract:

For Service providers:

Easier annual planning
Drawing up AMCs makes your annual planning and budgeting easier. Both customers and service providers can use cost estimates from AMCs to calculate service requirements, estimated downtime, hours of operation, and much more. Customers also benefit from eliminating unexpected maintenance and repair costs, and the service provider has a picture of what types of jobs they can expect.

Informed scheduling
Create a deeper understanding of your scheduling and hiring needs. With AMCs, you get an overview of your year, and can have a better handle on how many techs you’ll need, how much support backup your contracts will require, and be able to pre-arrange your technicians’ schedules.

Deeper client knowledge
Service providers gain a deeper understanding of their client’s ongoing support requirements. Companies build better, longer-lasting relationships and create better contracts when service techs know how often equipment downtimes occur, how many visits they have to do on average, and what kind of needs the client has.

For customers
Higher Quality of work
Agreeing upon an annual maintenance contract allows clients to ensure the quality of work is standardized across that time period and ensure the service provider adheres to the terms agreed upon.

Efficient & planned timelines
Customers will benefit from knowing that they always have emergency support and their needs covered. They’ll never need to worry about how they will get something repaired or when it will happen.

Regular maintenance plans
Both service providers and customers benefit from having regular maintenance planned ahead of time. Well-maintained things break less frequently, resulting in less work for your techs and less downtime for clients.

Get started with AMCs today.
There are so many benefits to implementing annual maintenance contracts or Comprehensive maintenance contracts. Here are two significant ones:

Customer benefit: Using the templates above, gain the commitment you need to guarantee continuous up-time for your company.

Vendor Benefit: Ensure that the terms and pricing that you use align with the value that you are providing: don’t undersell yourself.

For some customers, a CMC will be the best bet. CMCs require a bit more involvement and cost outright to service providers, so ensure that you consider that when writing the contract. AMCs and CMCs will help give your business longevity and secure ongoing work for your team.