Negotiating Laboratory Service Contracts and Warranties

Purchasing laboratory equipment, whether new or used, is a big investment for any lab. There are several factors to consider to ensure this new investment continues to operate as expected for the lab; first by evaluating the best warranty options, and then by ensuring the right level of service contract coverage. These are important next steps to protect your investment. 

Equipment accounts for an important fraction of most laboratories’ budgets, and malfunctions or failures generate additional repair costs, as well as lost productivity. Equipment warranties can protect laboratories in the short term after purchase. They serve as a written guarantee for a product, holding the manufacturer or seller responsible for repairs after installation. However, not all warranties are the same, and it is important to ask a few questions and negotiate prior to purchase. 

Most lab equipment comes with a warranty, but this may range between a seven-day right of return, to 12 months of parts and labor coverage, and numerous other options. Important questions to ask include warranty duration, contract terms and conditions, and the return or cancellation policy. 

Questions about the warranty duration appear straightforward, but it is vital to know when the warranty period begins and expires. Warranties may begin at the time of purchase, receipt, or installation. They may also depend on ensuring that the equipment is registered with the provider. 

“Contract terms and conditions would include what the seller covers when the equipment needs to be repaired,” explains Barbara Pearlman, president of Cambridge Scientific Products. This may include repair and/or replacement of defective parts, or the equipment itself, but not damages caused by mishandling or misuse. It is also important to ask whether the warranty period restarts when the repair is completed, or if the original warranty period continues. According to Pearlman, “common mistakes buyers make can be prevented by carefully examining the service contract terms within the warranty period.”

Pearlman also recommends determining what will void the warranty. In general, warranties only apply if the equipment is used as intended for certain applications. If the equipment is used for other applications, or exposed to certain chemicals, voltages, or conditions, there is a risk that the manufacturer will deny the warranty claim. 

Understanding the warranty claim process before purchasing is also important to save time and additional costs. Ask whether the seller or the original equipment manufacturer (OEM) is the point of contact to initiate a warranty claim. If equipment needs to be sent back for repair or replacement, ask who is responsible for the shipping costs and whether there are any other costs associated with a claim.

During the instrument purchase, it is also important to consider if an extended warranty is worthwhile. For larger investments, an extended warranty can provide assurance that the lab will not be faced with high replacement or repair costs in the event of a malfunction. Extended warranties may differ from standard warranties and should also be reviewed prior to purchase. 

When purchasing lab equipment, warranty options need to be part of the conversation. Elements of the warranty, like duration, terms, and levels of support, can be negotiated along with the purchase price. Asking a few key questions, being willing to negotiate, and making an informed purchasing decision will prevent costly surprises.

Post-warranty service contracts

Once the original warranty agreement expires, securing the appropriate level of maintenance coverage is important. Knowing standard service contract language can help negotiate favorable terms and conditions, and help save the lab money and headaches.

Modern lab managers are running their labs more like businesses, and are tasked with greater financial responsibilities. Controlling costs and buying wisely are common practice for most labs. Sometimes lab managers will purchase service agreements with the OEM at the time of purchase; other times the lab will wait for the original warranty to expire before deciding to buy a service contract. 

First, the lab will need to determine the level of service coverage required for their needs. There is no one-size-fits-all when it comes to maintaining various types of laboratory equipment. This is a balancing act of understanding which instruments are critical to have external service support, and what the lab can afford to spend on service contracts. Few labs can afford to have all of their instruments covered at the maximum level of service. 

Once the level of service required for each piece of equipment is determined, better decisions can be made about the individual service contracts and providers. Doing due diligence on possible service contracts will help negotiate more favorable terms and conditions during the purchase process. 

Below are five key areas of the service contract that require attention when you are considering the purchase of new agreements.

1.    Effective and expiration dates

Different terminology with similar meaning can be used in service contracts, such as contract coverage term, agreement term, service start date/end date, service plan from/to, and contract duration. Before buying, it’s important to fully understand when the service contract begins and ends. Long-term contracts with five- or 10-year terms can be mutually beneficial. Contract duration can be negotiated to what will work best for the particular lab.

2.    Payment terms

Different contracts and different providers offer a wide range of payment terms. These can range from a single payment in advance to monthly or quarterly payments for an annual contract, or annual payments for a longer-term contract. Consider the most effective payment terms for the lab’s budget. Negotiating on payment terms can help find the right plan for your lab. 

3.    Early cancellation/termination

Don’t presume that a service contract can be cancelled or terminated before the expiration date. If it is allowed at all, early cancellation or termination fees can be expensive, costing from 25 percent to 50 percent of the remaining contract charges owed. Quite often, long-term contracts will not provide an opt-out clause for the lab, but do allow the manufacturer to terminate the contract before the expiration date for any number of reasons. Especially with long-term contracts, it’s important to negotiate an opt-out clause with minimal penalties. At a minimum, the opt-out clauses should be mirrored for the lab and the provider.

4.    Auto-renewal clause

The automatic renewal clause extends the service contract for another term automatically, as the expiration date approaches, if written notification requesting termination isn’t received by the defined deadline. Once a contract is auto-renewed, any early cancellation/termination fees go into effect again. Carefully consider if autorenewal is in the best interest of your lab. If not, negotiate the removal of the autorenewal clause before signing.

5.    Other terms and conditions to consider

Depending on the manufacturer, make, and model of the covered equipment, there are several other elements of the service contract to consider. Some important considerations include:

• What is the availability of replacement parts, and are they new or refurbished? 
• What is covered during a service call?
• Is remote service advice available? 
• Will you be responsible for travel charges, overtime, or holiday hours?
• Once a service call is requested, how long will it take for a service engineer to arrive?
• What does the provider expect the lab to do themselves under the contract?
• Is routine maintenance or normal calibration covered under the contract?
• Is any part of the instrument excluded from the contract?
• How long does the provider expect to cover this specific instrument?

Be willing to question confusing or ambiguous phrases before signing the contract. It’s important to seek clarification of any terms and conditions that are difficult to interpret and ensure any changes are incorporated in the final service contract. As the lab manager, it’s up to you to seek favorable terms and conditions and be willing and able to negotiate any portion of a service contract in question.