As a lab scientist and supervisor, I loved instrument service contracts. They ensured that the most important equipment in my labs would consistently be up and running and ready for me to use. As a lab manager and director, I had a mixed relationship with instrument service contracts. While I still appreciated the benefits, they were very expensive, and I couldn’t justify as many as I wanted due to the costs. Finding the right balance of investing in service contracts and maintaining budget realities can be difficult and frustrating.
Here, we’ll explore ways that lab managers can optimize the cost of service contracts for their lab instruments.
Benefits of service contracts
Scientists and stakeholders love service contracts because of the clear benefits they deliver, including reduced downtime, faster recovery from issues, priority service, and access to instrument experts. Contracts that include preventive maintenance ensure that instruments get the regular care they require to be fully operational, and contracts with repair services ensure that when something goes wrong, it gets addressed and fixed rapidly.
Lab managers also get clear benefits from instrument service contracts, including predictable budgeting and cost control, regulatory compliance support, reduced stakeholder risk, and extended instrument lifespan. Having contracts can smooth out monthly repair costs, reduce upsets that impact key stakeholders, and extend the time between costly investments in new equipment. In many ways, service contracts are insurance for the lab that reduces the impact when bad things occur to the instruments.
Understanding service contracts
Like other forms of insurance, service contracts come in many different shapes and sizes. In general, they include similar items: preventive maintenance, repair coverage for parts and labor, calibration, and technical support that can be done in person or remotely. Different plans will contain these items at different levels. Some things for lab managers to consider are full versus partial coverage of repairs, the number of preventive maintenance visits per year, whether the instrument will be repaired onsite or shipped to the vendor’s facility, and different response time tiers. The lab needs to optimize the scope of the contract with respect to their budget and their risk tolerance.
Types of service contracts
In general, there are three different types of service contracts available to labs:
- Full service: These are comprehensive contracts that provide coverage for preventive maintenance, repairs, parts, and labor. These contracts perform best for labs with complex instruments that face significant risks for downtime.
- Preventive maintenance contracts: These maintenance-only contracts ensure that the instruments are proactively serviced, but tend not to include repair coverage. These contracts work best for high-workload labs that have smaller budgets, instrument redundancy, and lower risks for downtime.
- Time and materials contracts: These contracts provide coverage for repairs but not preventive maintenance. They provide fixed-rate coverage for repairs, parts, and labor. These contracts work well for labs that have the time and discipline to fulfill the preventive maintenance needs but want to be covered for significant repair costs.
Vendors will also provide hybrid models of these contracts, in which a combination of preventive maintenance and time-and-materials coverage is common. Lab managers can also negotiate with vendors to create bundled contracts that cover multiple instruments, multiple sites, and perhaps extend for multiple years. Lab managers need to negotiate for higher-value contracts that address the specific needs of their labs. There is often an advantage to developing a fleet approach where all of a specific type of instrument comes from a single vendor to provide the greatest leverage when negotiating contracts.
Risks and limitations
The biggest concern about service contracts is usually the cost. Beyond cost, lab managers need to investigate these service contract limitations before signing:
- Underutilization: Try not to pay for services in advance that you won’t need. One effective approach is to keep detailed documentation of maintenance and repair costs and compare costs between contracts and without contracts. These data will provide a useful return on investment for any service contract.
- Exclusions: Be aware of what vendors will exclude from the contract. This is a good way to compare different vendors. Exclusions are often important for older instruments and when using third-party providers.
- Declining eligibility: As instruments age, vendors may cease covering some instruments. This can be a planned approach to encourage investment in new equipment or simply the lack of parts to repair older instruments.
Costs of service contracts
Service contracts can vary significantly in cost based on the scope of coverage. For full-service contracts, labs can expect costs to range from eight to 15 percent of the original instrument purchase price.
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Vendor options
In general, there are three options for vendors selling instrument service contracts:
- Original equipment manufacturer (OEM): The benefits of buying from the OEM are that they have deep engineering expertise about the equipment, they have access to proprietary parts and software, and they generally have a geographic diversity of service engineers. A common downside is that they are often the most expensive option.
- Third-party providers: These are vendors who have developed a specialty in asset management with some types of equipment. The key advantages are usually cost and flexibility. The key downsides are limited access to OEM parts, and lab managers need to carefully evaluate the quality of their services.
- Do it yourself: While not technically a service contract, the third option is to take responsibility for maintenance and repairs within the lab staff. This can be effective for labs with staff who have deep knowledge and experience with their equipment, use less complex instruments, and have limited or no budgets for service contracts. The key limitations are the opportunity costs of having highly trained scientists fixing instruments and getting the required parts.
In my experience, using a combination of all three approaches works well. Use the OEMs for the highly complex and high-risk instruments. Build relationships with third-party providers to cover the bulk of medium-risk equipment, and have lab staff do the work themselves for simpler, lower-risk equipment.
Decision framework
The key approach to service contract decisions revolves around risk: cost of downtime, budget impact of repairs, ability to keep up with preventive maintenance, regulatory compliance, expectations of instrument performance and failure, and opportunity costs of using lab staff to make repairs. Each of these risks must be considered and built into a package along with data to justify the appropriate return on the investment. Important data to consider include the total cost of ownership, risk-based prioritization, and failure mode analysis.
Practical tips
Making decisions around service contracts is a key lab management responsibility. Here are some tips to keep in mind:
- Prioritize the lab’s equipment in tiers driven by risk and criticality
- Negotiate with the providers
- Collect and use the data around service calls, downtime, and costs
- Review annually and evaluate each contract independently. Optimize the value of the contracts to the lab.
- Align around capital planning and instrument lifecycle planning
- Align with the strategic goals of the lab
Final thought
Optimizing service contracts for your lab requires a data-driven decision process. Use all the available data to balance the risks and the costs.
