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Products &
Services Challenges extend beyond fine print and legalese by Rick Dana Barlow Contrary to conventional wisdom, service contracts really are a nickel-and-dime business. Sure, they may amount to thousands of dollars, but many of the heated exchanges and testy hang-ups between the buyers who sign them and the suppliers who offer them involve misunderstandings that effectively sour relationships. Greg Blackmore, vice president and general manager of services for STERIS Corp., chalks all of it up to a simple communications problem. "Contracts are all about establishing protections for, and the responsibilities of, both parties," he said. "What you have is a breakdown in communications if anything in the fine print surprises anyone. There’s always a ton of legalese in these contracts, however, because we live in a litigious society. But most of it is boilerplate stuff." Blackmore highlighted three primary areas on which to concentrate. 1. Where is the contract general and vague where it should be specific? "For example, it may talk about an uptime guarantee," he said. "Does it list a specific uptime guarantee? How is that uptime calculated and measured? The definition will be in the eye of the beholder." 2. Who’s required to do what? "For example, in the case of a utility requirement does it include power, steam, steam quality, water pressure, water temperature, etc.? You need to establish the context in which the product can be used. If I buy an SUV and go off-roading with it, but it’s not designed to do that, I can hardly take it back to the dealer for covered repairs. You have to look at the obligations of both parties and how abuse or misuse of the product is covered." 3. What are the terms of the extended warranty? Is it the obligation of the owner of the product to perform routine maintenance? If the product is under a lease, then is the lessor or lessee responsible? "You need to bring these questions into the discussions on the front end so that there are no surprises on the back end," he added. Defining terms "Every company offers different service offerings for hospitals, ambulatory surgery centers and private endoscopy suites," said Alec Weiss, product manager for endoscopy service, Olympus America Inc. "Because they differ, Olympus recommends that customers read and understand the nature and deliverables of each service contract." In fact, Weiss urges facilities to carefully read and identify coverage for items like: • Accidental coverage • What the contract covers in terms of repairs (i.e., full refurbishments, insertion tube replacements) • Where the company receives their replacement parts because many OEMs do not sell or distribute factory parts. "Using authentic manufacturer parts, processes and technical expertise optimizes the performance of your equipment," he said. Hospitals and other healthcare facilities should scan full service agreements to understand what’s covered and what’s excluded, Blackmore advised. What does full service mean? Labor and materials and emergency service? Are operator abuse and misuse excluded? What about utilities? What about personal property? Are soft goods like gaskets and seals that wear over time covered? "It’s a lot like a power train warranty on a car," he said. "It only covers certain parts of the car." That said, buyers should examine whether periodic maintenance is covered or if that’s their sole responsibility. "We have seen examples of competitive quotes for full-service contracts that covered only emergency service calls, and only then they covered labor and not parts." Other useful questions include what are the hours of coverage? Healthcare facilities typically don’t operate just between 8 a.m. and 5 p.m. Monday through Friday, he noted. Up and downtime needs to be ironed out. The service provider may need access to the product during business hours in order to inspect and repair it, Blackmore said. Uptime clauses may be modified if the service provider is not allowed access. "For example, we get called out to fix something, but the department tells us to wait because they want to run two more cycles or use the equipment on two more patients." A case like this does not involve a hard call but more like hearing a strange noise in the car, he added. Product delivery may be a problem, too. For example, what if a delivery requires a dock-level door? If a facility isn’t equipped with one it may have to send the product back, which will increase costs. Who pays for those additional costs should be spelled out in the contract, he said. "The nickel-and-dime things that may concern customers tend to be just that – and they’re little add-ons that potentially may lead to bigger issues," Blackmore said. "There are little things that tend to become blowups. The best way to think about it is to think of yourself as a consumer. That’s what I tell our service reps. How would you want to be treated? What questions would you ask? Covering your assets One prominent group purchasing organization executive with an extensive background in hospital materials management noted that too many materials managers focus on pricing rather than total cost of ownership for their equipment acquisitions so they naturally gravitate toward service contracts. "There are far too few people looking at the total cost of ownership for equipment," said the GPO executive who asked to remain anonymous. "The vendor has a compelling argument for a total cost of ownership [agreement] over a five-year period. But the person making the bid isn’t looking to be there in five years. They’re charged with saving money today so they beat the sales rep down to get a discount. Let somebody else worry about the long term." It’s a short-term mentality, he argued. While some look at equipment service contracts as an investment, others look at them as job security. "The CEO may not know my name [as a materials manager] but if the elevator goes down my phone will be ringing off the hook. That’s why some just want to protect themselves with an OEM service contract." Blackmore cautioned, however, that no service contract is foolproof. "A contract will never cover 100 percent of all services because we don’t know all the services that could be needed," he said. "But it should cover intent. I can’t speak for all OEMs but we really don’t have any secrets [with this]. I spent 23 years with GE in field service before coming to STERIS. The larger companies tend to play well inside the out-of-bounds markers. We value the relationships we establish and wouldn’t want anything to harm them. We’re going to be here for the long haul so we are careful about our reputation and how we deal with customers. By and large, you won’t find us taking advantage of customers in the marketplace, but we’re human. Mistakes happen. But for every minute they remember it takes a year to forget." HPN
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