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Service Agreement Roundtable

Nov. 1, 2007
No two service agreements are alike, based on Contracting Business’ interviews with leading commercial refrigeration contractors. These contractors do all they can to meet the divergent needs of each customer, by writing multi-tiered agreements that meet each customers’ schedules, budgets, and food preservation needs.
Hudson: service agreement a great way to budget service dollars.

No two service agreements are alike, based on Contracting Business’ interviews with leading commercial refrigeration contractors. These contractors do all they can to meet the divergent needs of each customer, by writing multi-tiered agreements that meet each customers’ schedules, budgets, and food preservation needs.

Gary Brown, president of Brown’s Refrigeration & Equipment Co., Tallahassee, FL, offers a routine preventive maintenance agreement that is very customized for each particular business he services. The agreements are monthly, quarterly, annual, or biannual.

“We outline specifically what we will do under the agreement, how often, and the cost,” Brown explains. “This way, customers have an established figure for the routine maintenance. We tell them that anything we notice that needs repair is brought to the customers’ attention, with the cost to adjust or repair.”

Preventing future breakdowns through regular check-ups ahead is, of course, a key reason to provide service agreements.

“We offer the service to keep equipment in good shape and prevent major problems,” Brown says. “For example, ASHRAE research has found that clean condensors can save you 10 to 15% of your total operating cost. We tell our customers that we hope to reduce their maintenance costs by keeping the equipment in shape. On the other hand, what I ask of customers is that we not be asked to pull a figure out of the sky, and say, ‘for this amount of money we’re going to take care of anything that goes wrong.’ I’m not in the insurance business.”

Perform an Equipment Audit, or Else . . .
Pat Fava, vice president of service and sales, Kelnard Refrigeration, Long Island City, NY, also tries to offer contracts geared to each customer.

“The industry standard is to provide a one size fits all contract,” Fava says, “but at Kelnard Refigeration we listen to our customers needs, and contracts are tailored to each customers requirements. Some customers may only need a preventive maintenance (PM) contract, and chose to have their remedial service on a time and material basis, with preferred customer discounts. Others may require all parts inclusive contract based upon their circumstances.“

All of Kelnards service contracts include the Kelnard “Ozone Guard” program, which includes refrigerant recovery and disposal at no additional charge.

Incorrrect pricing of agreements can be a costly mistake.

“Pricing service contracts carries some risk, and proper pricing of contracts is critical to maintain the highest level of service to our customers,” Fava says. “If a potential customer has 25 year-old equipment, we don’t offer them a full service contract; we’ll offer only a PM contract. If you offer a contract valued at $2,000 on six units, including parts and labor, the loss of two compressors during the year will result in a loss of profitability.”

Spotting Problems Reduces Downtime
Kurt Hudson is vice president of service for L.C. Anderson is a full-service commercial HVACR company, and a CB Design/Build award winner in 2003. The company’s refrigeration work consists of light refrigeration systems, including walk-in coolers, under-counter units, and restaurant salad stations.

L.C Anderson offers three levels of commercial refrigeration service agreements:

  • a standard agreement, in which the company performs a stipulated amount of maintenance calls each year, based on what the company perceives to be the need. The customer pays for anything above and beyond the service call
  • a mid-level agreement covers maintenance, and the customer pays only for parts
  • a full-service agreement, in which the customer pays one, all-inclusive fee for a year’s worth of maintenance.

“You won’t find many people argue that it’s not going to save them money, but it can be harder to quantify the savings,” Hudson says. “However, by having a technician perform regular maintenance, the system will run less, it will not run as hard, it will reduce some of your downtime, reduce energy consumption, and the technician will find problems before they happen, which would cost more to repair if they broke down unexpectedly.”

Hudson finds annual service agreements to be ideal for customers who want to plan ahead as far as prospective dollar outlay.

“I tell people that a service agreement is very much a financial decision, if they need to know what their HVACR costs will be for the year,” Hudson says. “If they need to know that number for budgeting purposes, they should purchase a full maintenance agreement. Obviously, there’s going to be a premium for it, because we’ve got to assume that some things are going to need repair. People have to look at the risk factor versus budgetary needs.”

Working With Tight Schedules

Gentry: customers’ service needs vary. Work with them.

The service team at Rheaco Service, Inc., Dayton, TN, provides commercial refrigeration service to well-known fast-food restaurants and smaller convenience stores. Rheaco Service offers preventive maintenance designed to suit the needs of customers with heavy traffic.

“Arby’s restaurants, for example, request maintenance on their stores to be performed on a quarterly basis, and they give us a certain number of hours in which to accomplish it,” says Timothy Gentry, co-owner, vice president, and service manager. “Therefore, you have to work your way though the service items in order to get it all accomplished within the year.”

Product preservation and cost is another prime motivator.

“Refrigeration customers have products they can’t afford to lose; something as simple as a bad condenser fan motor bearing, which the service technician detects during a preventive maintenance call, can save product, equipment downtime, as well as the additional expense of technician overtime for after-hour service. Clean coils reduce energy costs, and saves the customer money in operating expenses.”

Rescuing Customers from Neglect
Larry Wilson, service manager for Certified Refrigeration Mechanical, Madison, WI, says a service agreement has to be advantageous for the customer, in that they must see a tangible discount, some sort of dollar savings.

“And for the contractor, service agreements lock the customer in to using our service. The more you can do for them under the agreement, without losing money, the better the chance they’ll remain loyal,” Wilson says.

Your first step in writing more service agreements is to let customers know that they have options, and then outline the prospective cost savings they can realize by getting on board.

Contracting business owners and technicians will also appreciate the work service agreements provide, during those slower periods of time, when the phone doesn’t ring.

HVAC-Talkers Chime In
The client is entered into an appointment for whatever service it looks like they require. Most are three or six month PMs. Coils are cleaned, temps checked, filters replaced (filter media in front of indoor condenser), outdoor coils washed out with water, motors oiled as required, walk-in evaporators rinsed, electrics inspected, ice machine cycled, bin sensors cleaned/tested, water filters changed as needed by date and client preferences. All this is done as “time and material,” and service “contract” is nothing more than an appointment that reoccurs per the clients’ needs and wants. We do try to handle them as a first call in the morning, so we aren’t in the way; and, we all know that these clients are what keeps us working, so our performance standards are high. — idontgetit

Ice machine maintenance must be thoroughly discussed with the potential client. It has to be understood that to properly maintain an ice machine, certain steps must be taken on a regular basis, which is going to be at a cost to the customer. There are many factors that weigh in on the production and longevity of ice machines. These factors include slime control, water filtration, evaporator washes with an approved chemical, and most notably, routine cleanings, which can include disassembling all components, soaking and thoroughly cleaning them, as well as scrubbing the interior plastics and bin. —hvac wiz 33