Service Agreements: What You Need to Know

So, you say you don’t need a service agreement. You have it covered in house or you’ll call when you need service.

Before you make that decision, let’s take a look at what a service agreement is, what it can and can’t do for you, and what you risk without one.

What is a service agreement?

At its core, a service agreement indicates a reciprocal arrangement between two parties. They typically provide a scope of regular work to be performed to maintain your systems at a contracted rate for a length of time. Absent a service agreement there is no mutual arrangement and there is no guarantee of service. Some service agreements stipulate response time, hourly rates, and what scope of work is and is not included in the agreement.

What should a good service agreement do for you?

Guarantee service in the case of a catastrophic event.
Aid in preventing a catastrophic event through routine and recommended service (e.g., the routine oil change on the car). It should outline routine scopes of work to be performed and the interval they should be performed to maintain the system and/or meet compliance standards.
Lock in your service rates at a certain level for a specified length of time.
Ensure trained, expert technicians who understand your equipment inside and out. These service providers will also become familiar with your business and its procedures to help them understand what is essential for your business operations.

If you have a service contract with a reputable provider, they will make sure that your systems are kept up to date and maintained for top performance, which will reduce the likelihood of catastrophic problems.

What is not covered by most service agreements?

The cost of replacing equipment that has failed.
Service for other integrated systems that are not part of the covered system.
Any permit costs associated with service.

What are the risks of going without a service agreement?

Your in-house team may not maintain your systems to the level necessary to ensure compliance and/or avoid catastrophic events. (Often compliance testing like fire and sprinkler testing requires a certified external party to perform the testing.)
A service vendor that isn’t under contract may not have time to address system issues that come up in a timely manner- catastrophic or not -because contracted customers take precedence.
There may be a premium to be paid for service work that is not under contract.

Service agreements cost money, which you might be able to save if your in-house team has the knowledge and time to perform the necessary maintenance to keep your systems at their optimum performance level. If you are counting on them, make sure this is clearly outlined as part of their regular responsibilities, and that they have the skills and any required certifications to do the job. Even if they can do a good job of maintenance, in the case of a catastrophic event, without a service agreement, there is a greater risk of system downtime and higher emergency service costs, which may be more expensive than a service agreement. Most service companies offer discounts to clients who sign an agreement; and since you know how much you will pay upfront, you can plan for budgeting your maintenance costs ahead of time. In the long run, service agreements can offer you financial savings and peace of mind.