Maintenance Contract

Abstract

In recent years, maintenance or service contracts have received significant attention due to increased profits for the service providers and reduction of cost and risk for owners through expert services provided by the service providers. There is a growing trend for asset intensive industries to outsource maintenance services of their complex assets since outsourcing maintenance through contract reduces upfront investments in infrastructure, expertise and specialised maintenance facilities. As a consequence, maintenance contracts have become a billion dollars annual business, typically, at least half of that goes into the service provider’s pocket as profit, with less than 20 % spent on the repair or replacement of item. Therefore, to make maintenance contracts more effective there is a great need for appropriate policies and also a need to develop mathematical models for cost estimation of maintenance contracts in order to balance the service provider’s profit and the owner’s total costs, and understand future costs that could be built into the contract price. Estimation of costs for such contracts is complex and it is important to the owner and the service providers for economic variability. The service provider’s profit is influenced by many factors such as the terms of the contract, reliability of item, the servicing strategies, and costs of resources needed to carryout maintenance. Three policies for maintenance contracts are proposed in this chapter considering the concepts of outsourcing assets to the service providers. Conceptual models are developed for estimating servicing costs of outsourcing through service contracts by considering time dependent failure mode.