Understanding Guaranteed Maintenance Contracts

In an effort to give you some “NEWS YOU CAN USE,”
we at ACCURATE LIFT TRUCK

offer a series of articles that are designed to share some of the important things we’ve learned. We’ve been in the forklift truck business for more than thirty-five years and we have learned a lot. One of the key things we’ve discovered is that the more a customer knows about forklift trucks the better we can serve them. Customers that are savvy and understand all the aspects and nuances of the business are our best customers. We have also learned that exceptional customer service makes all the difference in the world to our customers.

Guaranteed Maintenance:

Some companies call it “Full Maintenance” or “Guaranteed Maintenance” or “Lease with Maintenance.” But no matter what it’s called, we’ve found that a lot of customers either have never heard of it or don’t fully understand what it is. At Accurate we think an educated consumer is our best customer. So we put together this summary to help explain Guaranteed Maintenance. There are substantial benefits to these types of agreements. But many customers who could benefit from them don’t because they’re unclear about how they work. A well-structured, full-maintenance contract can be a win/win partnership between an end user and a forklift dealership. It brings price stability and control to the end user and a predictable revenue stream to the dealer.

Here’s how they work:

For this discussion, we’ll call them Guaranteed Maintenance Agreements because that’s what we call them internally. These agreements allow customers to pay a fixed monthly fee for all the maintenance and wear items required to keep a fleet of forklifts running. These contracts vary in length from 12 months to 72 months. Most are initiated at the time of purchase and often match the lease terms. But they can be initiated on existing fleets anytime, as long as certain conditions are met.

What the plans cover:

1. All preventive maintenance required by or recommended by the manufacturer at the proper interval. This isn’t just the monthly service but also includes quarterly, semi-annual and annual maintenance services such as changing transmission fluid or hydraulic fluid and filters, etc.

2. All service calls and replacement of wear items associated with the normal operation of a forklift truck, such as tune ups, brake jobs, chain and hose replacement resulting from normal wear, drive motor brushes, or anything that wears out during normal operation.

3. All major assemblies and/or components that fail as result of improperly performed maintenance, failure to perform scheduled maintenance, defects in workmanship by either the dealer or the manufacturer, or failure to perform a repair or warn a customer of a needed repair in a timely manner as is the dealers’ responsibility.

What plans don’t cover:

The simplest way to explain this is by stating “if it’s not scheduled maintenance and it didn’t wear out it’s not covered.” In a perfect world, that should cover 100% of your maintenance costs (outside non-included consumables such as headlight bulbs) because forklifts are not designed to breakdown. Indeed, most customers with properly priced contracts, who have good control over their operations, even hostile and high cycle operations, rarely receive a bill outside the fixed monthly payment: But, and this is a big one….If an operator caused the damage or the breakdown either by failure to check and report or by using the forklift in a negligent manner like driving it with a visible oil leak, when its overheated or operating the machine improperly, it’s not covered.

There is an upside to that:

This puts the customer in control. If the customer has a good management team, strong first-line supervisors and trained operators, then they can exert complete control over their forklift maintenance costs. It also allows you to budget and project costs with a high degree of accuracy. With control comes a level of responsibility. Operators must perform pre-operational checks such as making sure fluid levels are correct and the proper charging practices are being followed. Management and supervisors need to ensure that operators are fully trained and that forklifts are being operated in a proper manner.

Examples of Repairs outside contract:

Here are some examples of repairs that a customer would be billed for (in addition to the fixed monthly payment) that are outside the scope of most contracts. Please note that every one of these items are manageable and preventable if operators are trained and properly supervised and forklifts are operated in the way they were designed to be operated.

- Poor warehouse housekeeping causing shrink wrap and other materials getting pulled into moving parts, clogging radiators, damaging fans, radiators, axles etc.
- Damage caused by collisions with racking, other forklifts, concrete columns, loading docks, etc. obviously are not covered.
- Damage caused by improper operation by operators such as:

o pushing skids across a warehouse, which burns out clutch plates
o improper use of inching pedals, again causes transmission failures
o improper operation of attachments, Side-shifting loads on the ground without lifting
o under charging or short cycling (‘hot shotting”) batteries in electric trucks which burns out electrical components. This is a “silent” killer of electric truck components and often leads to conflict
o Improper lifting and lowering of masts, causing lift chain and hose snapping and breakage
o Driving with forks dragging wears out forks
- Customer requested modifications.
- Emergency and off hours calls are generally outside the scope and subject to overtime rates.

Operator negligence and failure to train/supervise is the number one cause of forklift repairs outside the scope of guaranteed maintenance contracts and it is 100% manageable and preventable by the customer.

Items such as headlight bulbs, tires and load wheels are often not included in maintenance contracts. When tires and load wheels are included, it is usually a specified number of sets, per truck, for the life of the contract.

Checklist for evaluating and comparing full maintenance quotes:

First and foremost, if the monthly payment includes a machine or a machine quote “includes all maintenance” then insist that the machine portion of the payment is separated from the maintenance portion. Often a single payment that “includes everything” is presented, unless it is short term, month to month rental and has a term of less than twelve months then understand there are two parts to the payment. Always have the maintenance portion broken out separately. Once the monthly maintenance portion of the payment is established you can begin to analyze which is the best contract to fit your needs and actually make an “apples to apples” comparison.

Here are the critical factors:

1. Hour usage. The primary driver of maintenance costs over time is hours usage, so determining the hours you expect to use over the term of the contract is critical. The best way to determine this is to read the hours on the trucks in your existing fleet, if you know the exact age, or you can base it on your actual hours worked. The rule of thumb is 1,000 to 1,500 hours per year in a single shift operation and 1,500 to 2,500 hours per year in a 2 shift or high cycle operation and 3,000 to 3,500 for a 24-hour operation. The default for most contracts is 1,500 hours per year.

2. Hours allowed under the contract. The number of hours anticipated to be used is the primary driver of the price. As stated, this will be anywhere from 1,500 to 3,000 hours per year but could be any number, an unlimited number (rare) or a very low number. It must be specified, or you can’t compare. If you have two contracts to choose from, and you use 1500 hours per year; one is 218.75 a month and includes 1000 hours per year and another is 291.66 per month but includes 1500 hours per year, the higher monthly payment contract is cheaper.

3. Overtime charges. If there is a limit on the hours (just like most car leases have mileage limitations), there is a cost for exceeding those limitations. That cost should be compared with the other contracts to avoid surprises at the end of the contract.

4. Check to see if the hours are cumulative across the fleet or truck specific? A ten-truck fleet with 1,500 hours allowed technically allows you to 15,000 hours across the fleet. You can monitor the hours yourself and rotate low use trucks with high use trucks in an effort to spread the hours out evenly and not have some trucks over the limit and some under. If you negotiate a cumulative hours contract, which sometimes you can, the onus is on the maintenance provider to help manage that. There is no discount for hours not used so theoretically (and often in -practice) a customer will be charged 500 hours of overtime on one truck while other trucks are under by hundreds of hours.

5. Inclusions/exclusions: Consumable items such as light bulbs will almost always be excluded. Tires and load wheels likewise will almost always be excluded or limited to a specified amount; i.e. 1 set of tires per truck or two sets of load wheels per truck over the term or something along those lines.

TO RECAP

What is Included:
• All preventative maintenance at the recommend OEM interval including oil, filters, grease, adjustments and checks and repairs incidental to regularly scheduled maintenance.
• All Parts and labor related to wear items including tune-ups, brake jobs, propane system failures, ignition components, belts, hoses, electronic components, and service calls related to the same including all breakdown service calls resulting from normal operation of the forklifts. (during standard working hours).
• Ongoing input from the dealer to the customer on improving operations, preventing damage to machines or personnel, rotating or replacing machines and obtaining maximum efficiency in materials handling operations with the specific goal of lowering or eliminating downtime and maintenance costs outside the scope of the contract.

What is excluded:
• Abuse/Misuse (physical damage, damage caused from debris and/or poor housekeeping, collisions or improper operation).
• Battery and charger repair or maintenance and any electrical damage caused by the them.
• Seat cushions, wiper blades and all lightbulbs.
• Tires and Wheels. (can be included for additional cost)
• Service calls of no validity (truck won’t start because out of fuel)
• After hours calls
• Any additional non-OEM equipment customer requests (fire extinguisher, fans, computer scanner, etc.)
• Damage caused by Ignoring or failing to report an obvious need:

WIN/WIN

Guaranteed Maintenance can be win/win for both customers and the servicing dealer. The servicing dealer gets a long-term relationship with a customer and predictable monthly billing each month. The customer is in a unique position of control. Dealer costs increase as the trucks accumulate hours so they are incented to make sure all scheduled maintenance is performed and also to continuously advise the customer of conditions that may potentially cause damage outside the scope of the contract that could cost the customer money and sour relations. The customer and the dealer are essentially partnering in the process and the interests of the dealer and the customer are aligned to achieve the same goal; minimize costs, maximize up time and productivity, accurately predict costs/revenue and eliminate conditions that cause damage or increase costs. It’s a classic win/win partnership between customer and vendor. Ask an Accurate Sales Engineer for more information if you think a program such as this is right for your materials handling operation.

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www.accuratelift.com
or contact us at:
info@accuratelift.com  (856) 767-2122

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