A Warranty Solution to Planning and Implementing Asset Management

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A Warranty Solution to Planning and Implementing
Asset Management

• Presented by
• Gary M. Lee, P.E.

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History

• Caveat venditor Seller Beware Early History
• Caveat emptor Buyer Beware Beginning of the
  industrial revolution
• U. S. Uniform Commercial Code 1950s
• U. S. Magnuson-Moss (F.T.C. Act) 1990s

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Definition - Warranty

• A written affirmation of fact or written promise
  made in connection with the sale of an asset by
  supplier to a buyer which relates to the nature
  of the material or workmanship and affirms or
  promises that such material or workmanship is
  defect free or will meet a specified level of
  performance over a specified period of time.

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Definition Service Contract

• Any undertaking in writing in connection with the
  sale by a supplier of an asset to refund, repair,
  replace or take other remedial action with
  respect to such asset in the event that such
  asset fails to meet the specifications set forth
  in the undertaking.

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Service Contracts

• Provide insurance against catastrophic loss
• Offer periodic preventive maintenance
• Driven by perception of risk

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Service Contract System
Reports
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Pricing Method
Failure Mode Identified (F.E.M.A.) Frequency of
Occurrence Predicted (Statistical
Analysis Effects of Preventive Maintenance (PM)
Analyzed Cost of PM versus Risk of Failure
Optimized
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Costs

• Risk
• 30-35 Administrative
• 65-70 Anticipated losses
• Preventive maintenance
• 15-25 Administrative
• 75-85 Work orders

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Benefits

• Selection of capital assets based on lifecycle
  cost embedded in bid process
• Capitalization of preventive maintenance
• Single source for maintenance quality control
• Insurance backed

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Role of Insurance Company

• Insurance company
• Provides financial backing for claims approved by
  administrator
• Establishes reserve account, pays claims and work
  orders from reserve as approved by administrator
• Provides coverage against catastrophic loss
• Must be highly rated to be effective

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Relationship Between Administrative Company
Insurance Company

• Administrative company
• Provides maintenance services
• Administers, procures all claims
• Submits claims to insurer
• Develops lost-cost data bank

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Typical Operations Procedure
Owner Complaint
Routine Maintenance Schedule Control
Claim Denied
Call Center
Maintenance contact tosynchronize service call
center
Maintenance Authorized
Claims Analysis
Checks for Customer Satisfaction
Approved
Denied
Field Service Call
Maintenance Performed
Repair
Replace
Service Authorized
Report Filed W/Owner Insurer

• Pre-authorized certifiedsub-contractors
• Manufacturer representatives
• REAs
• Electrical utilities
• Manufacturers

Quality Control
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The Value of Insurance-Backed Service Contracts

• Unique application of reliability engineering and
  maintenance management
• Development of a loss-cost data base
• National network of service providers
• Control of preventive maintenance and independent
  quality

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Standard Terms
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GASB 34
Audit
3 Years
Renewal
Condition of Asset Pre-Set by Contract
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Service Contract
Audit
Audit
Audit

• Specified operating parameters tested
• If actual parameters fall outside
  specifications warranted event is triggered

GASB 34