Rein in repair costs
Contracting for equipment repair services can be challenging for even the most experienced professional. It usually starts with a call from your end user saying something like this: “Our widget broke and it needs to be fixed. I have to take it to the repair shop. I don’t know how much it will cost. I know there are others who repair them, but I don’t have enough information to write a repair specification for you to bid. I told them it’s an emergency and we need it fixed immediately. Is that OK with you?” That’s when dollar signs appear on the eyeballs of the owner of the repair facility.
After your blood pressure returns to normal, you and your new best friend – your end user – have to decide on what you want done. Typically what you want is not to have the operating equipment fixed but rather to have it “restored to original factory specifications and tolerances using OEM parts and processes.”
How you specify and contract for that type of repair is your challenge. For starters, be wary of terms such as “remanufactured,” “refurbished,” “reconditioned,” “rebuilt,” “like new” and “used.” They differ greatly by industry and local practice, and unless you are using OEM specifications, you may get less than what you expected. Sometimes a call to the OEM will save you hours and dollars. At the very least, you’ll gain valuable advice.
You need to define what you want done. Find out if the manufacturer of the equipment has a repair specification that you can use. If not, check one of the professional societies, such as SAE or ASME, to see if they have generic specifications for repair or refurbishment. Professional societies are the undiscovered country when it comes to research. Their membership lists are an immediate bid list for you.
After you decide what you want done, structure your solicitation document to reflect the pricing for the different stages of the repair. The more categories of work you can have bidders price for you, the easier it will be for you to evaluate bids. For example, all bidders will have to transport the equipment to their shop. That is a line item in your bid. They will have to inspect the equipment and determine what needs to be repaired. That’s another line item. The labor rates are different for transportation than for inspection and generating a bid.
Determine how many hours you think it will take to repair the equipment, and include that as an estimate. Have bidders categorize the hourly rates of their repairs (different categories of labor = different hourly rates). This information can be structured as “estimated for bid evaluation purposes only.”
Repair parts also can be estimated by bidders, based on a manufacturer’s price list. ALWAYS ASK FOR YOUR DISCOUNT OFF THE LIST PRICE. Estimate how much that will be and include that as a line item in your solicitation. In the event of unforeseen conditions that may arise during the repair, you need to include in your solicitation a way to determine pricing. Ask for shop rates and additional costs for specialized equipment. Do not depend on the bidder to provide these for you without asking. It’s a profit center for them.
Consider including in your terms and conditions a request for qualification information such as: years in business; a list of shop equipment; contracts for repairs of similar equipment; and approvals from manufacturers showing that the bidder is an authorized repair facility. You also should reserve the right to approve costs before proceeding and to examine all records such as time sheets and invoices for repair parts. Have your end user review them for reasonableness and accuracy. Reserve the right to approve all work prior to proceeding to ensure that proper procedures are followed.
Follow-up is important. Have your end user or engineer track the progress of the repair. If necessary, have a failure analysis performed. Ask for the replaced parts back so your end user can verify that new parts were installed. You may even want to hire a professional engineer to do this for you, which is a professional service that also can be bid. An engineer can help you negotiate and write your specifications, and they’ll be working for you – not the bidder.
NEVER, NEVER let your end user send operating equipment to a repair facility without some form of agreement regarding pricing or repair specifications. In the worst-case scenario, costs would be over your bid limit and you’d be left with a box of parts and a valuable piece of operating equipment in a stage of disrepair. If you found that the original repair facility wasn’t the low bidder, one bidder would have to pick it up from another bidder’s facility. You’d have no control over what was done, possibly leading to increased costs.
Use your training and skills – it’s all part of the value you add as a professional to your organization. Good luck.
Frederick Marks, CPPO, VCO, is a retired purchasing officer who has held positions as a supervising buyer for the Port Authority of New York and New Jersey as well as director of material management for Northern Virginia Community College. Contact Marks at [email protected].