The ultimate guide to an annual maintenance contract

If you're selling something that needs regular upkeep to work properly, it's a good idea to have a written agreement with the buyer about routine maintenance. These service agreements are often called annual maintenance contracts, or AMCs, and they ensure peace of mind for the buyer and make sure that things are in good shape.

Customers appreciate AMCs because they protect their investments in products and services, ensure quick recovery from unplanned downtime, and guarantee that they will always have a service professional within arm’s reach in case of system breakdown. As a service provider, AMCs help you plan what your year’s service schedule will look like, estimate how many support personnel you need, and ensure that you build positive, long-term relationships with a loyal customer base.

What is an annual maintenance contract (AMC)?

An annual maintenance contract is an agreement between a company and a provider that sets expectations for the ongoing maintenance of products or services that the company purchases from the provider. The maintenance agreement ensures that the service provider will perform preventive maintenance, repair, or replace equipment or products sold to the customer either when they are not functioning or as otherwise agreed between the two so as to minimize maintenance costs and ensure business continuity.

Annual maintenance services can apply to any technology or business system that requires post-purchase service and maintenance activities. However, in specific industries, AMCs are certainly more prevalent than others since they have specific needs and involve more maintenance tasks. For instance, manufacturing, food service providers, healthcare, and retail have more annual maintenance needs than, say, an office.

For example, an office building may enact an AMC with the company that built its HVAC system. While negotiating the implementation, the building owner could enter an AMC contract that covers the lifespan of the entire system, upgrades, emergency repairs, malfunctions, etc. The contract would detail information like equipment maintenance, frequency of maintenance visits, and the costs of maintenance.

The typical annual maintenance contract format includes: 

• The name and address of the involved parties, usually a business and the company providing the service

• Price of the contract

• Annual maintenance contract terms and conditions

• Scope of services provided by the maintenance team, including routine maintenance work, support services, etc.

• Penalties for breaking contract or contract termination

• Definition of whether the deal is a comprehensive maintenance contract (CMC) or otherwise

• List of the equipment covered for service

• Timeline for how long service will last and how long it will typically take

• A spot for both parties’ signatures and the date

What’s the difference between AMC and CMC?

While an annual maintenance contract is a great way to cover basic service on products, a comprehensive service contract (CMC) covers any additional spare parts, labor, or transportation costs that come up for techs while servicing those products. A non-comprehensive agreement will only cover the services themselves—any other expenses that might come up during the process are the business’s responsibility.

Given this breadth of coverage, comprehensive contracts often cost more than an AMC would. CMCs are typically good for a year after signing, but occasionally, both parties agree to extend the range up to between three and five years. To get maximum coverage, many businesses will choose CMCs over AMCs, though AMCs require less commitment on the service provider side.

How does pricing for annual maintenance services work?

There are several ways in which companies and service providers structure annual and comprehensive maintenance contracts. They are generally negotiated based on what works best for both the business and the service provider. Pricing can be structured based on a single parameter or using a hybrid model. For instance, you could price based on your hourly rate, or you could combine your hourly rate with server maintenance replacement parts. Some of the most common types of pricing for AMCs are:

Time-based

Contracts set an hourly rate or rate for specific time units (weeks, months, days, etc.). A fixed unit of price is associated with each hour of work, which is calculated annually for the total number of hours. This pricing model is usually used in situations where man-hours are the most important resource for maintenance.

Per Device

Contracts add a line-item cost for each device or piece of equipment that will be covered under the contract. This type of pricing is useful when the criticality of sourcing or repairing parts is high.

Based on the life-of-equipment

Contacts can include a prorated cost based on the expected lifetime of the device or equipment covered. For instance, if something is nearing the end of its lifetime, the AMC could be more expensive.

Replacement vs. Repair

Contracts may differ based on the type of service offered. For example, an AMC may include different criteria for replacing and repairing broken machines or components, with replacement traditionally being more expensive.

Additional Services

Contracts can include additional conditions based on the services you provide to your customers. Several extraneous offerings can be covered under the contract, such as the transportation of replacement parts. The business could choose to pay more to have transportation and replacement parts included within the contract, rather than separately billed.

Benefits of having an annual maintenance contract

Regardless of the terms and conditions of an AMC, the service provider and their clients can benefit greatly from it. Here are some other benefits for companies for having an annual maintenance contract:

For service providers:

Easier annual planning

Drawing up AMCs makes your annual planning and budgeting easier. Both customers and service providers can use cost estimates from AMCs to calculate service requirements, estimated downtime, hours of operation, and much more. Customers also get cost savings by eliminating unexpected maintenance and repair, and the service provider has a picture of what types of jobs they can expect.

Informed scheduling

Create a deeper understanding of your scheduling and hiring needs. With AMCs, you get an overview of your year and can have a better handle on how many support personnel you’ll need, how much support backup your contracts will require, and be able to pre-arrange your technicians’ schedules.

Deeper client knowledge

Service providers gain a deeper understanding of their client’s ongoing support requirements. Companies build better, longer-lasting relationships and create better contracts when service techs know how often equipment downtimes occur, how many visits they have to do on average, and what kind of needs the client has.

For customers

Higher Quality of work

Agreeing upon an annual maintenance contract allows clients to ensure the quality of work is standardized across that time period and ensures the service provider adheres to the terms agreed upon.

Efficiency and planned timelines

Customers will benefit from knowing that they always have emergency support and their needs covered. They’ll never need to worry about how they will get something repaired or when it will happen.

Regular maintenance plans

Both service providers and customers benefit from having regular maintenance planned for ahead of time. Well-maintained things break less frequently, resulting in less work for your support personnel and less downtime for clients.

Get started with AMCs today

There are several benefits of implementing annual maintenance contracts or comprehensive maintenance contracts. Here are two significant ones:

Customer benefit: Using the information above, gain the commitment you need to guarantee continuous uptime for your company. 

Vendor benefit: Ensure that the terms and pricing you use align with the value you are providing; don’t undersell yourself. 

For some customers, a CMC will be the best bet. CMCs require a bit more involvement and cost outright to service providers, so ensure that you consider that when writing the contract. AMCs and CMCs will help give your business longevity and secure ongoing work for your team.