Blanket service contracts cut costs

For years, municipalities relied on standard maintenance service contracts offered by manufacturers for their desktop computers, telecommunications systems and other equipment. Local governments signed on to these plans to cover routine maintenance. Most importantly, financial managers felt they were buying peace of mind against the shock of a major repair on already tight budgets.

Two years ago, Bloomington, Minn., joined the growing ranks of local governments finding a higher level of protection against equipment maintenance expenses. This city of 87,000 residents participates in a comprehensive equipment maintenance management program, a concept relatively new to government that has been used successfully for years in the private sector.

The idea is straightforward. All maintenance coverage formerly provided by individual manufacturer service contracts is bundled under a single provider. That company has the responsibility for expediting payment to reimburse preventive maintenance and equipment repair — and for keeping those costs in line. To ensure service, the more solid programs are backed by a multi-billion dollar insurance company.

“In our first year under the program, we will save 15 percent over standard equipment maintenance contracts, reducing thousands of dollars in maintenance costs,” says Bloomington Support Services Manager Duane Shuck.

Originally developed for the medical field, which is dependent upon expensive and sophisticated systems and devices, these programs have allowed hospitals to get a better grasp on the second-largest item in their operating budgets for a significant 15 percent to 40 percent savings. The banking industry subsequently saw the benefits, and, several years ago, municipalities began to consider the programs.

For the 500 Bloomington municipal employees, services go beyond the needs of the residents. The city also is home to the Mall of America — the country’s largest shopping complex, which draws thousands of visitors weekly from a multi-state area.

Bloomington’s program covers a host of office equipment. Along with cost reduction, the amount of paperwork has dropped off as well, and administration has improved. The city used to spend considerable time purchasing and coordinating dozens of contracts separately.

As each department incurs maintenance costs, invoices are passed along to the city administration, with the bills submitted to the equipment maintenance program provider. Reimbursement follows within 30 days. Furthermore, the city can do business with any vendor it chooses, including minority contractors.

“The itemized reports we receive from the program help us determine which equipment demands more attention and possible replacement,” Shuck says. “Before, with departments processing their own invoices, analysis was difficult.

“Premium breakdown by item allows us to allocate these costs back to the user departments and maintain budget stability from year to year,” he says.

This stability and risk transfer is a key feature of the program, making maintenance costs fairly consistent from month to month. As a further improvement over standard maintenance programs, the current program covers all maintenance situations — including electrical failure and human mishaps — with no deductible.

The Bloomington experience, along with those of other cities across the country, is proving comprehensive equipment maintenance management programs can be flexible, cost-effective solutions to the costs that are part of a growing inventory of expensive, yet necessary, equipment.