Making sure our hospitality clients receive quality insurance products

Reduce Your Equipment Maintenance Costs
September, 1999
By: Mike McKee

All hotels have an annual cost to maintain and repair the equipment that is critical to the operation of the business.  For most of the equipment, (HVAC, telephone system, computer system, security system, copiers, fax machines, elevators, ATM machines, literally anything that can be plugged into a wall,) the maintenance and repair will be handled through the purchase of a maintenance contract.  The option to a maintenance contract is to take a chance that the equipment will not fail, but when it does, pay for the repairs on a time and materials basis.  This can be risky, so for security, most companies purchase maintenance contracts. 

Hotel owners who are buying maintenance contracts need to ask the following question.  How do I know if I’m getting my money’s worth?  Maintenance contracts require the bill to be paid before the work has been performed.  Consequently, the incentive to provide good service has been reduced.  For example, each time service is requested the vendor is losing profit margin.  Years ago original equipment manufacturers profited heavily from the sale of new equipment.  Due to rapid change in technology and increased competition, these margins have been severely decreased.  Therefore, equipment manufacturers and vendors have significantly increased their profit margins through the service and repair of equipment.  Most of you have experienced this phenomenon after purchasing a new appliance, car or television.  Like the plague, you instinctively try to avoid the extended warranty sales pitch.  For the same reasons you question the extended warranty proposal, ask yourselves whether maintenance contracts for your business equipment are a good deal? 

An alternative now exists to maintenance contracts which will put the control and negotiation of price back into your hands. Equipment maintenance and repair insurance is a new and innovative approach to handling a process which can be time consuming and expensive.  Essentially, the program is an insurance policy with a premium, which is 15-40% less than the total amount your company currently spends on all equipment maintenance and repair costs combined.  Most of these costs will come from maintenance contracts, however the program will work for leased equipment or self insured, (time and material,) maintenance costs as well. This program will significantly reduce your total costs while broadening your coverage and delivering services you have never had with your current maintenance and repair vendors.  Most of you are either too busy or do not have the technical experience to know whether you have received a good deal by buying maintenance contracts to service your equipment.  A program like this takes care of these concerns.  Regardless of the service performed, it will be fully audited to ensure the equipment receives the best possible service. 

In addition to savings, most of these programs will develop an out-sourced asset management program, which will track each individual piece of equipment. A company will have the opportunity, perhaps for the first time, to know exactly how often and why the equipment breaks down and more importantly how much it costs to repair.  The companies who provide this service will take care of the work orders through a 1-800-dispatch service.  Each piece of equipment will be asset tagged and stored in a personal equipment history database.  If desired, all of the current vendor relationships will remain the same. For example, if a telephone system goes down, a hotel would call a 1-800 #, which a trained engineer in the dispatch department would answer. The hotel would inform the technician that xyz, (the tag #,) piece of equipment was not functioning and needed repair.  Because Aon has informed the insurance company ahead of time what vendor was responsible for that equipment, they would dispatch the service immediately.  Once the service is performed, the vendor will send the invoice to the insurance company, who will audit and pay the invoice within 30 days of receipt.  Thus, a tremendous amount of the administration of this process is outsourced, which will create additional soft dollar savings for the company. 

Other aspects of the program which are not typically provided through contracts include management reports, repair costs (caused by power surges, air conditioning failure and human error or negligence), rental of substitute equipment, overtime costs (7 days/24 hours a day), in-house reimbursement for repairs, built in obsolescence and the ability to finally have one common anniversary date.  These extra services are all included for the guaranteed premium, which is usually between 15-40% less than what most hotels are paying today for numerous contracts. 

Many companies throughout the world are taking advantage of these programs.   Savings aside, most companies should consider a program like this for the increased benefits, ease of administration, outsourced vendor dispatch and direct pay program alone.  In addition to the hard dollar savings, companies receive broadened coverage, increased benefits and services as well as soft dollar savings created through the development of administrative efficiencies. There will now be one premium, (no deductibles,) rather than several maintenance contracts to negotiate and renew each year.  In many forms, consolidation has been an excellent way for companies to increase their profit margin.  This is an example of equipment maintenance and repair consolidation. 

If you would like to inquire about saving money and creating a more effective and efficient process of repairing your equipment, please contact Mike McKee or Matt Smith at (800) 543-1022. 

Mike McKee is Account Executive at Aon Hospitality

Bryan Green 
Aon Hospitality Services, Inc. 
Account Executive 
Business Development 
1211 S.W. Fifth Ave., Suite 600 
Portland, Oregon 97204-3799 
phone: 503-306-2862 
fax: 503-224-0094
Aon Hospitality is dedicated to making sure our hospitality clients receive quality insurance products, risk management, and financial services. We accomplish our mission through a highly-trained  and  motivated professional staff which is committed to always providing client-focused quality services.
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