Should You Contract Out Maintenance?

Torbjörn Idhammar, IDCON INC

As an option to reduce plant costs, you may be wondering whether you should contract out maintenance work. This may have some merit, depending on many factors, including the nature of the business. One question that may be asked is:

“Is maintenance a part of our ‘core business’?”

Let’s look at a couple of examples – If the business is a hospital, where revenue is generated by the sale of medical services, and maintenance consists of a few specialized activities, such as janitorial, H&V system servicing, and repair of advanced medical diagnostic and monitoring systems, then contracting out these activities is almost certainly the best approach.

However, if your business is an old process industry where most maintenance work involves inspections and repairs to production machinery, then both maintenance and operations, as a team, are equally important to the “core business” of producing product, and maintenance should probably be carried out by trained plant employees.

Other Considerations

Besides the “core business” consideration, there are other principles that should be applied when considering to contract your maintenance. To illustrate these principles, let’s look at an actual case where contract maintenance was tried and failed.

The manufacturer (the “company”) was a multi-plant, 24/7 process industry with high maintenance costs. A decision was made to contract out the management of maintenance to an outside firm (the “contractor”). A legal partnership was established, with the contractor providing a maintenance manager for each site and a president to which these site managers reported. The company provided lower levels of supervision and tradespeople. The terms of the partnership contract included payment of a management fee to the contractor, as well as significant incentive payments. The incentives were based on reducing “maintenance costs” and reducing “maintenance downtime”. While such a contract may appear elegant in its simplicity, it broke four basic principles of contract maintenance.

4 Basic Principles of Contract Maintenance

1) Any incentives must encourage the desired behavior

Each plant required large amounts of steam for the process.

This steam was generated by boilers which burned either waste material, at a very small cost, or fossil fuel, at a very high cost. The equipment for storing, handling, drying and burning the waste material was complex and required considerable maintenance.

Shortly after the partnership was established, a large component in the waste material drying equipment failed. The site maintenance manager refused to approve the purchase of the replacement because, under the terms of the contract maintenance partnership agreement, there was a strong disincentive to do so. The component purchase would increase maintenance costs but have no impact on production because the plant could produce at full capacity with steam generated by burning fossil fuel.

This incident put some strain on the relationship between the company and contractor, and other similar incidents occurred. The terms of the agreement discouraged the contractor from performing maintenance on equipment required to reduce energy, chemical costs and other operating costs.

From the company’s point of view, the desired behavior is that which improves its overall operating performance, not just maintenance performance.

2) Any measures on which incentives are calculated must be defined clearly and unambiguously.

Each of the company’s plants had different ownership histories and had developed their own standards, including the way in which “maintenance costs” and “maintenance downtime” were defined.

In one plant, components that were in contact with the product and performed a processing function (such as filters and screens) were charged to the operating budget, while at another plant, those components were charged to the maintenance budget. In fact, different definitions were employed in different departments in some of the plants.

Also, “maintenance downtime” had never been adequately defined and differed widely among the plants. Downtime had historically been assigned to either operations or maintenance based on who was to blame for the downtime incident, a practice that will test even the strongest maintenance/operations partnership.

What is a partnership organization? Read this article to find out.

Incredibly, when the partnership agreement was written, no attempt was made to define either “maintenance costs” or “maintenance downtime”. The result, predictably, was that an inordinate amount of time and effort was devoted to arguing about the allocation of costs and downtime to the company or to the contractor. This is not a simple task, especially for “maintenance downtime”.

The focus should be on the root cause, not the immediate effects. In a healthy partnership, efforts should be devoted to problem solving to eliminate the root cause of downtime events, without regard to questions of blame. As the relationship between the partners worsened, company supervisors made considerable efforts to define as much downtime as possible as maintenance, with the result that reported “maintenance downtime” increased.

3) There must be one company person and one contractor person responsible for the overall agreement, which must include a well-defined dispute resolution process.

While the contractor had a clear responsibility for the partnership agreement in the partnership, the company did not have a matching position.

Each site maintenance manager worked with the company’s operations manager. This resulted in disputes being handled at the local site level, with no consistency across the company, which further strained the relationship.

4) Long-term results happen with long-term managers.

The contractor site maintenance managers were employed on short-term contracts.

Unfortunately, improvements to plant maintenance takes time, but there are short-term decisions that can be made to give the appearance of improved performance. For example, training of apprentice tradespeople and infrastructure maintenance can be deferred to show decreased costs in the short term, and this was one result in this example.

Maintenance costs did decrease, and following the termination of the contract maintenance partnership, it was necessary to catch up on some spending. Of course, in addition to the principles in this article, any agreement must include safety, environmental and work quality standards, which must be met by both the company and the contractor.

However, if the four principles are followed, contract maintenance can possibly be in the best interests of any process plant, but you have to look long and hard to find a plant that has contracted maintenance successfully for more than five years.

Torbjörn Idhammar

Torbjörn Idhammar is the president and CEO of IDCON INC., a Reliability and Maintenance Management Consulting Firm. Tor’s responsibilities include training IDCON consultants, product development, sales, and marketing. He gives advice to IDCON’s multi-site and international clients to ensure outcomes and deliverables are met.

How to Fix the 70/30 Phenomenon

When you ask front line supervisors or team leaders if all people in their teams are performing to the same standards or if some are doing more work and achieving more results than others, you will often get the same answer. All over the world, the most common answer, after some analysis, verifies that about 30% of the people do 70% of the work.

Zen and the Art of Managing Maintenance

Unfettered expression and spiritual satisfaction? How does this relate to managing a maintenance department, especially one in the U.S. Postal Service? Open your mind. Take a page from the Zen Buddhist monks who preach: When you are quiet and listen, you become aware of sounds not normally heard. USPS maintenance leaders are listening and beginning to understand that maintenance success doesn't come through closed minds and closed doors.

Why do maintenance improvement initiatives fail to deliver? (Hedgehog or Fox?)

It is not uncommon that many reliability and maintenance improvement initiatives fail to deliver expected results. Why is it so? Some of the most common causes I have observed include:

Why Maintenance Improvement Efforts Fail

Why do improvement efforts fail or perhaps not sustain the gains? There are many reasons, but those most often stated are “lack of commitment” and not “following the process”. But why is there lack of commitment, and why aren’t processes followed? Here are a few of the reasons that I’ve seen:

TPM and RCM: Whirled Class

When a piece of production machinery broke down at the Whirlpool plant in Findlay, Ohio, several years back, it was accepted practice for the machine operator to call maintenance and then sit back and wait for the problem to be fixed. Critical information and knowledge was not shared between the operator and maintenance technician. Like many companies, these workers were stuck in traditional roles - operators run the machines, maintenance fixes the machines, and the two do not cross. As a result, productivity opportunities were missed.

Where Do Maintenance Professionals Come From?

Many managers are unaware that best-in-class companies routinely design-out maintenance at the inception of a project. That, clearly, is the first key to highest equipment reliability and plant profitability. Whenever maintenance events occur as time goes on, the real industry leaders see every one of these events as an opportunity to upgrade. Indeed, upgrading is the second key, and upgrading is the job of highly trained, well-organized, knowledgeable reliability professionals.

TPM and Tecate: The New Translation

The true translation — might it be proper to say a new and improved translation? — is being used today by Cervecería Cuauhtemoc Moctezuma, one of the largest brewers of beer in Latin America. Known throughout this company as Mantenimiento Alto Desempeño (MAD), or translated as High-Performance Maintenance, the concept of TPM is alive and well at the company's six plants in Mexico. Perhaps the best example is at CCM's brewery in Tecate, located a short drive from the U.S.-Mexico border on the Baja California peninsula.

Should You Contract Out Maintenance?