From the August 2014 issue of HealthCare Business News magazine
Performance Guarantee Clause: This ensures that the equipment is performing to the agreed upon performance specification, and will eliminate any finger-pointing if an issue arises.
Response Time Guarantee: Response time is vital in choosing a service contract, especially with systems that can’t afford downtime. This must be provided in writing and acceptable to the hospital.
Uptime Guarantee: Many vendors will provide a 95 to 98 percent uptime guarantee. Vendors typically calculate this on a 24/7 basis, but it should be calculated based on your actual hours of operation.
Termination Clause: All contracts should have a penalty-free termination clause that allows you to void the entire agreement or specific items within the contract.
In summary
When negotiating an equipment purchase or maintenance contract, it is important to understand that the vendor’s goals differ from those of a hospital. Unless otherwise instructed, most vendors will automatically quote hospitals a full service contract. Keep in mind that 40 to 60 percent of a vendor’s revenue comes from service contracts and they will typically negotiate the highest level of service at the highest price. Service costs are a vital part of any purchasing discussion, and for some technologies they can be the difference between profit and loss.
About the authors: Katie Regan is the clinical publication manager at MD Buyline. She joined the company in 2013. Regan leads all clinical, financial and health care publishing projects. She holds a BS from Texas A&M and a master’s degree from Rice University.
Kevin Hodges is the director of operations and joined MD Buyline in 1996. Prior to his current role, he served as director of member services where he assisted MD Buyline members in cost-saving purchasing strategies.
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Steven Ford
cancellation
August 12, 2014 05:51
You correctly note that longer term contracts are cheaper than short term contracts. And then you note that there should be a penalty-free termination clause "that allows you to void the entire agreement or specific items within the contract."
Which is it? A long term contract that one party can cancel at any time is not a long term contract.
Our company offers multi year contracts that cost less than a one year contract, but we do expect the customer to pay the whole contract. That's how we balance risk. In almost every contract, the cash outflow is highly uneven, and we pay for the bad days by collecting money over a lot of good days.
Have you ever seen a contract that permitted the customer to unilaterally cancel, unless there are unusual circumstances such as the machine not being in use any longer?
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