PECI
O&M Best Practices Series
Operation and
Maintenance
Service
Contracts
Guidelines for Obtaining
Best-Practice Contracts
for Commercial Buildings
Prepared with funding from the U.S. EPA
December 1997

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Acknowledgements
Special thanks to the following people for their ongoing
contributions and careful review of the document:
Byron Courts, Director of Engineering Services, and
Dave Rabon, Chief Engineer, Melvin Mark
Pete Degan, Director of Customer Marketing, Landis/Staefa
David Fanning, HVAC Coordinator, EXPRESS
Bil Pletz, Facility Manager, Intel
Mike Sanislow, Service Channel Development Leader,
Honeywell Home and Building
Karl Stum, Director of Technical Services, PECI
Tom Walton, President, United Service Alliance
For additional copies of this guidebook, contact:
Portland Energy Conservation Inc. (PECI)
921 SW Washington, Suite 312
Portland, OR 97205
Phone 503.248.4636/Fax 503.295.0820
e-mail: peci@teleport.com

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Table of Contents
Operation and maintenance Service Contracts
INTRODUCTION ................................................................................................................................................................ 1
SURVEY AND DEFINITIONS
What Is Operation and Maintenance? ................................................................................................................ 3
What Are the Various Types of Service Contracts? ................................................................................................ 3
Who Are the Providers? ....................................................................................................................................... 6
OBTAINING A BEST-PRACTICE O&M SERVICE CONTRACT
Developing Objectives .......................................................................................................................................... 9
Measurable Objectives ....................................................................................................................................... 10
Screening the Contractors ................................................................................................................................. 10
Obtaining Bids and Selecting a Contractor ....................................................................................................... 12
WHAT TO INCLUDE IN A BEST-PRACTICE SERVICE CONTRACT
Documenting, Tracking, and Reporting Requirements ..................................................................................... 14
The Facility O&M Service Plan .......................................................................................................................... 15
Adding the “O” to an O&M Service Contract ..................................................................................................... 16
Calibration Requirements ................................................................................................................................. 17
Certifications and Safety Requirements ............................................................................................................. 18
Contract Cancellation, Protocols, and General Considerations ........................................................................ 18
WHAT SHOULD A BEST-PRACTICE SERVICE CONTRACT COST? .................................................................................. 21
TIPS FOR MANAGING AND OVERSEEING A BEST-PRACTICE SERVICE CONTRACT .................................................... 22
1. Communication ............................................................................................................................................ 22
2. Documentation and Review ......................................................................................................................... 22
3. Spot Checks ................................................................................................................................................... 22
Appendix A
AN 8-STEP ACTION PLAN FOR OBTAINING A BEST-PRACTICE SERVICE CONTRACT ............................................... A-1
Appendix B: Sample Forms, Plans, and agreements
CONTRACTOR SCREENING FORM ............................................................................................................................. B-2
ITEMIZED LIST OF CHARGES ...................................................................................................................................... B-5
SERVICE PLAN FOR A CENTRIFUGAL CHILLER .......................................................................................................... B-6
CONTRACTOR’S HAZARDOUS MATERIALS/REFRIGERANT POLICY AGREEMENT ................................................. B-12
Appendix C
LIST OF ACRONYMS .................................................................................................................................................... C-1
BIBLIOGRAPHY ............................................................................................................................................................ C-2

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OVERVIEW AND GUIDELINES
Operation and Maintenance
Service Contracts
An overview of current trends and options, with
guidelines for obtaining and managing the best
contract for your building
Introduction
Frequently, building owners and managers outsource most if not all of
Approximately 40% of all
the operation and maintenance (O&M) services for their building sys-
nonresidential buildings
tems. Even large national companies and institutions with in-house O&M
contract maintenance service for
staffs often use outside service contractors to supplement their work.
heating, ventilating, and air
Several factors contribute to increasing business opportunities for O&M
conditioning (HVAC) equipment.
service providers in retail and office buildings. These include:
As third-party providers become
• Growing interest in indoor air quality (IAQ) issues
more sophisticated in selling
• Americans with Disabilities Act
services, building owners and
• Phaseout of CFC refrigerants
managers need to become better
• Building owners’ and managers’ desire to reduce operating costs
informed consumers.
and assure reliability
• Building owners’ and managers’ desire to be environmentally
responsible
The research required to design and obtain a good O&M service contract is
often too confusing and time-consuming for the typical owner or manager
to pursue. The purpose of this document is to provide clear information on
service contract options and trends to commercial and retail building own-
ers, facility managers, property managers, and chief building engineers.
The research and development of this document was conducted by Port-
land Energy Conservation Inc. (PECI) and funded by the Atmospheric Pol-
lution Prevention Division of the U.S. Environmental Protection Agency
(EPA) in cooperation with the U.S. Department of Energy (DOE). This docu-
ment does not attempt to specify the exact legal language to use in a
service contract; rather, it is a set of general guidelines. The main objective
is to identify:
• What owners need to know to obtain a good service contract
• Ways to evaluate service providers
• Major service needs
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SERVICE CONTRACTS
• What the contract should include
• Ways to ensure that the contracted services are correctly performed
This paper focuses on service contracts for heating, ventilating, and air
conditioning systems and equipment. The discussion is limited to contracts
offered by firms whose service personnel work off site (as opposed to
firms providing maintenance management services with key technical staff
on site).
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OVERVIEW AND GUIDELINES
Survey and Definitions
What Is Operation and Maintenance?
Building O&M is the ongoing process of sustaining the performance of
In the absence of a
building systems according to design intent, the owner’s or occupants’ chang-
sufficiently large and well
ing needs, and optimum efficiency levels. The O&M process helps sustain
trained in-house O&M staff,
a building’s overall profitability by addressing tenant comfort, equipment
service contracts may be the only
reliability, and efficient operation.
means of maintaining a
Efficient operation, in the context of O&M, refers to activities such as sched-
building’s mechanical systems in
uling equipment and optimizing energy and comfort-control strategies so
an organized, ongoing manner.
that equipment operates only to the degree needed to fulfill its intended
function. Maintenance activities involve physically inspecting and caring
for equipment. These O&M tasks, when performed systematically, increase
reliability, reduce equipment degradation, and sustain energy efficiency.
What Are the Various Types of Service Contracts?
In the maintenance service industry, there is no standard or set of defini-
tions for the various kinds of service contracts. Each mechanical or mainte-
nance service contractor puts together a unique package of contracts. The
package often consists of three or four types of contracts, each presenting
a different level of comprehensiveness.
In this document, four fundamental types of contract are defined: full-
coverage, full-labor, preventive-maintenance, and inspection contracts.
The newer concept of an end-use or end-results contract is also briefly
discussed. The names used are based on industry literature and discussions
with professionals in the field. There can be many variations within a con-
tract type, depending on owner needs and contractor willingness to modify
or customize service offerings.
Most of the contract types discussed below can encompass either the entire
mechanical system or just one piece of major equipment such as a chiller.
Also, owners may have more than one type of contract in place at any
given time.
Full-Coverage Service Contract
A full-coverage service contract provides 100% coverage of labor, parts,
and materials as well as emergency service. Owners may purchase this type
of contract for all of their building equipment or for only the most critical
equipment, depending on their needs. This type of contract should always
include comprehensive preventive maintenance for the covered equipment
and systems.
If it is not already included in the contract, for an additional fee the owner
can purchase repair and replacement coverage (sometimes called a “break-
down” insurance policy) for the covered equipment. This makes the con-
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SERVICE CONTRACTS
tractor completely responsible for the equipment. When repair and replace-
ment coverage is part of the agreement, it is to the contractor’s advantage
to perform rigorous preventive maintenance on schedule, since they must
replace the equipment if it fails prematurely.
Full-coverage contracts are usually the most comprehensive and the most
expensive type of agreement in the short term. In the long term, however,
such a contract may prove to be the most cost-effective, depending on the
owner’s overall O&M objectives. Major advantages of full-coverage con-
tracts are ease of budgeting and the fact that most if not all of the risk is
carried by the contractor. However, if the contractor is not reputable or
underestimates the requirements of the equipment to be insured, they may
do only enough preventive maintenance to keep the equipment barely
running until the end of the contract period. Also, if a company underbids
the work in order to win the contract, they may attempt to break the con-
tract early if they foresee a high probability of one or more catastrophic
failures occurring before the end of the contract.
Full-Labor Service Contract
A full-labor service contract covers 100% of the labor to repair, replace, and
maintain most mechanical equipment. The owner is required to purchase
all equipment and parts. Although preventive maintenance and operation
may be part of the agreement, actual installation of major plant equipment
such as a centrifugal chillers, boilers, and large air compressors is typically
excluded from the contract. Risk and warranty issues usually preclude any-
one but the manufacturer installing these types of equipment. Methods of
dealing with emergency calls may also vary. The cost of emergency calls
may be factored into the original contract, or the contractor may agree to
respond to an emergency within a set number of hours with the owner
paying for the emergency labor as a separate item. Some preventive main-
tenance services are often included in the agreement along with minor
materials such as belts, grease, and filters.
This is the second most expensive contract regarding short-term impact on
the maintenance budget. This type of contract is usually advantageous only
for owners of very large buildings or multiple properties who can buy in
bulk and therefore obtain equipment, parts, and materials at reduced cost.
For owners of small to medium-size buildings, cost control and budgeting
becomes more complicated with this type of contract, in which labor is the
only constant. Because they are responsible only for providing labor, the
contractor’s risk is less with this type of contract than with a full-coverage
contract.
Preventive-Maintenance Service Contract
The preventive-maintenance (PM) contract is generally purchased for a
fixed fee and includes a number of scheduled and rigorous activities such
as changing belts and filters, cleaning indoor and outdoor coils, lubricating
motors and bearings, cleaning and maintaining cooling towers, testing con-
trol functions and calibration, and painting for corrosion control. Generally
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OVERVIEW AND GUIDELINES
the contractor provides the materials as part of the contract. This type con-
Buyer
tract is popular with owners and is widely sold. The contract may or may
Beware
not include arrangements regarding repairs or emergency calls.
Owners and managers need to be
The main advantage of this type of contract is that it is initially less expen-
aware that some contractors’
sive than either the full-service or full-labor contract and provides the owner
preventive maintenance
with an agreement that focuses on quality preventive maintenance. How-
programs more closely resemble
ever, budgeting and cost control regarding emergencies, repairs, and re-
placements is more difficult because these activities are often done on a
the inspection service contract
time-and-materials basis. With this type of contract the owner takes on
described on this page. Not all PM
most of the risk. Without a clear understanding of PM requirements, an
service contracts are equally
owner could end up with a contract that provides either too much or too
rigorous. When obtaining bids,
little. For example, if the building is in a particularly dirty environment, the
compare the level of service each
outdoor cooling coils may need to be cleaned two or three times during the
agreement promises as well as the
cooling season instead of just once at the beginning of the season. It is
price.
important to understand how much preventive maintenance is enough to
realize the full benefit of this type of contract.
Inspection Service Contract
An inspection contract, also known in the industry as a “fly-by” contract, is
purchased by the owner for a fixed annual fee and includes a fixed number
of periodic inspections. Inspection activities are much less rigorous than
preventive maintenance. Simple tasks such as changing a dirty filter or
replacing a broken belt are performed routinely, but for the most part
inspection means looking to see if anything is broken or is about to break
and reporting it to the owner. The contract may or may not require that a
limited number of materials (belts, grease, filters, etc.) be provided by the
contractor, and it may or may not include an agreement regarding other
service or emergency calls.
In the short-term perspective, this is the least expensive type of contract. It
may also be the least effective—it’s not always a moneymaker for the con-
tractor but is viewed as a way to maintain a relationship with the customer.
A contractor who has this “foot in the door” arrangement is more likely to
be called when a breakdown or emergency arises. They can then bill on a
time-and-materials basis. Low cost is the main advantage to this contract,
which is most appropriate for smaller buildings with simple mechanical
systems.
End-Results Contracting
End-results or end-use contracting is the newest concept in service con-
tracting and is not yet widely available. The outside contractor takes over
all of the operational risk for a particular end result, such as comfort. In this
case, comfort is the product being bought and sold. The owner and con-
tractor agree on a definition for comfort and a way to measure the results.
For example, comfort might be defined as maintaining the space tempera-
ture throughout the building from 72o to 74o F for 95% of the annual occu-
pied hours. The contract payment schedule is based on how well the
contractor achieves the agreed-upon objectives.
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SERVICE CONTRACTS
This type of contract may be appropriate for owners who have sensitive
customers or critical operational needs that depend on maintaining a cer-
tain level of comfort or environmental quality for optimum productivity.
How risk is shared between the owner and contractor depends on the type
or number of end results purchased. If comfort defined by dry-bulb tem-
perature is the only end result required, then the owner takes on the risk
for ameliorating other problems such as indoor air quality, humidity, and
energy use issues. Maximum contract price is tied to the amount and com-
plexity of the end results purchased.
Who Are the Providers?
A variety of contractors offer maintenance service agreements to owners of
commercial buildings and retail facilities:
• Mechanical contractors and full-service mechanical contractors
• Maintenance service contractors
• National maintenance service firms (consolidators)
• Specialized service contractors
• Manufacturers
• Maintenance management firms
Mechanical Contractors
Mechanical contractors install, repair, and perform O&M on all types of
mechanical equipment, including controls. Firms known as full-service
mechanical contractors design systems as well as installing and servicing
them. Both types of firms may also distribute manufacturers’ HVAC equip-
ment and control systems. Service contracts generally make up anywhere
from 10% to 25% of their business.
Maintenance Service Contractors
Maintenance service contractors offer a broad range of services such as
janitorial activities, lighting maintenance, and preventive HVAC maintenance,
including installation and repair of equipment. Their offerings may also
include infrared scanning, ultrasonic testing and eddy current testing. These
firms generally do not sell equipment. Service makes up the major share of
their business. They are hired primarily by owners who outsource most if
not all of their building services. These firms may have HVAC technicians
who are responsible for several different buildings. Janitorial crews, how-
ever, generally are not responsible for multiple buildings. Profits for these
firms generally depend on the number and size of the janitorial and main-
tenance service contracts they sell.
National Maintenance Service Firms
There are two types of national maintenance service firms. One type serves
mainly large retail chains and owners of multiple buildings. This type quali-
fies mechanical contracting businesses throughout the country as subcon-
tractors. The qualified subcontractors are then considered part of the firm’s
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Document Outline

• OPERATION AND MAINTENANCE SERVICE CONTRACTS
  • Acknowledgements
  • Table of Contents
• Introduction
• Survey and Definitions
• Obtaining a Best-Practice O&M Service Contract
• What to Include in a Best-Practice Service Contract
• What Should a Best-Practice Service Contract Cost?
• Tips for managing and Overseeing a Best-Practice Service Contract
• APPENDIX A An 8-Step Action Plan for Obtaining a Best-Practice Service Contract
• APPENDIX B Sample Forms, Plans, and Agreements
  • Contractor Screening Form
  • Itemized List of Charges
  • Service Plan for a Centrifugal Chiller
  • Chiller PM Service Plan
  • Contractors Hazardous Materials/ Refrigerant Policy Agreement
• APPENDIX C List of Acronyms and Bibliography
• INDEX

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