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Warranty versus Service Plan
October 27 2022

Warranty versus Service Plan
            I'd like clarity on the warranty we are responsible for in the All in One agreement.
You make reference to the fact that we don't manufacture the equipment.  Should our parts warranty be tied to the manufacturer's warranty?
            I recently had a lawyer client point out that we are responsible under the agreement to provide a one year parts and labor warranty.  That is the way I read it as well. Then it goes into additional legalese that seems to suggest that we don't need to cover it.  Can you please clarify this for me?
            The warranty for residential is often required to be one year, so we use that for all [or most] states for the Residential All in One.  Commercial customer warranty is a matter of negotiation, so it can run from "tail lights", 90 day to one year.  The Commercial All in One [for security] and the Fire All in One [commercial fire] have 90 day warranty.  Warranty includes labor and parts, but only for defective installation or equipment that is undamaged or disturbed; in order words, fails because of ordinary wear and tear or inherent problems. 
            Your warranty is not limited to the manufactures warranty because the manufacturer doesn't warranty labor.  Your warranty, at least the commercial one, may be less than a manufacturer warranty, who for example may have a one year or longer warranty.  Your customer can look to your warranty or the manufacturer's warranty, or both.
            But I have a better solution; you need to be selling a Service Plan with RMR.  A Service Plan should be easy to price out because it's for a new system that you are installing and the Service Plan also covers only ordinary wear and tear.  Defective parts during the manufacturer's warranty should cover you, but under the Service Plan [or if within your warranty period] you will be the one to contact and deal with the manufacturer, not the customer. 
            The Service Plan [as drafted in the All in One agreements - and of course you can modify it or ask K&K to modify it] covers labor, material and equipment, but only for ordinary wear and tear; any other cause for repair is not covered.  Of course you can set the parameters and always decide to cover a repair that is not technically covered.  Why would you do that?  Well, suppose you collect RMR for service for 3 years without a single call and then you have to re-attach a contact because the painter knocked it off the wall.  Maybe you can cover it anyway; but up to you.
            Customers may ask why they need to pay for a Service Plan during the warranty period; don't they overlap?  Possibly, but you will explain that your RMR calculation is for the term of the contract [from 1 to 10 years - K&K gave you the printed contracts with 5 year term for residential and 10 year term for commercial].  So if the customer wants to skip year one and then just pay for years two through five the RMR is going to change.  Let's say you figure two service calls at $300 each per year, $600.00.  That's $3000.00 over 5 years and the monthly payment is $50.00.  If the customer wants to skip year one and pay for only 48 months [instead of 60 months] the monthly payment is $62.50.  Why, in case customer asks?  Because you need to anticipate service during the first year that may or may not be warranty; or, new systems don't typically have issues when installed and problems develop over time.  Therefore, if the customer said they wanted to buy a Service Plan for only year five the cost is $3000.00, or $250.00 for months 49 through 60 of the contract term.  If any more conversation is needed you probably should have one foot out the door or just tell them to stick with a per call plan; then you can hopefully collect more than the $3000 over the five years. 
            However, keep in mind that the Service Plan RMR increases the value of your alarm company by around 30 times the RMR, so that's $1500.00 for the $50 plan and $1875.00 for the $62.50 plan.  Those numbers matter if you consider your customer base of hundreds or thousands of customers. 
            A discussion on the economics of per call versus service plan RMR for repair service and inspection [especially for fire alarms] is another topic we should get to soon.

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Ken Kirschenbaum,Esq
Kirschenbaum & Kirschenbaum PC
Attorneys at Law
200 Garden City Plaza
Garden City, NY 11530
516 747 6700 x 301