Category: Elevator Contract

If you work with an elevator company you likely have a full maintenance agreement. But one day your account manager may offer you an oil and grease contract.  These contracts go by many different names, but they are the cheapest contract and cover the least amount.

What does an oil and grease (OG) contract cover?

Oil and grease contracts will vary but typically they offer very limited preventive maintenance. Most contracts will reference some light lubrication as the preventative maintenance. One large company actually limits these visits to 15 minutes maximum. This is much different than what is contractually in a full maintenance contract. However, in today’s age you probably are not getting full preventive maintenance. It is probably closer to the preventive maintenance of an oil and grease contract.

An OG contract will not cover any parts, or service calls. Here is the major difference between the full maintenance contract and oil and grease contract. That means any service call will be billed at those high elevator billing rates! Furthermore, if a part is broken you will be stuck bearing the full cost. That means you can expect major markup from your elevator company on the parts and service (200%+ in many cases).

Finally, many oil and grease contracts will not cover inspections, but this may vary. Inspections are typically required in most jurisdictions so expect to receive an invoice for this work.

Do you want an oil and grease contract?

Oil and grease contracts are about 1/3 as expensive as a full maintenance contract. If you receive an OG proposal that is close to price to a full maintenance agreement, run!

You could have significant savings from an oil and grease contract. If you have a new elevator that is rarely used this may be the kind of contract you want. Let’s do some math on a building with one hydraulic elevator!

O&G Contract: $75/month or $900/year + a  $300 bill for the annual inspection = $1200/year

Full maintenance contract: $200/month or $2400/year

With no callbacks that is savings of $1200! For simplicities sake you, we can say that each callback is $300-$600. So if you have a couple callbacks, well then you are out luck, and will owe more than a full maintenance contract, especially if you need a part replaced. My recommendation would only be to have an oil and grease contract if cash flow is important, you can accept some risk, and your elevator is relatively new.

Also, if you are negotiating an oil and grease contract make sure to include your elevator inspection in the price. Since you will have to pay that cost anyways it makes sense to include it in your contract. Also, that way if an inspection goes over you will not be hit with a larger bill than you expected.

One additional thought I have is that if you have a very old elevator, and your elevator company is billing you anyways for all your calls because of your obsolescence clause then it may make sense to have an oil and grease contract, but I would suggest talking to a consultant first or more importantly thinking about modernizing your elevator.

You hear a lot about the full service elevator maintenance contract.  But how “full” is it? Does it protect you against everything, or are their loopholes like that toaster oven warranty you thought was great but didn’t cover your son burning his GI Joe’s in it.

Frequency of visits

Full service contracts will typically have “systematic and preventative maintenance” as part of their contract.  Check out my blog post talking about what you are probably actually getting these days and how to negotiate with your elevator company.

Coverage of parts

When you hear full service elevator maintenance contract the first thought that probably comes to mind is that your parts are covered. Depending on the age of your equipment for the most part that is true! If you have older equipment beware of the obsolescence clause that may be in the contract.

Ignoring the obsolescence clause, for now, typically all door equipment, controller parts, ropes, machines and almost anything else you can think of is covered. Sounds great right? Most property managers prefer this contract because it is a form of buying insurance. You pay a monthly fee and in exchange for that if there is a major parts failure your elevator company covers it. That way you have steady cash flow and do not see any spikes.

What parts are not covered in a full maintenance agreement?

Here is where you need to be careful, because there are some items that are not covered:

• The elevator cab walls and its shell
• The elevator fronts and the cladding of the doors
• The elevator ceilings, floor and handrails
• Below ground hydraulic pistons
• The machine room where the elevator controller is located

What other reason may I not be covered?

There are also a handful of reasons that may void your parts coverage:

• Vandalism which is also called misuse and abuse
• Acts of Gods
• Parts obsolescence 
• Overtime calls

How much is the full service elevator maintenance contract?

The full maintenance contract is the most expensive of the options you will find. In most markets a good rule of thumb is $200/month for a hydraulic elevator and $400/month for a traction elevator. These exclude high rises and New York City. To figure out your market rates check out my blog post.

Cheaper options can be about 75% less of the total monthly cost of a full maintenance agreement. However, keep in mind you will be hit with costs that you can’t control.

Hopefully, you now understand what a full service elevator maintenance contract consists of!

You are unhappy with your service. Maybe you think your paying too much. You go and ask your account manager for your elevator contract.  Come to find out you have 4 more years on the term of your contract!

The never ending elevator contract

Most elevator contracts are 5 years. On top of that most elevator contracts will roll for another period of 5 years unless terminated in a highly specific window. Typically, you can not just send a cancellation a year before hand.  It will have to fit in a specific 30 day window. As you can imagine the elevator companies make it pretty hard for you to cancel.

5 years probably seems like a long time  compared to your other vendors. If you ask your elevator company they will tell you that since a full maintenance contract covers  parts that they need multiple years to recoup lost costs on parts.  In the past this was likely true.  However, the way most of the large elevator companies are run they will try and replace parts (especially expensive ones) as little as possible.

The large elevator companies have operating costs like any other company, including the elevator maintenance they should be performing on your elevator.  Some elevator repairs that are covered by contract can cost a few thousand dollars. If elevator repairs can be bandaged or ignored by your elevator maintenance provider it will be.  The most common case is a leaking packing in a hydraulic elevator. Instead of replacing the packing many elevator companies will let it leak and have the mechanic add more oil to the tank instead.

Don’t get stuck in a 5 year elevator contract

Since many elevator maintenance companies no longer fix required repairs, or if they do it is not in a timely manner. Why should you be stuck with a 5 year contract that rolls? When negotiating your elevator contract do not accept a 5 year contract.  In the past decade elevator companies have been more willing to compromise on term.  However, beware, as some large elevator companies still incentivize their account managers to sell for length of contact.

Ideally you should get a 1 year contract.  It should be ok to let it roll every year, otherwise you will have to work on a new contract once a year which will be time consuming.  If your elevator company puts up a fight and your happy with your service, try a 2 year contract.  They will ask for 3 years, but within that time frame an elevator office can have an entire staff turnover, so you may suffer service degradation.

Cancellation without cause clause

It can be very difficult to get out of a contract if you are unhappy with your service.  Now that your contract is down to 1-2 years you should not have to wait long.  But what if service is abysmal? Ask for a cancellation without cause clause so you have the ability to cancel (typically 30 days notice will be required).  Your elevator company will be very reluctant to let you add this in.

Often times they will offer to put a cancellation with cause clause instead. This means that they will have to breach the contract and will be allowed 30 days to self-correct.  This clause still allows a fair amount of poor service before you could part ways with your company. This clause is better than nothing but if you can work in a cancellation without cause clause I highly recommend it. Account managers are typically incentivized to make the sales regardless of special conditions like cancellation clauses.  This should give you some leverage.

Hopefully, you can negotiate a shorter term contract with an out clause to protect yourself from poor service!

Another option would be to hire an elevator consultant who has an already written elevator contract you can use.

 

My building is finished, what do I do now with my elevators?

Elevator Warranty

The vast majority of times your general contractor purchased a one year warranty from the elevator installed that include elevator maintenance (sometimes two years ). You should call your elevator installer immediately and clarify what the warranty covers.  This is a major source of confusion for building owners and property managers.  Does the elevator warranty cover overtime calls?  Does it cover acts of Gods, or cases of misuse and abuse?  The answer is critical because you can easily end up with thousands of dollars of extra expenses during your first year that you thought were covered during the elevator warranty period!

More than likely, you are going to be hit with extra invoices in your first year.  Many times the general contractor is still working on the building, or floor build outs begin during the elevator warranty period.  The contractor work will often create dirt and debris which will go down the elevator shaft and cause excessive shutdowns. Almost all warranty periods will not cover these calls as they are considered misuse and abuse.

You will need to make sure you pass these invoices back to your general contractor so they cover the cost and you do not get stuck with them.  Make sure that your elevator company has the correct address to invoice.  Many times the elevator company will have the general contractor or developers address and you will not receive the invoice until after you have paid the general contractor and you will be caught holding the bill!

Why do I have callbacks and shutdowns with a brand new elevator?

You should expect callbacks and shutdowns during the warranty period.  Often times there are kinks that the elevator companies adjustors need to fix, or the building is still settling.  This is typical and expected.  Other times you will have a new version of an elevator installed and there may be software bugs, that the installer of the elevator is still figuring out.  If this is the case, you will have shutdowns that are primarily controller related.  You can ask your elevator company for a callback report to take a look, or they may even tell you.

If this is the case you may be in store for a rough ride. Unfortunately, the installer of the elevator will be the best to fix the problem. Even an experienced elevator consultant won’t be able to help as they will rely on what they hear from the company who built the elevator!  Instead, hound your elevator company to get the local adjustor on site as soon as possible.

Time to choose an elevator maintenance company: Should I go with the OEM?

You (or your general contractor) chose an elevator contractor to install your elevator, shouldn’t you just go with the installer for your maintenance contract?  If you had one of the big 4 companies install their elevator on your property you should go with them. New versions of elevators often have proprietary software that competitors of the OEM have not reverse engineered. Keep in mind, elevator companies will tell you that they can take care of their new competitors equipment. The elevator manufacturer themselves will even claim that their equipment is non-proprietary. Legally, this is true.

However, if you do switch to another elevator company you may need to purchase a diagnostic tool from the OEM.  I have seen these tools sold for as much as $10,000! 

Furthermore, if you hire a non-OEM they will have very limited support for any controller related issues. Most likely they will call their friends who work for the OEM. I have seen elevator mechanics have trouble on new equipment that their own company installed! Now imagine an elevator mechanic who can’t call the factory that produced the equipment.

Now just because I recommend staying with your installer, doesn’t mean you should accept the first contract your elevator company gives you! Most elevator companies actually charge a 30%+ premium on their new elevator maintenance contracts.  If they are brand new and therefore require less parts and service why would they do this? Because the vast majority of new building owners go with the OEM and the elevators still have proprietary aspects. Many elevator companies even incentivize their account managers to sell these contracts at higher margins.

Getting a successful first elevator maintenance contract

So, what can you do to get a good price? Negotiate. This will be a more challenging contract to negotiate as you have less leverage. Threaten to bid out your contract. Hire an elevator consultant.  Offer to have a longer term contract for a price decrease. Typically I do not recommend long term contracts but with new equipment you should stay with the OEM for the first 5 years. Find out from another property what they pay for a similar elevator (traction vs. hydraulic and number of stops), and ask why there is such a discrepancy in price to your account manager.

Ask questions, like if this elevator is brand new and you will have to spend less on parts, why is this contract more expensive?

Hopefully, your elevator warranty period is successful and you can successfully negotiate a first maintenance contract for your building.

 

You just received a bill for $500, $1,000 even $2,000 for something your elevator maintenance provider did.  How do you know if you should pay the elevator invoice?

You probably have a full maintenance contract.  Well, these aren’t as “full” as they used to be. In the past, the only time properties would receive an extra elevator invoice would be when they called for overtime service or had water damage.  Well those days are no longer.  As maintenance contract prices have decreased, elevator companies needed a way to make up the lost profit, besides decreasing the amount of elevator maintenance.  So they lowered the scope of their contracts and made sure to aggressively bill. Some elevator companies even have a separate line item to track their billings of these services.

What should my elevator budget be?

Now you should budget and expect to pay for the following services “outside the scope” of your contract:

• All fire alarm and smoke testing
• Any overtime visit (unless your contract covers all overtime costs)
• Generator tests (these are typically done with annual inspections but elevator companies can still charge you for this)
• Providing access to the hoist way for another contractor
• Keys in the elevator pit

These may not seem like a lot but they add up over the course of the year.  Most elevator companies hourly rates are at least in the $200’s if not $300’s for normal business hours.  So let’s do a little math.

Say you have one hydraulic elevator and pay $200/month or $2400/year.  Now you have to test your fire alarms, but don’t want to do that during normal business hours because you will disturb your tenant.  That is 2 hours (don’t forget you have to pay for driving time) at an overtime rate of 1.7 so at best your paying around $700 for one visit!  Now, one of your tenants drops his or her keys in the pit.  That is another $200 at least.  So now you have increased your annual spending from $2400 to $3300, or an increase of 30%!

Those numbers are estimations and low in my opinion.  But now you can see how these extra invoices can really add up!

How to limit the “extra” elevator invoice

I am going to let you in on a little secret. Do you know what happens if you never pay that $500 invoice to your elevator company? Do they come after you? Highly unlikely!  Like most large corporations after 90-180 days elevator companies will begin to write off bad debt on their books.  That means after a certain amount of time they have already lost the money you may owe them. This makes them much more likely to negotiate a 50% discount of the invoice or more, because to them financially it is now receiving money to their bottom line they had expected not to get! Typically, you will have to have thousands of dollars of unpaid invoices for an elevator company to send you to a collections agency.   Is this the best way to do it? I tend not to think so as I believe honoring agreements is the best way to do business.  But if you feel you should not have to pay for a service, refuse to pay with a written explanation.

My recommendation would be to work directly with your account manager when you receive invoices you believe are excessive.  These account managers have limited time and patience so they want to take the shortest route to make you happy by negotiating with you.

During your next contract renewal period make sure to adjust the contract to cover these extra services and have your elevator company put their official rates in your contract and clarify these rates will remain the same during the contract period. Unfortunately, most elevator companies are not equipped to have lots of customers with special rates so expect some errors.  Don’t pay the elevator invoice until the invoice is fixed which will help your building with cash flow!

Elevator Maintenance Contract

You are a small or medium sized building owner or property manager who has had the same elevator maintenance provider for years. They probably installed the elevator! You pay a monthly fee and the occasional invoice for overtime service or something outside the scope of the contract.  But how do you know if you are paying the market value for your services.  First, let’s answer what is an elevator maintenance contact?

What is an elevator maintenance contract

An elevator maintenance contract or elevator maintenance agreement is an agreement with an elevator maintenance provider to provide preventive maintenance for your elevator and typically cover parts and labor to keep an elevator running. These agreements allow a building owner to pay a consistent monthly fee and in return the elevator provider covers all labor and parts for repairs and preventative maintenance.

Elevator Maintenance Contract Prices

A general rule of thumb for elevator prices is $2,400 / year for hydraulic elevators and $4,800 / year for traction elevators. These are very general numbers, and don’t apply to high rise buildings or buildings in New York City. However, you can use this as a baseline guide.

Elevator Annual Escalation

When is the last time you bid out your the elevator maintenance contract?

Why is this question important?  99% of elevator contracts have an annual escalation clause which range from 2 -7%. This means the monthly fee you paid 5, 10 or 15 years ago is significantly higher than the original contract price.  You are probably thinking, haven’t the elevator companies costs gone up that much as well from inflation, wage increases etc.? Not exactly. In fact, many elevator companies charge similar pricing to what they charged in the mid 1990’s!

If your elevator has not experienced any major problems in the past 12 months there is a very high likelihood that your elevator company is making 40% + margin on your contract!

Save Money on Your Elevator Maintenance Contract

So now I have you thinking that you may be paying to much!  What next? First, go look at your elevator contract and see when it is expiring. Many elevator contracts roll for 5 years so you could easily be years away from expiration.  No need to waste your time if your elevator contract does not expire soon.  That being said, if you want to put in some effort and be that squeaky wheel to your elevator maintenance company you may still be able to re-negotiate your contract.  You now have a couple options to see the market rates and if you are overpaying:

• Do you have any friends or colleagues who manage or own buildings with elevators?  Ask them what they pay. The main points to consider are how similar the contracts are and what type of elevators your friends have (traction or hydraulic).  If you have many people to do this with I would recommend this option first.  However, if you only know a few other building owners or managers this may not be a large enough sample size to get a realistic picture.

• Call your elevator maintenance company and let them know you would like a new elevator maintenance contract with their best and final offer. You can even mention you may be bidding out your contract. If your contract is expiring within the next 12 months this should be effective. If you are working with one of the big 4 companies you should not forget who you are dealing with.  Likely, you are going to talk to your account manager.  These account managers are typically not veterans. Your account manager can get penalized (in some cases financially) if they lose too many contracts. In this scenario you have the leverage.

• You can go ahead and bid out your elevator maintenance contract.  This is the most time consuming option and you will need to offer resources to show the different elevator companies around the building.  This is the sure fire way to see if you are getting market value. Remember if you do this you will be reviewing a lot of elevator contracts that may be different in scope. If your happy with your current level of service I would send out your current contract and tell the elevator companies to match that scope.

• You can hire an elevator consultant to bid this out and/or give you an approximation of market rates. This option is good if you own multiple buildings.

Send me a note if you would like a referral to a reputable elevator consulting company.