Generator Service Agreement 101
A generator service agreement is a contractual arrangement between a generator owner and a service provider, usually an infrastructure manager or operations and maintenance (O&M) company, to oversee and perform routine inspections, testing, audits, maintenance, and repairs on generators and related infrastructure. A service agreement can be a standalone document, or it can be part of a larger infrastructure management agreement that covers service and maintenance activities for the entire facility co-located with the generators.
PPA negotiations often include a requirement to have maintenance and repair work performed according to manufacturer specifications or specifications established by the O&M company. A generator service agreement sets forth the standards for the inspection, testing, maintenance, and repair of a generator or a specific type of generator . It also discusses the compensation to be paid to the contractor or service provider for its work and the payment schedule, allocation of responsibility for the cost of parts and materials, and warranty obligations.
A robust generator service agreement is a critical component of the infrastructure management plan for any renewable energy project. Problems with generators often occur when projects are first brought online, and the problem becomes worse if they are not properly documented and resolved. To avoid disputes over who is responsible for repairs, owners often prefer to have as much detail as possible set forth in the contractually-mandated service agreement so there is no question as to whether the problem will be addressed.
Major Terms in a Generator Service Agreement
A generator service agreement should contain the following key elements:
Frequency of Service: The agreement should outline how often services will be performed. A service contract should set forth a minimum of one annual service, but should ideally require a minimum of two services. A more comprehensive service plan could entail monthly, quarterly, semi-annual and annual services. The level and frequency of service should be determined by evaluating the size of the generator, the type of fuel the generator uses, the mode of operation for the generator, and the generator’s location.
Coverage of Parts and Components: The agreement should specify which parts and components of the generator are covered under the contract. What is covered may depend on the age, size and type of fuel of the generator. Generally, coverage should be required for the generator, engine, radiator, voltage regulator, transfer switches, exhaust system, fuel system, lubricating oil, batteries, chargers, motors, starting system and bearings.
Conditions and Responsibilities: Much care and attention should be paid to the conditions and responsibilities imposed on both the contractor and customer under an agreement. A well thought out agreement will provide the contractor the opportunity to render the agreed upon services to the benefit of his or her customer. An agreement should impose the responsibility on the customer to keep the generator’s fuel system full at all times; batteries charged at all times; cooling system filled with coolant; oil lubricating system filled with oil; crankcase filter cleaned or changed; electrical connections properly tightened; intake air filters properly cleaned and/or replaced; engine operated at its proper location; recommended lubricants properly used, and a heater engine running during winter months when needed.
The Customer/Tenant Indemnity and Waiver of subrogation provisions in this Agreement are for the benefit of each party to this Agreement, as well as the employees of each, and each shall be entitled to the protection of the indemnity and subrogation from any debt, obligation, damage, loss, cost, claim, expense, liability or penalty suffered or incurred by them in connection with the performance of this Agreement.
Services Offered
Electric generators allow companies to keep their facilities powered during temporary outages and serve as a critical long-term energy resource. Generator service agreements govern the maintenance and repair of these systems to ensure their ongoing effectiveness. These agreements can cover both routine maintenance, such as changing the oil and filters in the unit, and emergency repairs to restore power in the event of an outage. Depending on the system’s location and installation, a generator service agreement may also be subject to additional requirements. Emergency response and the provision of replacement power can, in some cases, require special permitting or coordination with public utilities.
While the specific terms of each generator service agreement can vary greatly by jurisdiction, many include service provisions that are similar or identical to those set forth in many facility management agreements. Service may be delivered on a fixed rate basis for individual services or charged on an hourly rate basis that is subject to minimum charges for each visit and maximum and minimum hourly rates. Variable, reoccurring charges such as fuel usage and mileage, and other fees for emergency repair service are often included as well.
Advantages of a Generator Service Agreement
Generator service agreements can save you time and money in the long run. An agreement will typically include a set schedule that the generator contractor will be out to take care of your generator. The frequencies could be as little as once a month, but more often than most installations will be bi-monthly. On these visits the technician will be performing scheduled routine items, such as changing oil, checking belts, cleaning air filters, etc. as well as offering "on the spot" troubleshooting when a problem with the generator arises. This saves you from having to perform your own troubleshooting or researching. A contract will also save you time in the scheduling process of these routine maintenance of the unit.
By performing these scheduled routine maintenance tasks, you will save money on the generator system through preventive maintenance. If the belts were not inspected for wear and had not been replaced in a timely manner, it is quite likely that the belt with have to be replaced while the generator is in an outage . Not only are belts extremely costly to manufacture and import, but it is possible that the generator will have to sit idle while the belt is being located. It’s important to remember these units are contract critical systems so having this work performed on a schedule greater protects your investment.
In addition to the cost savings that come with a service agreement, there is the added benefit that these agreements tend to offer greater flexibility when it comes to determining rate escalations. When you order a new system a pricing is typically presented for the unit and the installation. The same is true for a contract. Most of the time, escalation clauses are based on the Consumer Price Index (CPI). The CPI has shown to escalate more than most commodities, and is only a reflection of the cost of living for average people. Gas prices and other commodities are skyrocketing and have been for some time now. However, if your deal was put in place for the cost of your generator several years ago, that cost has now ballooned. In order to remain competitive, you will need to set your CPI changes to reflect anticipated increases in commodity costs.
How to Select the Right Service Provider
Repair and maintenance costs for industrial generators can be high over time. As mentioned in our earlier blog post, "Generator Service Agreement – What’s Included and Why You Should Have One," service agreements with the Subcontractors/Service Providers who maintain your industrial generator are as important as the services themselves.
But how do you choose the right service provider to oversee the repair and maintenance of your equipment? Here are a few criteria that should influence your decision:
Experience. Find out how long the service provider has been around, especially in regards to your specific type of equipment. Make sure they have experience with the manufacturer of your generator. Also ask them about their certifications and qualifications to perform the work that your equipment needs. Many major manufacturers certify technicians that have received formal training about their products.
Reputation. Ask other companies for recommendations. Contact the local Better Business Bureau to see if the company has received complaints or has been sanctioned in the past. Request a list of references from the service provider and check them out.
Reviews. Sites such as Yelp or Google reviews can be helpful in assessing the reputation of a service provider, but remember that most clients are happy to post negative ratings when they have a problem. In addition, recent reviews should be weighed more heavily than older reviews, and reviews of the specific location that would be performing your work should only be considered so far as the reviewer has contacted that location.
Just as a proper maintenance program keeps a generator running efficiently, choosing the right service provider will ensure your program is well managed and performed.
Common Pitfalls
An often overlooked, but very important aspect of negotiating generator service agreements and understanding what you are signing is understanding what is NOT covered by the agreement, and how you might be exposing yourself to liability if the contract for generator service falls short. This is particularly true for service agreements for emergency power systems (also called prime power generators). Common flaws that expose end-users to unforseen and unexpected liabilities include:
• Overly-Vague or Inadequate Warranties
If you are committing to enter into a service agreement to service your generator, make sure you understand what the responsibilities of the vendor will be and what warranties are being offered. When negotiating a service agreement, never take the wording of the warranties they provide you at face value; always look carefully at the details and fully understand what the service provider to your generator hardware is required to do in order to meet those warranties and requirements. If they are to provide all labor and parts on a time and materials basis, or replace the unit, understand how those costs will be handled , and who pays them. Speak up about any items that are unclear or don’t seem right before you sign anything.
• Overly Broad Liabilities
• Confusing Legal Provisions that Expose Your Liability
If the language you are provided with looks too "lawyerly" or legalistic, be sure you understand what it means – and do not be afraid to ask for an explanation. Also, if any of the language seems to relax or limit your rights, or increase your liabilities, make sure you understand exactly what they mean, and how they might affect you if you ever have to go to court or mediation over the service agreement.
In summary, service agreements for the provision of preventive maintenance and/ or repair services for generator hardware requires an understanding not only of what needs to be covered, but also an assessment of your liability within that contract for that coverage, and your rights under the law in the event the piece of hardware being serviced fails to meet the replacement parts or repair provisions of the warranties provided in the service agreement. Although it can sometimes be tempting to hurry through the signing process, and hand things off to your legal counsel for review later, it is critical that you understand what you’re getting into beforehand, rather than afterwards.