Is a Warranty a Service?

We've been hearing about great margins on service contracts, but this shouldn't be a gouging contest. Profit is certainly deserved, but customers should get a reasonable breakdown of a service contract.

By Tim Cape, CTS-D

Warranty and service are peculiar issues in the pro AV industry. Everyone knows how a warranty works, right? It starts when you buy something and lasts for the period stated on the warranty based on the date on your receipt. Though AV box sales may follow this model fairly well, it's not so simple when it comes to integrated AV equipment.

When designing an AV system and preparing the contract documents that will go out for bid or negotiation, most consultants include language that details a warranty period that lasts for one year for new systems. This period starts after installation, and is usually tied to system completion and acceptance, or to “first use” by the end-users and operators of the new facility.

This seems like a reasonable and straightforward part of almost any type of equipment or service. Electronics stores replace or repair equipment under warranty, and plumbers will usually come back to unclog your drain again for free if it backs up again within 30 days or so. Why is this not so simple for professional AV installation? Let's look at some of the issues that keep this from being department store-simple.

When is a warranty a warranty?

First let's define what warranty means in the context of the pro AV industry. In an integration contract, this may be a multi-layered concept that may or may not be well defined in the contract, or by the integrator's as-built documents that are provided at the completion of the installation.

In the most fundamental layer, there is a warranty by the equipment manufacturer of individual pieces of equipment that may be installed by the contractor. Therein lies the first problem. When does the manufacturer's warranty start? When the equipment ships? When the integrator receives the equipment? When the equipment is installed in a rack (at the shop or on-site)? When the equipment is installed and operational at the site? Or, does it start when the owner accepts the system?

By many AV manufacturers' written definition, the warranty officially starts at purchase time with the clock starting on the ship date from the manufacturer. But what happens if equipment fails seven months later but has only been installed on-site for a week? Under a typical six-month warranty, it's out of warranty even though the equipment may not have been out of the box for more than seven days. This isn't good for either the integrator or the end-user. Sometimes with a dealer agreement (especially one with required stock) the bill of sale to the customer starts the warranty period, which makes this problem less likely, but it's still possible on a large project.

To be fair, most manufacturers will be negotiable on this matter depending on their relationship with the particular integrator, consultant and/or owner, but their warranty language in the box may not require them to honor the warranty under this circumstance. Some will even accept a customer sign-off sheet as the warranty start date since this is often only a short time from purchase date, but on a large project this time lag can be significant.

Relationships with the manufacturer are important here. It's even a good idea to let the manufacturer of crucial equipment in a system know when there is a delay in the system installation, operation or acceptance to give them a head's up.

When is a warranty a service contract?

Clouding the picture a bit more is the concept of the service contract. A service contract is almost always included in an integration contract to cover failures during the first year after the system is completed. In this case it is (or should be) called the warranty, but it may also be referred to as a warranty service contract, an extended warranty, the system warranty or perhaps a service agreement (which it really is, but that is sometimes confusing to new system owners). This type of agreement typically covers equipment and labor, normally with the exception of consumables like projector lamps.

One standard expectation is that equipment with a warranty of less than one year is still covered for the first full year, meaning an integrator buys a new unit to replace an out-of-manufacturer's-warranty failure at no additional cost to the client. During the first year this is usually not a big issue since the majority of equipment in this category is likely to be consumer and/or less expensive equipment. Service agreements after the first year often include the same terms as the warranty, but will become more expensive (if viewed as a line item) since more equipment is likely to require repair or replacement beyond the manufacturer's warranty period.

Another aspect of service contracts is preventative maintenance. This should be explicitly stated to include a certain number of visits at specified times (usually biannually or quarterly) with a list of specific tasks to be performed. This can include everything from system-level maintenance like audio gain structure, DSP software setups and video display alignment to some of those fine print maintenance items in the owner's manuals that don't always get done, such as projector and amplifier filter cleaning.

Most integrators provide service contracts or extended warranties as a percentage of the system cost. This amount should be lower for the first year and progressively higher in subsequent years as the system ages. It should also be the case that the percentage should be lower on a multimillion-dollar system than on a $60,000 system. We've been hearing about great margins on service contracts, but this shouldn't be a gouging contest. Profit is certainly deserved, but customers should get a reasonable breakdown of a service contract for both the cost justification and to define tasks and terms that are within the agreement, as well as the exclusions.

What can be done?

Consultants can help by defining clearly in the bid documents what the warranty should include or exclude, and perhaps request this as a line item in the system pricing.

However, the purchaser can misunderstand line item pricing of the first-year warranty since a warranty normally “doesn't cost anything.” Integrators should be explicit in descriptions of the terms for these services for the benefit of both themselves and the client. First-year system warranties and extended service contracts are an important part of the pro AV installation industry, particularly as systems become larger and more complex.

They can also be pivotal in the client's transition into full ownership of a new system as they take responsibility for system maintenance and operation. Up front awareness of the warranty and service issues in pro AV integration contracts can help make the end of the design and integration processes a little smoother.

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