UOAQ: Lift Maintenance Contracts Want Value For Money? Get An Expert

By June 15, 2021Helpful Tips

Lift maintenance renewal time – What to do?

It’s that time again: your scheme’s lift maintenance contract is expiring and you need to negotiate a new one.

You probably are aware that lifts – even simple low-rise lifts – are made up of hundreds of parts and there is a lot happening behind the scenes that involves very complicated engineering.

Probably are also aware that lift maintenance contracts – especially so-called ‘comprehensive service’ agreements – are just as complicated as the technology behind the lift equipment, to the point of being incomprehensible to the average layperson.

But you are still prepared to give it a go and handle the negotiations yourself.

So… what to do? Well, you could do what many other committees do, ie chug along under your own steam, obtain a couple of quotes from some lift maintenance contractors, ask them some clever and insightful questions, maybe screw them down a few $$S… then opt for the cheapest.

What could possibly go wrong? The simple answer is… plenty!

It is the UOAQ’s experience that committees who negotiate their own lift maintenance contracts without engaging an independent lift expert generally miss out on getting best value for money for their owners.

On a more positive note, committees who do bring in an independent lift specialist – especially the one we recommend – always secure a better deal on overall costs and performance.

Another case study

We were approached recently by a committee seeking advice about a proposed lift maintenance agreement. Their 10-storey scheme is less than 12 months old. It has 50+ residential units and two lifts. They inherited a short-term lift maintenance agreement – due to expire soon – from the developer.

Their BCM had sourced quotes from prospective service providers, one of which is the same company which installed their lifts and obviously would be the preferred contractor. Quality lifts, quality company… but keen to improve their own bottom line with a contract drafted by them for them and not necessarily aligned with the best interests of their client. Presumably, though, the contactor would be prepared to negotiate if necessary to close the deal.

The committee was already struggling to get on top of the myriad issues confronting any new scheme. They knew the lift contract was important and beyond their own expertise – and their BCM’s – so they called the UOAQ for guidance.

Although we make no claim to comprehensive expertise in these matters, it was obvious to us that the proposed contract contained several items of concern, including:

    • Service Fee: It was obvious that the contractor’s first offer was not their best offer.

 

    • Dilapidation Clause: The usual practice with a comprehensive service agreement involves the contractor calculating a price after they have inspected the lifts and worked out what will be included, or excluded, from the list of services to be provided.

      The proposed contract had a different approach. It provided for retrospective exclusions – at the discretion of the contractor – after the service fee has been set and the contract signed. There was no provision for reduction of the service fee to reflect this reduction in service. Nor did it give the scheme an out if any of these retrospective amendments were unacceptable to the scheme.

      Not unexpectedly, this dilapidation clause was buried in the middle of a long list of exclusions and in a very small font. You could easily miss it.

 

    • Automatic Roll-over Clause: The initial term would be for 5 years. The roll-over clause provided that if the scheme does not give notice of termination at least 90 days before the end date, the contract would – by default – automatically renew for another five years.

      It may have been the accepted practice many years ago to automatically renew for the same term, but no sensible scheme nowadays would knowingly agree to a default renewal term longer than 12 months.

 

  • Annual Increases: It is standard practice these days to insist on a specific, or independent, annual increase, eg 3.5%, or CPI, and preferably the former.

    The proposed contract, however, provided for annual increases based on the contractor’s in-house Service Labour Index (SLI) . No one has ever been able to explain to us how this SLI is calculated, but it is our experience that the SLI method is normally the more expensive method – especially when compounded from one year to the next over the life of the contract.

This was our non-expert assessment. We then referred the contract onto an independent lift specialist for comment.

He confirmed the first 4 issues above, PLUS he identified another 18 issues for negotiation.v

His fee to negotiate the contract for the scheme, including a physical inspection of the lift etc, was $2000 (GST incl).

He knew, simply by looking at the proposed contract, that he would be able to:

    • Save the scheme at least $2,000 each year, every year;

 

    • Ensure a better, more comprehensive service from the contractor; and

 

  • Protect the scheme from inadvertently getting into trouble at the end of the 5-year term.

Moreover, his involvement in the upfront negotiations would telegraph to the contractor that he would be keeping an eye on things during the life of the contract.

Our message is simple:

Put prudence before pride. Engage an independent expert to advise the best outcome.

Author: Bradley van Xanten, UOAQ President
Unit Owners Association of Queensland (UOAQ)

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