NTC Blog

Service Plan Wear & Tear

Mon, Apr 27 2020 at 12:00 AM

We're pleased to be partnering with Ken Kirschenbaum to bring you some of the questions he has been asked regarding legalities with licensing and contracts. You can sign up to receive emails from him with all of the questions posed and his replies by visiting his website

 

Today's question: Can you advise what is considered wear and tear in a service plan?

 

Ken's Response:

 

Normal wear and tear is damage that naturally occurs over time due to use and ageing.  It’s something that just happens over time with normal use; something that has not been caused intentionally, or by misuse or abuse.

 

Its damage that naturally and inevitably occurs as a result of normal wear or aging, even when an item is used competently and with care and proper maintenance.

 

The Standard Form Agreements use the term “ordinary wear and tear”.  Equipment that malfunctions as a result of ordinary wear and tear are covered by the Repair Service Plan, which is charged to the subscriber as RMR. But simply stating that only ordinary wear and tear is covered would leave too much room for disagreement between you and your subscriber.  Therefore the Standard Form Agreements identify common issues that arise causing malfunction of equipment, and specifically excludes those occurrences from Service Plan coverage.

 

Instances where repair service is excluded include batteries, electrical surges, lightning damage, software upgrades and repairs, communication devices no longer supported by communication pathways, obsolete components and components exceeding manufacturer’s useful life, alteration to Subscriber's premises, caused by unauthorized intrusion, water, insects or vermin.

 

Different environments and systems may require additional provisions.


When deciding on whether to offer a Service Plan with RMR or per call service you should keep a number of things in mind. The per call option does not require your subscriber to call you; it can call anyone [unless the service involves any labor or equipment still under warranty, but then the call is for warranty work, not service under the repair service option. The per call option also does not require that you perform any service work, so if you can’t agree on a price you are not required to perform the service, or for that matter, even give a price if you don’t want to do service work for the subscriber.


You may have a situation where a subscriber has paid for many years under a RMR service plan without ever calling for service. Then you get a call for a clearly non-covered repair. Maybe a dog ripped a wire. Maybe a painter covered a motion detector or pulled a wire. You may want to consider whether charging for that repair call would cause the subscriber to re-think the service plan.  


What about the subscriber with many more calls for service than anticipated?  Well, it’s likely that those calls are not covered under the plan.  If the calls are covered you might want to re-evaluate why there are so many ordinary wear and tear calls; could be your fault and you should fix it; could be manufacturer’s fault, and then it should fix it.  


How about adding value to your contract and your business? The per call subscribers generally add no value, especially when the valuation is based on RMR.  The Repair Service Plan RMR will add value, perhaps not as much as the monitoring RMR, but definitely more than “nothing”. I generally value Service RMR about 5 times multiple less than the value of the monitoring RMR, but not always. You’ll need to go to WhatIsMyAlarmCompanyWorth.comto get a more accurate assessment.


By the way, I just googled “What is my alarm company worth” and was surprised that others have “borrowed” that slogan from K&K’s website. When seeking valuation keep in mind the motive of the evaluator. Is it a potential buyer? A broker? Well, they may have skewed views of the values because their goal is to buy or sell your business. At K&K we have no motive. We won’t be buying or selling your business, just giving you our fair assessment of its value based on your accounts and operation. By now you should know the essential factors that go into valuing an alarm company and you have taken steps to maximize that value. Don’t seek valuation from others who may have their agenda in giving the valuation.

 

 

To read this full post on The Alarm Exchange, click here.


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