Are Service Contracts for Security Systems a Good Deal?
Service contracts are available for most types of electronic security systems, including video surveillance systems, access control systems, and alarm monitoring systems.
Service contracts are usually offered by the security contractor (systems integrator) that originally sold and installed the security system, although some contractors will also offer service contracts on systems that were provided by other companies.
Service contracts generally cover the costs of service and repair for a fixed monthly or annual fee.
Are service contracts a good deal for the consumer of a security system?
Before making this decision, a number of questions about the specific service contract being offered must be asked:
What types of service and repair does the contract include? All materials and labor? Materials only? Labor only?
What types of repair does the contract exclude? Many contracts exclude repairs caused by vandalism or "acts of god" (such as damage caused by lightning). Some contracts also exclude items caused by normal "wear and tear" or items that must be replaced on a regular basis, such as batteries or print heads in an ID card printer.
During what hours will the service be provided? Many standard contracts provide service only during normal working hours (typically 8am to 5pm Monday-Friday). Service calls provided after hours or on weekends cost extra.
How quickly will service be provided? Does the service contract guarantee a response within a certain number of hours after you place your call?
Does the service contract include preventive maintenance (such as the cleaning of exterior camera housings)?
Does the service contract include periodic tests or inspections of the system?
Does the service contract provide loaner equipment while yours is in the shop? Many types of security equipment cannot be repaired on-site and must be sent in to the factory for service.
Does the service contract include software upgrades? Most manufacturers of security management systems offer upgrades to their software on at least an annual basis. Does the service contract include the cost of providing and installing such upgrades?
What does the service contract cost?
It is the opinion of Silva Consultants that, in most cases, service contracts are not a good deal for the average consumer of security systems.
Our experience has shown that, over a five year period, most consumers will pay less to have service performed on a "time and material" basis than they would if they paid for a service contract over this same period. Furthermore, the exclusions found in most service contracts mean that the even the consumer with a service contract will have to pay out-of-pocket for many types of repairs.
In general, most security system equipment is reliable and requires little routine maintenance.
We estimate a ten-year life span for the average electronic security system. Most system failures will occur during the first year. These failures are due primarily to "infant mortality" of system components and/or improper installation. Repairs during the first year should be covered under the standard warranty offered by the security contractor.
If quality equipment was used, and it was properly installed, repairs during the second, third, and fourth year of system life should be minimal. Repairs during these years are often those caused by vandalism or misuse of the system; things typically not covered by a service contract.
Somewhere during the fifth to seventh year of system life, the system may need one or more major repairs. Although these repairs may be costly, you usually will be ahead financially if you pay for these repairs when needed rather than to pay for a service contract for the entire life of the system.
Another factor to be considered is obsolescence. Security systems, like most other types of electronic systems, become obsolete quickly. While most security systems will last ten years or more, they are often considered obsolete in five years or less. Most consumers will probably want to upgrade or replace their systems before major repair costs ever become a factor.
One advantage that a service contract offers is a predictable annual expense for system maintenance.
To gain this advantage without a service contract, we recommend that the consumer create a "security system maintenance account". Funds for system maintenance should be deposited in this account on an annual basis. Repairs and upgrades to the system are paid for out of this account.
How much money should be set-aside each year? One method is to set-aside the annual amount that the service contract would have cost if you had purchased it from the security contractor.
Another method is to use a annual percentage of the installed system cost. The "installed system cost" is the total cost (materials and labor) that you paid to have the security system installed. We usually recommend an annual maintenance budget of somewhere between 5% and 10% of the installed system cost.
Our experience has been that clients who "self-insure" by setting up a maintenance account are usually far better off than those who paid for an annual maintenance contract. Often, there is enough surplus in the maintenance account to pay for system upgrades or to apply towards the replacement of the system when the time comes.
Here are a few additional things to consider:
Service contracts are usually extremely profitable for the security contractor and provide a predictable revenue stream. There is great incentive on the part of the security contractor to sell you a service contract, even though it may not be in your best interest.
Security contracts often "bundle" the cost of system maintenance along with the costs of system monitoring and inspections. It is difficult to see what you are paying for. Request that the security contractor provide an itemized breakdown of the costs of maintenance, monitoring, inspections and other related services.
Some security contractors will "punish" those consumers who do not purchase a service contract. Punishment can include outrageously high hourly rates, poor response times, lack of telephone support, and excessive costs for parts and software upgrades. The best time to weed out contractors with this type of attitude is during the initial purchase of the security system. Indicate in your bid specifications that you may or may not purchase a service contract after the warranty period, and request pricing for service and repair on a "time and material" basis. Pricing should be guaranteed for a period of at least three years.
Security contractors often attempt to sell you a service contract effective on the date that installation of the system is completed. They conveniently forget to tell you that the system should be covered by warranty during the first year. You should never have to pay for a service contract for the first year.
Many security equipment manufacturers offer warranties that are longer than one year. Warranties of three years or five years are found on certain items. Some manufacturers even offer lifetime warranties. If you are paying for maintenance on a time and materials basis, be sure that you are not paying for something that should be covered by warranty. The best protection against this is to obtain copies of all manufacturers warranties prior to making final payment for the system installation.
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Silva Consultants is an independent security consulting firm and does not sell security equipment or products
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Published May, 2016