What Is A Long Term Service Agreement

Consider this scenario: An owner`s equipment suffers an unscheduled outage during the peak summer period. The owner must return the equipment to emergency service and the LTSA needs the OEM to execute the contract. But how can the owner ensure that the OEM is focused on the same objective, namely the return of equipment to the revenue-generating operation as soon as possible? Contractual guarantees relating to OEM performance under the LTSA are often carried out there. Performance guarantee provisions generally offer financial incentives (for example. B bonuses and/or damages related to liquidation) that contribute to the immediate OEM response time in the event of unforeseen failures, to ensure that scheduled (and unscheduled) maintenance failures are completed quickly and efficiently, and that the level of reliability of the devices is as high as possible. However, the entire economics of the project, which is affected by such financial incentives, often leads to the implementation of the LTSA without these performance guarantees. As a result, owners are faced with the question of how to structure an LTSA to encourage OEMs to achieve the required level of service without having a financial impact on the project economy. The absence of these non-financial incentives as a whole is a frequent trap. If there is already an LTSA, a cost review can be conducted, which can then be compared to the market analysis.

This provides an overview of the cost-effectiveness of the current LTSA. It is also invaluable in deciding whether the existing LTSA should be renegotiated or not. The scope of the agreement includes the commitment of the contract. If, for the duration of the contract, there was no additional scope, that would be the full value of the contract. In covered equipment, work can be wide or narrow in fixed circumference. Covered facilities can be, for example. B, the gas turbine, the steam turbine and the associated generators, the solid scope applying only to the (1) gas turbine as well as the inspection services of the steam turbine and generators (2) of all covered facilities or (3) of acceptable coverage between the parties. Similarly, the equipment covered may vary. For the covered appliances, this could include, for example, the gas turbine and the associated generator, with the steam turbine and its generator excluded from the agreement.

For both steam turbines and generators, parts and repair needs vary; and it is customary to meet these requirements through the additional billing component in the agreement. Several solutions are available to avoid this trap. One approach is to have a “sunset clause” in which the LTSA clause automatically expires after a given anniversary (z.B 13 years) of the original commercial operating date of the equipment. However, owners should be advised that this approach would likely require parties to agree on an appropriate “true-up” of costs (for example, the OEM does not receive accrued payments) at the time of such expiration. One change to this approach is to leave the owner with the authority to terminate the ASA after the completion of a planned maintenance failure if the lifespan to that date is longer than the originally expected. Depending on the entire payment structure of the LTSA, this approach can avoid the need for a “true-up” in the event of a termination of this type. Simply put, an LTSA is a multi-year contract with volume, price and conditions. The range of an LTSA can range from an agreement on the price list in which the asset owner chooses the timing and scope of a pre-defined price list to a comprehensive agreement in which the LTSA operator unravels to determine the timing and scope of the validity. Agreements have many names and differ in the nomenclature by supplier. Typically, the most common names are long-term maintenance contracts (LTMA), major maintenance program (MMP), Master Service Agreement (MSA) or partial agreements, while an agreement controlled by the LTSA provider retains the name LTSA.