Electronic Equipment Service Contract

Global Consolidated Industries (GCI) has for years had an in-house electronic equipment maintenance department. It has been responsible for providing maintenance (such as periodic cleaning and lubrication of moving parts) and repair (fixing machines when they break down) on thousands of printers, photocopy machines, FAX machines, scanners, and so forth. The experience, in a word, has been a disaster. On most days, secretaries can be seen running from floor to floor and pushing in line to use other machines when theirs are inoperative. Even the CEO is often heard screaming about memos being late, meetings having to be rescheduled, and other headaches caused by out-of-order equipment.

GCI has decided that it is time to contract out for these services. As a member of GCI’s general counsel’s office, you have been called in to participate in the contract negotiations with the outside service provider, Reliable Response Repair (RRR).

RRR has offered two contracts for your consideration. Under one contract, RRR receives a flat rate per machine each contract year. (For example, there is a $200 per year charge for a standard, mid-size photocopy machine.) Under this arrangement, RRR is obligated to provide all necessary maintenance and to repair broken-down machines promptly.

Under the second contact, RRR is paid $75 per hour (plus parts) for all maintenance and repair services. Under this arrangement as well, RRR is obligated to provide all necessary maintenance and to repair broken-down machines promptly.

Explain the pros and cons of each of the two contracts. Which seems best? Can you think of additional terms that would improve it?