DEFINING THE WARRANTY
Oct 1, 2001 12:00 PM,
ALAN KRUGLAK
AS WE GET OLDER, MOST OF US ASK THE SAME question: “What’s the meaning of life?” Various fundamentalists might consider that there is one universal answer to this question, but I think most of us recognize that the answer depends on each individual’s viewpoint. People with utilitarian philosophies might say that life’s meaning is to create happiness and minimize pain. Spiritual seekers may heed the words of Thich Nhat Hanh: “We are here to awaken from the illusion of our separateness.” Nihilists tend to believe that there is no meaning. And Captain Kirk would answer the question by saying, “Finding out what’s at the end of this darn universe, so I can finally get some sleep.” You get my point that there are about as many answers as there are people.
The same dilemma also applies to the concept of warranty. Let’s narrow our definition a little bit by looking at just the standard warranty for low-voltage systems. There are two basic viewpoints on the definition of warranty, the client’s and the integrator’s. From a client’s perspective, the warranty is an implicit guarantee that if the system fails during a given time period, the problem will be corrected at no charge. It provides the client with the psychological safety net that the integrator will stand by their products and services, taking care of them in their time of need. And, of course, with a warranty, the client need not worry about the cost.
On the other side of the spectrum is the integrator’s definition. From an integrator’s perspective, warranty is usually vaguely defined as taking care of the client for the mandatory 1-year period. Integrators have two goals. The first is to keep the cost of warranty to a minimum; in the integrator’s perspective, cost is most definitely an object. Therefore, warranty cost is contained by using products with a proven track record of reliability and installing the system correctly the first time. The second goal, to keep the warranty time to a minimum, stems from the fact that most integrators today want to sell their clients service agreements. The sooner the warranty period ends, the sooner the client will purchase a service agreement.
This is where many integrators make two classic mistakes. First, since most of the products are reliable, integrators often neglect to include a cost for warranty when estimating a project. Unfortunately, even with off-the-shelf products, there are usually warranty expenses on projects. Ranging anywhere from 1% to 4% of materials, these unanticipated costs come from only one place: the bottom line.
Second, since a warranty is standard on every system, many integrators fail to include a detailed warranty clause, outlining what they provide to the client, in their proposals. I’ve heard this wrongheaded excuse many times: “Why should we bother to spell it out? Everyone’s warranty is basically the same.” But, there is no universal standard for warranty. In a room with 25 contractors, there could easily be 25 different types of warranty programs because there are so many questions that put the concept into a gray area. How long is the warranty period? Is it the same for both labor and materials? What happens if a product breaks? Do you provide an instant loaner, or do you ship it back to the factory and reinstall it on its return (the standard policy of most industrial and consumer electronic manufacturers)? When does the warranty period officially begin? Is warranty service available around the clock or just during normal working hours?
As you can see, the only standard is that there is no standard. Without a clear definition in their proposal, most integrators are forced to follow the client’s mantra, “Cost is no object,” to resolve post-installation technical problems.
CLOSELY DEFINING WARRANTY CONDITIONS
At our company, we were able to significantly reduce the cost of warranty and quickly shift our clients to service agreements by placing well-defined limits on our warranty services. These limits were outlined in a Warranty Conditions section of our proposal. Some of the limits we used are outlined below.
Hours of Operation
Normal business hours, Monday through Friday, 8:00 a.m. to 5:00 p.m., excluding holidays. Limiting warranty service to normal working hours added value to our service agreements, which provided round-the-clock support.
Materials Coverage
Products will be repaired or replaced, at our option, without charge for a period of 365 days. As a rule, we did not provide loaners for warranty clients — loaners were provided only to clients with a service agreement. Again, this added value encouraged clients to purchase service agreements from day one of system operation.
Labor Coverage
Again, Products will be repaired or replaced, at our option, without charge for a period of 90 days. Warranty costs usually come from one source: labor. To limit our exposure, as well as to shift clients to purchasing service agreements, we limited our standard warranty on labor to 90 days. In some cases, like new construction or bid projects, this was extended to 365 days.
Beginning Date
Warranty shall begin upon completion of system installation or beneficial use, or building occupancy, whichever occurs first. Many times, especially in new construction projects, the client will use the base system without the entire project being complete. In some cases, completion may take several years. However, according to the terms of most general contractors, warranty doesn’t begin until after system completion — the entire system. As we learned from personal experience, this small word — completion — can cost thousands of dollars. To resolve this problem, we amended many a contract to include this money-saving clause. It was rare that a client, even a general contractor, refused to accept this change.
THE RESULTS
By clearly defining a limited-warranty package in our proposals, we accomplished two objectives: reducing our warranty costs and encouraging clients to purchase service agreements. A large percentage of our clients purchased service agreements with the original installation because they could see, in writing, the added value provided by our service agreements. It took us many years, but we found the meaning of warranty. As for the meaning of life, there is no universal answer. We can only follow the wisdom of Spock: “Live long and prosper.”
Alan Kruglak is the former owner of GIC, one of the most profitable systems integration firms in the country, sold to Sensormatic Electronics Corp. in 1995. You can reach him at [email protected].
