The Design of Effective Maintenance Outsourcing Contracts

Abstract

Recent developments in maintenance planning and management demonstrate that the establishment of optimized maintenance policies may drastically improve the performance and reduce the operating cost of facilities. However maintenance activities are typically outside of the core business of production facilities, hence enterprises often fail to catch the opportunities that may originate by properly optimized management strategies. A strategic maintenance management should hence encompass the possibility of outsourcing maintenance activities to ensure the necessary perfomance of production systems, while allowing enterprises to concentrate their resources on their core activities. In order to be effectively undertaken an outsourcing strategy must be supported by a proper performance oriented contract. The present paper aims to provide an adequate methodology to address such issues and to define a framework for the definition of the relevant contract variables such as availability levels, penalty policies, rewards and service cost. The methodology here proposed is based upon the evaluation of the expected profit function of both the outsourcer and the provider, by performing a trade-off analysis on the basis of the transaction costs.