When Outsourcing Maintenance Makes Sense – A Practical Guide

Plant managers often explore outsourcing maintenance to curb operating costs. The decision hinges on multiple factors, including the nature of the business and the role maintenance plays in core operations.

One key question is whether maintenance is part of the business’s core services. In a hospital, revenue comes from medical care, and tasks such as janitorial work, HVAC servicing, and repairs to sophisticated diagnostic equipment are peripheral. Outsourcing these functions usually yields the best return on investment. In contrast, a legacy process plant where most maintenance activities revolve around inspecting and repairing production machinery – which directly influences output – should retain those duties in‑house.

Beyond the core‑business assessment, a number of contractual principles must be respected. To illustrate the risks, consider the real‑world example below where a contract maintenance arrangement ultimately failed.

The manufacturer was a multi‑plant, 24/7 process business with high maintenance spend. Management decided to hand maintenance oversight to an external firm. A legal partnership was formed, giving the contractor a maintenance manager at each site and a president to whom those managers reported. The company supplied limited supervision and a smaller pool of tradespeople.

The partnership agreement specified a management fee plus sizable incentive payments tied to “maintenance costs” and “maintenance downtime.” At first glance this sounds simple, but the contract violated four fundamental principles of outsourcing.

1) Each plant relied on steam for its process. Steam was generated either from low‑cost waste combustion or high‑cost fossil fuel. The equipment used to store, handle, dry, and burn the waste was complex and required significant upkeep.

Shortly after the partnership began, a major component in the waste‑drying system failed. The site maintenance manager declined to approve replacement because the contract’s incentives penalized any increase in maintenance costs that did not immediately boost production – a scenario that could occur when the plant simply switched to fossil‑fuel‑generated steam.

This incident strained the relationship and repeated similar events followed. The incentive structure discouraged the contractor from addressing equipment that would reduce energy, chemical, or other operating costs.

Principle 1: Incentives must promote the desired behavior.

From the company’s perspective, the goal is improved overall operating performance, not just isolated maintenance metrics.

2) Each plant had a distinct ownership history and had developed its own definitions for “maintenance costs” and “maintenance downtime.” In some sites, components in direct contact with the product were charged to the operating budget; in others, they went to maintenance. Even within the same plant, different departments used varying definitions. The contract never clarified what constituted a maintenance cost or downtime event.

As a result, countless hours were spent arguing over cost and downtime allocation between company and contractor.

Principle 2: Any metric that drives incentives must be defined clearly and unambiguously.

Defining “maintenance downtime” is especially tricky. Rather than assigning blame, focus should be on root‑cause analysis and problem‑solving.

During the deteriorating partnership, company supervisors began attributing more downtime to maintenance, inflating the reported figure.

3) The contractor had a single point of accountability – the partnership president – but the company lacked an equivalent role. Each site maintenance manager worked with an operations manager, leading to inconsistent dispute resolution across the organization.

Hence, Principle 3: Both parties must have a dedicated person responsible for the agreement, with a clear dispute‑resolution process.

4) The contractor’s site managers were hired on short‑term contracts. Yet meaningful maintenance improvements require time, whereas short‑term decisions can create a façade of progress.

For instance, deferring apprentice training or infrastructure upgrades reduced short‑term costs but left the plant behind. After the partnership ended, the company had to catch up on missed spending.

Principle 4: Long‑term results demand long‑term managers.

Besides these four principles, any maintenance contract must also enforce safety, environmental, and quality standards. When the principles are observed, outsourcing can be advantageous, but such success stories are rare and typically last only a few years.

Torbjörn (Tor) Idhammar is partner and vice president of IDCON Inc., a consulting firm specializing in reliability and maintenance management. He leads all IDCON projects and provides training on reliability assessments, preventive maintenance, operator‑based reliability, planning, scheduling, material management, and root‑cause elimination. Tor is the author of “Condition Monitoring Standards” (volumes 1‑3). Contact Tor at 800‑849‑2041 or email info@idcon.com. Visit www.idcon.com.