MPS Service Contracts can be tricky things to navigate. Following on from one of our previous blogs Finding the Perfect MPS Provider: All You Need to Know, we mentioned that we would put together a separate article in order to highlight a few terms and conditions you should be aware of before entering into a new MPS contract. Whether it’s annual percentage increases, service termination fees, additional charges or the issues surrounding cost per image/development, this piece covers of the purchase of the device(s)/software, ensuring you are getting competitive pricing and everything is as agreed. Unfortunately, the service side of the contact is where most of our clients have the most problems as this is what ties you to the MPS provider, so ensuring it is correct at the point of signatory is vital.
- Annual Percentage Increase or API
MPS service contracts have clauses inserted into their terms and conditions which allows the provider to increase their prices each year by anywhere between 5-20%, with the industry average currently at 15%. What this means is that although you may be signing up to a Cost Per Page conditions agreement at 0.4p for a mono page and 4p for a colour page, by the third year of this agreement those costs could be 0.608p for mono and 6.0835p for colour. And then when you look at it from an actual Cost Per Quarter, if you were paying £1000 per quarter in usage in your first year, three years down the line that figure would be £1,520.86 PQ – an extra £2000+ a year against what you were expecting.
The service cost per page on these agreements encompasses many different elements: parts, consumables, labour etc, and while there may be some variations to those costs, it’s hard to believe that those costs can rise 15% every year. For many of our clients here at My Procurement Partner whom we describe this to this is a completely alien method. Surely these increases would result in a loss of business for MPS providers? Yet for some reason MPS providers do it year on year and continue to strive. Why? The simple answer is that it is a contracted increase, and once you have signed on that dotted line and the certain provision has not been changed, you as a customer are bound to it for the term of the agreement. In this instance, our top tip would be to agree a more acceptable API increase at the beginning of the agreement. This term should always be there to protect the supplier and their margins in case of a sufficient price increase, but unfortunately it gets used as a way to increase margins year on year currently by the majority of the market. Discuss openly the API increase with your supplier and agree on a maximum increase that can be levied each year and have written on the contract that the increase must be agreed by you before implementation.
2. Service Termination Fees
Should you not be happy with your service provider’s performance throughout the term of your contract and would like to find a new provider, you will, in 99% of the market, have to pay the MPS provider a termination fee for the privilege. They calculate this by estimating what they expect the value of the contract to be until the natural termination date based on your current usage. Let’s say your average usage cost per quarter is £1,000, but service has been on the wane as your supplier has not performed as you wish. They haven’t been responding adequately to support calls, consumable orders have taken far too long to arrive and you would like to exit the agreement with 3 years of your contract remaining. The MPS provider would provide you a settlement figure of £12,000 (some suppliers also try and reflect your annual increases in this too so could be £13,890) meaning to exit this agreement because of their under performance and find a suitable provider you have to pay that fee. Some providers offer a percentage discount on this figure to make it seem better, but the seemingly greatest purpose of these clauses for the MPS provider is that they provide a barrier to you leaving them and putting your business elsewhere. If you have a new provider in mind and would like to have them as your supplier they will then have to factor in this £12,000 to their terms and conditions, whereas your current provider will not. Unfortunately this wipes out any chance of a level playing field and unless you want to settle the bill yourself you will stay with your current provider although the service is not as expected because no other provider can get close to the price you are paying.
Why not agree your service agreement on a 12 month rolling contract, with you only having to give 90 days notice to leave the contract at the end of each year? This way should anything not be up to scratch, you have an exit available for you to get your devices serviced elsewhere.
3. Additional Charges
With the majority of suppliers we come across there are a multitude of additional clauses in the terms and conditions which increase your costs at every opportunity. Ensuring you understand these from the outset and deciding whether you want/need to pay for them is vitally important. See below for some of the common clauses you need to be aware of which may inflict further cost to your business:
Network Charge – This clause covers any changes to your network which may affect the connectivity of your device. Whilst this can be a really handy service to have, if you have an in-house IT department or IT support contract we would advise you not to pay for something twice. This clause is not always at the forefront of the contracts you have signed, but is definitely worth checking as we have seen in some instances a charge of £90 PQ for each device straight from the beginning. In other situations, we have seen this clause kick in after 6 months. Ensure you ask your MPS provider what provision they supply for network support and what the charge is should you feel it is duplicating what your current IT team are doing before you ask for it to be removed.
Parts Inclusivity – In some cases we have seen replacement parts have not been included as part of the contract. This can lead to expensive bills rolling in when the machine has potential issues throughout the term of the contract. Ensure your service contract includes all consumables and parts for the full term of the contract.
Exceptional Circumstances Increase – If you have negated all the impact of all the clauses, terms and conditions we have mentioned thus far and feel pretty secure in your contract, the final thing our team would mention would be the exceptional circumstances clause which allows your provider to increase your service cost at any point of your contract should an exceptional circumstance arise. Most recently we have seen clients have increases levied between 3-11% because of Brexit, with the supplier saying their prices have increased. Having this clause open without any sort of indication on the increase which can be applied is potentially risky. Look to agree on a maximum increase to be incurred. Whilst these clauses need to be there just in case, they do sometimes get used as a margin gainer rather than a justification to ensure service can be provided at the same level.
4. Cost Per Image/Development
Arguably the biggest example of the need to check all terms and conditions agreements thoroughly before signatory there is, the Cost Per Image debate has even made national news. It is a shame to see some providers still using this same method to maximise the revenue from clients whilst ensuring everything looks rosy at the beginning.
Typical MPS service contracts are calculated on a cost per page basis, which means no matter how many colours are on the page you will pay the allocated cost per mono or colour page for the volume of pages you have done. In some instances we see our clients signing up to a Cost Per Image or Cost Per Development which is a completely different arrangement and unfortunately very ambiguous. The difference when paying for a image/development agreement is that you will pay a cost per development with this cost being per development of a toner in most instances. Should you do a page of colour on a per page agreement for example, you could look to pay anywhere between 2.5p – 4p for that single page, as this is the general quote range for a colour cost per page agreement. However should you produce a colour document on a development contract you will get charged for every use of a single colour (which most do, as many colours require a blend of all of the CYMK) you will pay 3p x 3 + 0.5p for a mono development. This instantly increases your costs. Our tip in this instance is to clarify exactly what is meant by your cost per page/development/image and get this in writing when signing any contract which secures you in for any period of time. Take your time and ask plenty of questions until you are comfortable with your arrangement, and do not be pressured into signing anything until you are good and ready. Some sales representatives will utilise a multitude of different tactics to get you to sign as quick as possible, so be wary of it.
We hope this blog has been useful to you and will help you in ensuring your next managed print contract is secure and transparent. Here at My Procurement Partner we like to take away the need for our clients to worry about the above with our clients having full confidence that any contract they secure through our system will have terms and conditions that are fully vetted.
Should you want an independent specialist to secure your next contract or look at your existing one to help you understand pain points get in touch, one of our consultants will be more than happy to help.