Innovation in maintenance service contracts
During this process of modernization, Shell Amsterdam/KSLA, one of our biggest clients, asked us to help develop a plan with which overhead cost on maintenance could be minimized. In three years' time, Smals B.V. created a new contract formula, a lump sum maintenance contract, with which Shell effectively managed the cost for corrective and preventive maintenance for a period of five years. Shell was so pleased with this innovation that they decided to outsource part of their total maintenance to one main contractor in a lump sum contract.

Business Case SHELL Amsterdam/KSLA

In the late eighties, Shell asked us to come up with a plan to lower their internal administrative cost for corrective maintenance. Corrective maintenance or breakdown maintenance usually consists of small, often urgent interventions to machinery. The cost of this work is generally quite low. However, the administrative overhead to process all of the subsequent invoices made it almost three times more expensive. What they needed was a way to cut their administrative cost.

To be able to figure something out, we needed to know what we were talking about. Therefore, we started an inventory of all the bits and pieces of the entire plant resulting in a huge report. Our specialists added the maintenance requirements and prices to the inventory. Based on our years of experience we were able to assess the risks and made a proposal. But that's not all! Not all components had the same age or state of maintenance. And these kind of contracts can only work if everything is more or less in the same state.

At the Shell Amsterdam/KSLA plant, there were major differences in the state of maintenance of the installations. Some were new, and others showed a huge backlog in maintenance work. Getting all the machinery at the same level of maintenance would require a serious investment but there was no budget for that. After an extensive period of research we offered Shell in the early nineties a lump sum contract. In this innovative 5-year contract we spread the backlog maintenance over a period of five years and divided the Shell plant into five parts. Under the new contract we were to deliver the corrective maintenance for all five parts of the plant, while each year we invested in one part of the plant in order to meet our own required level of maintenance.

For our company, this was a huge challenge. We had to work differently now that we became part-owner of the installations: they became our own responsibility. It allowed us to completely plan our own work, become more efficient and train our technicians in this new concept of ownership. Furthermore, we developed software with which we could measure the progress in corrective maintenance work with regard to preventive maintenance work. These significant improvements in efficiency created an even greater return on our investments. Everything was out in the open and Shell could oversee the results in our monthly reports.

We learned a great deal from this cooperation. Our client reduced its overhead cost significantly and we made good money. Moreover, this innovation in maintenance contracting became the standard for all future maintenance at Shell. Unfortunately, that wasn't to our advantage, but soon we found new clients like Schiphol Airport and the University of Amsterdam who wanted to work with us on the basis of a lump sum contract.