Beyond the LTSA: What to watch for—and what to watch out for—when ending your relationship
The end of a Long-Term Service Agreement or LTSA has long been a dreaded time for plant managers who must decide whether they want to renew or extend this relationship
As you begin to contemplate what the balance between opportunities and challenges related to an LTSA, the fact is you must consider a variety of factors that can support or reject the idea of renegotiation and extension of such an agreement. Original Equipment Manufacturers use LTSAs as a vital revenue source with the intent of ensuring equipment operators’ trust and faith on their ability to keep them operational—often beyond the service life of their equipment.
The ultimate decision to renew an LTSA should be carefully evaluated by all parties involved, particularly the internal decision-making powers within your power plant. After all, you are about to make a decision that can have a range of effects and consequences—unless you do so properly and with full knowledge of what will happen when you do.
When evaluating the end of an LTSA, the factors for power plant executives to consider include:
- True-Up Clause (and Effect): OEMs protect themselves to ensure that at the onset of early termination the parties involved will do a balance check—figuring out what’s been paid and what’s yet to be paid. The effect of this True-Up clause can either prompt the OEM to issue a rebate for items already paid—or for the customer to pay the OEM for service and parts already delivered.
- OEM LTSA vs non-OEM Alternatives: Markets are complex live environments where pricing is directly tied to demand—and the opportunity of saving by making alternative decisions. Equipment operators often evaluate whether they can continue on the LTSA when the parts and component pricing is more affordable when using an aftermarket service shop. Ensuring an apples-to-apples evaluation of the comparison can help determine if OEM LTSA benefits (such as remote services and on-field tech support) are overkill or necessary for their success.
- Reassess LTSA Needs and Solutions: Every end offers the opportunity of a new beginning elsewhere. Therefore, you can seek opportunity by using a Request for Proposal (RFP) where you can establish what you need out of an LTSA. This is where OEMs and non-OEM service providers can match your expectations with their own proposal and cost-benefit analysis for the services you need to ensure operational viability with an LTSA.
- Quality and Performance of non-OEM Parts: As equipment in the Power Generation continues to age—particularly equipment commissioned two or more decades ago—the opportunity to save money becomes equally important as ensuring long-term reliability.
The fact is that you should always consider every potential factor associated with the conclusion of an LTSA. Discussing it with your internal decision-makers to ensure the best course of action is taken can save you headaches, money and legal issues. The non-OEM service and parts provider market continues to grow as the need to extend the service lifetime becomes more critical as equipment ages.
Prime Turbine Parts understands it isn’t possible to completely remove the OEM from your supply chain, however, Prime Turbine Parts can offer an alternative for the most commonly required new, replacement parts.’
Contact Prime Turbine Parts today to discuss the opportunity to procure gas and steam turbine parts from a stable source with a reputation to match