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May 7, 2024

The Complexities of Extended Warranties

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Is it unethical for integrators to not tell their end-user customers that the manufacturer has an extended warranty covering their product?

Are you obligated by the terms and conditions of your reseller agreement to pass that through at no additional cost? Is that extended warranty intended for the integrator as the customer, or intended to be passed on to the end-user customer?

Many products in our industry now have extended warranties – some as long as five years or more. This sounds great … until a problem occurs where the integrator’s warranty period (usually 90 days/one year) expires. NSCA members always want to do the right thing, but many are getting stuck in a tough position. Our end-user customers see an ad about the extended warranty, and believe even the labor should be covered as part of it (relating this extended warranty coverage to other industries or experiences).  But most of the NSCA manufacturers cover factory returns only.

The obvious goal is to build recurring revenue by selling a service agreement after the warranty period expires, and offering a bundled solution that covers all parts and labor for making repairs.

Is the extended warranty between the manufacturer and the integrator, thus allowing more insurance for the integrator to operate profitability? Or is it expected to be passed through to end-user customers and intended as a marketing strategy?

First and foremost, integrators have to use what’s in the specifications: their dealer/reseller agreements and the contract between them and the end-users. It would be unethical to do anything different. The gray area, however, involves the necessity to pass that through when not obligated by contractual terms and conditions – no different than what happens with a warranty during a delayed project when the hardware sits on the shelf for six months without use.

At least once a week, an NSCA member asks me about the ethics surrounding this dilemma. My answer, of course, is: “It depends.” If we have a contractual requirement, it’s simple. If the dealer agreement requires this to be extended to the end-user, then we need to factor the labor in accordingly and do so.

Warranty used to be simple. It was a two-part deal: the first part was for time and expenses to insure workmanship or installation problems that surfaced within a specified timeframe, and the second part was to replace or repair faulty equipment. The timelines would always match – but now they don’t.

Now we have manufacturers looking for a competitive edge, so they’re offering integrators this extended period. Some very big questions (which need 100% clarity) remain: Who is the warranty intended to benefit? Who pays for the time and expenses when a service agreement doesn’t exist? How can we make this a win-win-win?

I will be happy to draft a sample extended warranty policy for NSCA members to download in our Online Essentials portal once we have everyone’s input on how to resolve this matter.  –Chuck Wilson, NSCA Executive Director

Image by: Naypong

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