A not-to-exceed amount, or NTE, is a useful tool for managing facilities maintenance costs and increasing communication with your service providers. Your company provides a dollar amount to service providers. If the service provider can complete the work for less than that amount, they make the repair. They will you for time and material. If they cannot, they will need to get approval from an authorized individual before making the repair.
This article will cover the objections to using NTE's and the best practices for effectively using NTE's for your service program.
Objection number one: "My service providers will take advantage of NTE's and overcharge me."
The reason this objection exists is that there is truth behind it. There are people out there who take advantage of their customers.
You need to ask yourself, "Why are you choosing to work with people who take advantage of you?" Either you have trust issues, which you need to address before they permeate their way through your company, or you need to terminate your relationship with untrustworthy companies.
Additionally, there are checkpoints in place in place in a proper NTE workflow which will protect you from these situations should they occur.
Objection number two: "I need to know what is going on with my work orders."
The truth is, you only need to know what is going on with important and high-cost repairs. You're systems and processes should filter out unnecessary service requests, and you don't need to be interrupted about a simple fix on a non-emergency item.
With a well-thought-out NTE process, you will stay aware of essential items that need your attention, and eliminate distractions from less important ones.
Objection number three: "Am I getting the best prices?"
This objection has more to do with finding and vetting contractors, not NTE's. By finding and building relationships with quality service providers, setting up clear service expectations in writing, and regularly monitoring performance, you will get fair pricing.
NTE Best Practices
There are two strategies for setting NTEs.
The first strategy is based on the Pareto principle. You set your NTE for each trade so that eighty percent of all work is completed without needing an NTE increase. This strategy is best for companies with high service request volume who have limited staff and strong relationships with quality service providers.
The advantages of this strategy are facilities managers will have more time to spend on system and process improvement because they will be interrupted less frequently to make pricing decisions. Significant cost savings are the result of reducing the number of service requests across the entire company, so your facilities managers can spend less more time on this important work.
The second strategy is based on Parkinson's Law which is that cost always expands to the container it's given. Facilities managers choose to set the NTE high enough to provide a service provider time to travel to the location and either troubleshoot the issue or make a small repair. This strategy results in lower average invoices and is best for companies who have maintenance management software in place to manage service requests.
The advantage of this strategy is a lower average invoice, but you lose out on the time savings unless your maintenance software can automate the approval and rejection process.
No matter which strategy you choose, you will still review job costs regularly, and discuss outliers and irregularities with your service providers. Making your service providers aware that you pay attention to prices will result in lower average invoices and better relationships.
If you would like more tips on starting and running an effective facilities maintenance program, be sure to download our free eBook.