How to handle ?Over and Above? / ?Cap? during heavy maintenance

One of Technical Representative (Tech Rep) responsibilities during heavy maintenance is control and approval of MHs and Materials that are ?over and above? or let’s say that are ?not covered by Cap?.

First, the Tech Rep should be familiar with agreement terms & conditions. There, in agreement, he/she will find many things including the service prices: Fixed Price, Labor MHs Rates, Material Charges, Additional Charges, T&M, etc. In this article, I try to explain the Man-Hour / Material Cap providing examples.

Let’s start with some terms and descriptions:

·????????Fixed Price – is price for MHs and Materials of work package that is preliminary agreed.

·????????Time & Material (T&M) - services that are not covered by the Fixed Price.

·????????Additional Work – those tasks that are not included in the Fixed Price, work raising from defect rectification or that is raised by the Customer’s request, including Materials.

NOTE: Here we start applying the terms Man-Hour / Material Cap. Any Additional Work MHs and Materials that are beyond Cap shall have to be approved by the Customer’s Tech Rep. Nowadays MROs have electronic ERP systems to approve such things otherwise approval shall be in writing.

·????????Man-Hour Cap - MHs quantity that is included in the Fixed Price required to perform an agreed scope of work. Sometimes it is called a “Labor Defect Rectification Cap”.

·????????Material Cap - Material price limit over which MRO shall ask approval from Customer for procurement.

·????????Mark up - material handling charges + profit, that MRO collects for each purchased item for additional work. Usually, it is specified in % of the Material cost.

Additional Work / Charges, include, but are not limited to:

1.???Additional Labor exceeding the MH Cap. These MHs are charged on actual MH spent over the agreed Cap. For this reason, the agreement predefines Labor Rates for different trades / skills: Mechanic, NDT, Structure, Engineering Support, CNC, Unskilled work, etc.

2.???Material Charges. Refer to agreement for details; however, there are materials that are not included into Fixed Price. The charges more likely calculated like this = Material prices + Logistic expenses + MRO Mark up.

3.???Other charges. Such as Beyond Economical Repair (BER) %, Components Exchange, Tool Loans, 3rd party services, Extra Towings, Aircraft Washing and Weighing, Engine Run-up, Parking, Storing, etc. All these charges are another story that deserves a separate article; let's stick to MH & Material Cap.

Man - Hour Cap

Option 1: MH Cap per RC

Agreed MH Cap is based on defects rectification per Routine Card (RC).

For instance, if “Cap = 100 MHs per RC” then it works like explained here.

While performing RC # 1 it is revealed few defects and 5 NRCs are raised. ?As per initial estimation the rectification of the defects will take following time:

NRC # 1 requires 20 MHs,

NRC # 2 - 40 MHs,

NRC # 3 - 40 MHs,

NRC # 4 - 30 MHs,

NRC # 5 - 20 MHs.

Therefore, in total 150 MHs belongs to RC # 1 where:

·????????100 MHs are covered by Cap and already covered by Fixed Price.

·????????50 MHs are beyond the Cap and will be charged to Customer.

Moreover, this is only initial estimation and it may happened that while rectifying the defects extra 50 or 60 or 100 or over MHs will be required. Plus, Engineering support may be required due to approved SRM limits are exceeded and alternate OEM solution is need to be embodied.

All such “over and beyond” Cap MHs should be approved by Tech Rep.

Option 2: MH Cap per NRC

Agreed MH Cap is based on defects rectification per None-Routine Card (NRC).

In this scenario, if “Cap = 50 MHs per NRC”, then it works like example here.

While performing RC # 1 it is revealed few defects and 5 NRCs are raised. As per initial estimation:

NRC # 1 requires 20 MHs,

NRC # 2 - 40 MHs,

NRC # 3 - 40 MHs,

NRC # 4 - 30 MHs,

NRC # 5 - 20 MHs.

Therefore, in total 150 MHs distributed among NRCs and no one exceeds the 50 MHs Cap. In such case all these MHs are already covered by Fixed Price and Tech Rep shall not be requested for any approval.

However, let’s continue and consider that while rectifying NRC # 3 – with its preliminary estimated 40 MHs it is revealed that extra 40 MHs are required. Total 80 MHs per NRC # 3. In this scenario Tech Rep approval is required for 30 Mhs that go beyond of Cap = 50 MHs.

I hope you got an idea.

What Tech Rep shall do and how can decrease the expenses on MHs?

1.???Tech Rep should be professional and experienced understanding if the requested for approval MHs are true or not. Sometimes MRO approaches Tech Rep with 300 MHs or 500 MHs for rectification of the one single defect.

2.???Tech Rep should ask reasons that state behind of huge amount of MHs. Request MRO to explain and breakdown these MHs by skills / trades. Example of breakdown looks like here: Mech = 50 MHs, Cleaning = 50 MHs, Structure = 200 MHs, NDT = 20 MHs, etc. However, keep in mind that need to act fast so approve first portion of 50 MHs to proceed while waiting MRO explanation. Approving first portion of MHs you avoid any workstopage.

3.???Tech Rep should keep its own approved MHs records for tracking purposes. Excel file can be used for that reason where the MHs should be registered, analyzed, monitored etc. Here, in his/her own excel file Tech Rep is able to accumulate all MHs and have a look at whole picture.

4.???Tech Rep should search for options to prove that at least some portion of MHs can be covered by Cap. For that purpose, the Tech Rep should know and easily navigate in the work pack.

5.???Always be consistent in your arguments and try to bargain. The best tool, in this case, is reference to the historical records and information about similar repairs / defect rectification from the previous checks and projects.

Material Cap

Scenario 1: Material Cap for Additional Work, usually, specifies the material price level crossing whish the Customer’s approval should be received to proceed with purchasing.

·????????If the Material Cap is 200 USD, then whatever below 200 USD can be bought by MRO immediately. Let’s say the part costs 150 USD, then MRO can buy it without asking and approving it with Customer’s Tech Rep.

·????????If part costs 300 USD then MRO should approach Customer Tech Rep. Sometime MRO may approach Tech Rep with a quotation from different suppliers with different prices. Let us say Supplier A offers 500 USD, Supplier B offers 600 USD and Supplier C offers 700 USD and Tech Rep may decide either to buy from any of this suppliers or not.

Scenario 2: Material Cap is a price limit per line item, included in the Fixed Price

Pont your attention that in this case, we talk about Fixed Price materials.

Example: Material cap is 200 USD per line item.

·????????If part costs 150 USD then MRO buys it on its own expenses.

·????????If part costs 250 USD then the Customer should reimburse the price or deliver the part.

Scenario 3: Customer takes care of all Fixed Price materials and in this case, the agreed Fixed Price part includes only MRO MHs. So, the Customer, literally, is responsible for delivery of all consumables, expendables for all routine works. This is very specific but take place in the industry.

The End

I hope that I was able to deliver you a piece of understanding of how to deal with a Cap. Of course, there are many other scenarios available and they should be considered based on agreement terms. A final recommendation that I would like to give you is read the maintenance agreement carefully and in detail!

In addition, think about Proc and Cons for Customer / Airline if agreement will state the Material Cap = 1000 USD per line item for Additional Works with MRO Mark Up = 10%. Do you have any ideas on benefits and disadvantages?

Therefore, I am open to any questions and appreciate it if you raise them in the comments to this article. If you have any examples, please go ahead and let's figure out how to deal with them.

Sincerely yours

Sergey Poda

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