Service dispute draws national press attention

November 6, 1991

Picker International's dispute with independent service organizations(ISOs) Etek and Imaging Equipment Services hit the front pageof The Wall Street Journal last month. The Cleveland equipmentvendor scrambled to control damage done by the article,

Picker International's dispute with independent service organizations(ISOs) Etek and Imaging Equipment Services hit the front pageof The Wall Street Journal last month. The Cleveland equipmentvendor scrambled to control damage done by the article, whichdiscussed some of the competitive charges being tossed aroundin litigation between Picker and the ISOs (SCAN 7/3/91).

The ISOs claim that Picker has used strong-arm tactics againstthem and their customers to protect its equipment maintenancerevenue. In an internal memo to Picker management and field employees,the vendor defended its right to retain control of its servicesoftware and test equipment.

"It is untrue that Picker ever removed the operating softwareon our equipment to render it useless," William J. Webb,executive vice president, said in the memo. "We do, however,remove our tools, test equipment and service and repair documentation(both printed and electronic) from a hospital when the serviceagreement is terminated.

"These materials are Picker's property and are stored atthe hospital where they are convenient to our field engineerswhen making repairs. The hospital agrees to allow us to storethese materials on their property as a part of the service agreement,"Webb said.

Picker also denied an inference in the Journal article thatit may be at fault in the deterioration of equipment performancewhen customers choose ISOs instead of Picker service. Customerspay a premium for vendor service over that provided by ISOs, butthey receive better service that results in less downtime andoptimal image quality, Webb said.

The vendor acknowledged that, in a few cases, it enforced theterms of a customer contract, which allowed it to disable or seekthe return of equipment not paid for by an end user.

"Admittedly, these situations are never comfortable foreither party, but they are legal," Webb said.

Picker's reaction to the ISO charges reflects an attitude amongvendors that the equipment is still theirs even when it may havebeen, for the most part, paid for by the user, countered ThomasQuinn, president of Pittsburgh-based IES.

"This is the philosophy of `Let the buyer beware,'"Quinn said. "If you are buying equipment, don't considera boiler-plate sales agreement as no problem. Look it over. Getthat (restrictive clause) out of there."

While customers may not have paid attention in the past tofine print about service in their purchase contracts, they donow, said Cary J. Nolan, president and CEO of Picker. Nolan spokewith SCAN prior to publication of the Journal article.

"People are becoming more sophisticated. They analyzelife-cycle costs. Today, service is as much a part of negotiationsbetween supplier and purchaser as is the equipment acquisition,"Nolan said.

Savvy service customers are placing downward pressure on maintenanceprices. Equipment vendors are reacting to this competitive pressurewith service and productivity improvements, he said.

The regular revenue stream and continuing high profit marginsfrom equipment service makes this business attractive to equipmentvendors and worth the expense of accelerating service upgrades.In the end, customers benefit from the improved service.

"We have made significant investments in that end ofthe business over the last two years," Nolan said. "Inthe last year, we have completely redone all of our service trainingfacilities. We have provided more and better tools to serviceengineers so they can be more productive in their work."

Picker service manuals are transported to the site on laptopcomputers. This allows for frequent updating of the manuals andimproved diagnostic troubleshooting.

The vendor will take this service upgrade process a step furtherat the Radiological Society of North America meeting in Chicagonext month when it introduces a remote diagnostic package calledTelepath, he said.

"Remote service diagnostics is the wave of the futureworldwide. It is something we are going to see from all of themanufacturers," Nolan said.

In a related matter, the Inspector General of the Departmentof Veterans Affairs has amended its report on service contractsfor Picker CT systems at VA hospitals, Nolan said. The changeswere made after Picker provided further information to the agency.

Changes were made in the report, confirmed John B. Ames, directorof the VA's contract review and evaluation division. The conclusionsremain substantively unchanged, however, he said.

The IG report audited service bid specifications for PickerCT scanners and concluded that undue advantage was given to theequipment vendor. It did not attempt to assign blame for the mannerin which the bids were written. The VA accepted the recommendationsand is in the process of writing standardized bid specifications(SCAN 7/31/91).