Availability contracts under hierarchical maintenance

Availability contracting is a prominent procurement strategy among many defense and other capital equipment suppliers and their customers. Under availability contracting, the revenue generated for a service provider is a function of equipment/system availability over the predetermined contract period. A major challenge in implementing availability contracting is predicting the availability of equipment, defining the target availability, and determining the best contract duration based on the target availability. In this paper, we extend the classical operational availability model for estimating equipment availability under hierarchical maintenance, which is frequently used for complex equipment such as aircraft. Under an availability contract, bounds have been proposed on system-level operational availability. The current study also develops optimization models for finding the optimal availability contract duration under different scenarios: stochastic and non-stochastic contract durations; contract written at parts level, system level; minimizing total maintenance costs with minimum level of target operational availability as a constraint etc. The study also shows that the optimal contract duration is a non-decreasing function of spares on hand, and the inherent availability of system part. The results from the study have been validated using numerical study with both simulated and real data.