I am researching the optimum design for availability contracting when seeking to facilitate a Product Service System (PSS) through a servitization startegy.  Kashani-Pour et al (2016) in their paper "Product-Service Systems Under Availability-Based Contracts: Maintenance Optimization and Concurrent System and Contract Design" propose that such contracts can take three forms:

• Fixed Price Contracts

• Capability Contracts

• Availability Contracts

For me the issue with all of these is one of risk and how to mitigate and offset the risk to the revenue stream when seeking whole-live approaches.  Consider the scenario of a long life complex manufactured engineering product (i.e. Cars, trains, aeroplanes, and shipping etc).  A significant percentage of operators who use such products to provide a service (i.e. the products use) do so under fixed term franchise agreements.  The operator rarely owns the product but rather leases the product from a finance house.  If one looks at a train or plane one finds that the ownership is illustrated by an asset tag, usually a plate which assigns the capital to that of a bank.


So here we have the manufacturer who makes and sells the product to a bank who in turn leases to asset to an operator who uses the product under a franchise agreement.  The manufacturer gains through-life income by charging the bank for the products availability for use so has a vested interest in ensuring that maintenance activities are conducted BEFORE the onset of degradation or failure.  These franchises offered to the operator, in the case of trains - the train operating companies (TOC's) usually have a fixed term lease.....typically 7 years.  Now with the asset aging and Mean Time To Failure decreasing, coupled with the need to down cost the cost of operating....how is Risk factored into the cost model?  What models are best suited and what assumptions should be made?