Optimal maintenance policy considering maintenance errors for systems operating under performance-based contracts

•Considering systems with both soft and hard failures under a performance-based contract.•Incorporating maintenance errors into the modelling of the optimization problem.•Presenting explicit analytical expression of the expected net revenue using Kijima virtual age method.•Exploring the properties of the optimal solution maximizing the expected net revenue of the supplier.

In recent years, performance-based contracts (PBCs) have been extensively adopted in both manufacturing and service industries. However, maintenance strategies under PBCs are not often addressed. This paper considers a novel maintenance policy for a single-component system operating under a PBC. Failures of this system may either be hard or soft, but can only be revealed by periodic inspection. Imperfect repair (subject to the virtual age model) is used to fix a soft failure. However, imperfect repair actions may be ineffective and could cause a catastrophic failure (maintenance error) that ultimately leads to replacement. In the model proposed in this paper, we consider maintenance error, and the system is replaced upon a hard failure, a maintenance error, or preventively replaced at the nth soft failure. The objective of this model is to maximize the expected net revenue of the supplier operating under a PBC. Moreover, we compare the properties of the optimal maintenance policy under three different failure rate functions and show that, with different parameters, our model reduces to several classic maintenance models. Finally, a case study on a wind turbine system is provided to illustrate the application of the maintenance model.