1. Chapter 9 Pricing Construction Equipment

2. Objectives Upon completion of this chapter, you will be able to: –Identify the three main equipment categories and describe how each is priced in an estimate –Explain the relative advantages of renting rather than owning construction equipment

3. Objectives (cont’d.) –List and describe the types of expenses that should be accounted for when calculating the ownership cost of equipment –Calculate depreciation allowances for construction equipment –Calculate maintenance and repair costs on an item of equipment

4. Objectives (cont’d.) –Calculate equipment overhead costs –Calculate fuel and lube oil costs on an item of equipment –Determine the hourly ownership cost and develop the rental rate for an item of equipment

5. Introduction Categories of plant, equipment and tools –Hand tools –Larger equipment Usually shared for activities –Items for specific tasks Pricing calls for unit prices: –Hourly, weekly, and monthly rates

6. Renting versus Purchasing Equipment Determine if investments are justified –Rental advantages: Large inventory does not need to be maintained Continuous access Little need for storage Reduced maintenance Simple accounting for costs Insurance savings

7. Renting versus Purchasing Equipment (cont’d.) Full ownership cost aspects: –Depreciation expenses –Maintenance and repair costs –Financing expenses –Taxes and insurance costs –Storage costs –Fuel and lubrication costs

8. Depreciation Decline in asset market value –Methods: Straight-line: allocated equally per year over useful life of the asset Declining-balance: annual depreciation amounts decline as asset gets older Production or use: depreciation value in a specific year depends on asset use in that year

9. Maintenance and Repair Costs Cannot be ignored when considering ownership costs –Good maintenance: Can extend equipment life Reduces costs Calculated as a percentage of annual depreciation costs for each item

10. Financing Expenses Interest expense: cost of using capital –Cash used: Amount that would have been earned if money was invested elsewhere (i.e., forgone interest revenue) –Financed by loan: Interest charged on the loan

11. Taxes, Insurance, and Storage Costs Significant variations –When known: should be added into annual ownership costs calculation –When not known: calculated as percentage of average annual investment cost Equipment overhead rate –Combination of interest expense rate, tax rate, insurance, and storage costs

12. Fuel and Lubrication Costs Consumption can be closely monitored –Assess to information: accurate future predictions –No access: can be predicted Engine type and size Engine operating factor: load assessment

13. Equipment Operator Costs Operating engineer –May be included in agreement –Usually not included Labor costs for operating equipment –Apply engineer’s hourly wage with equipment hourly rate Use expected productivity to determine price per measured unit for labor and equipment

14. Company Overhead Costs Fixed costs associated with running a business –Full rental rates should include an: Amount for company overhead costs Amount for profit

15. Use of Spreadsheets Used due to repetitive nature of calculations –Ownership costs: large numbers of equipment –Convenient updating of data –Readily set up to provide basic format

16. Summary Categories of equipment and how they are priced: –Hand tools: percentage of labor price –On-site equipment used intermittently: general expense item –Equipment used for specific tasks: priced directly against the takeoff items