Chapter 9
Pricing Construction Equipment
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
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
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
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
Renting versus Purchasing
Equipment
• Determine if investments are justified
– Rental advantages:
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Large inventory does not need to be maintained
Continuous access
Little need for storage
Reduced maintenance
Simple accounting for costs
Insurance savings
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
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
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
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
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
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
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
Company Overhead Costs
• Fixed costs associated with running a
business
– Full rental rates should include an:
• Amount for company overhead costs
• Amount for profit
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
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