Rental Blue Book For Construction Equipment VERIFIED
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Previous memorandums have addressed FHWA's policy concerning the acceptability and use of equipment rental rate guides for contractor owned equipment. These include Mr. Gendell's memorandums of August 22, 1986, October 30, 1986, and December 23, 1986, and Mr. Weseman's memorandum of January 27, 1988, (copies attached). The principle of equipment rental rate guides for contractor owned equipment is that they should fairly represent the contractor's actual cost of owning and operating equipment.
Several issues not covered in earlier guidance memorandums have been raised. These include the use of standby equipment rental rates, the use of equipment the contractor obtains through a third party rental agreement, and the eligibility of mobilization costs associated with the use of misunderstanding on how the Blue Book is developed. Specifically why the monthly rate should be divided by 176 to obtain the hourly rate and how reduced construction seasons are addressed.
Generally, equipment rental guides are based on usage and time. Since there is no wear and tear to the equipment during idle time most rate guides usually will need to be modified to eliminate any costs associated with usage. Costs that are related to time include "cost of facilities capital (CFC)," equipment overhead, and possibly some depreciation.
Depreciation is the decline in value of the equipment due to age and usage. It is normally computed using the straight-line method based on the overall economic life which is in turn based on anticipated usage (wear and tear) per year. Since there is no wear and tear to equipment during standby time, an appropriate adjustment should be made to the depreciation rate provided in most rental rate guides.
When a contractor obtains equipment through a third party rental agreement for use in a force account situation, his/her cost will normally be the invoice cost. The invoice cost should be comparable with other rental rates of the area. The Associated Equipment Distributors (AED) Rental Rate and Specifications book may be used to evaluate the contractor's proposed costs for such equipment rental.
The Blue Book states that, "Weekly, daily and hourly rates are... derived from the monthly rate. Rates for shorter periods are increased to account for lost availability and productivity during shorter use periods." In actual practice, any loss in productivity will result in additional time needed to do the work. Since that basis of payment when rental rates are used during force account is actual hours worked, the contractor is thus fully reimbursed for any loss in productivity. Lost availability of equipment is not considered a viable factor since a contractor, in bidding a project, agrees to furnish all equipment required to complete the project. Further, a contractor has the option of renting needed equipment from a third party; such rental costs, as discussed earlier, are reimbursable.
Based on the above rationale, the FHWA has determined that when the Blue Book is used to calculate equipment rental costs for periods of less than a month, the most equitable approach is to utilize an hourly rate developed by dividing the Blue Book monthly equipment rental rate by 176.
Engineering Pamphlet (EP) 1110-1-8 establishes predetermined equipment ownership and operating expense rates for construction equipment. It also establishes a method to calculate equipment ownership and operating expense rates for construction equipment when the predetermined rates are not considered appropriate. The overall intent of this pamphlet is to determine equipment costs that are fair and reasonable.
AED is an international trade association representing companies involved in the distribution, rental and support of equipment used in construction, mining, forestry, power generation, agriculture and industrial applications. Our members use the resources we offer to gain a competitive advantage and make the most of recent trends.
Tools and small equipment are within a close range of pricing throughout the country. Heavy equipment can see great variances in monthly rentals. A skid steer loader (1750 lbs.) averaging $1,680 per month, was listed by a few rental agencies at $1,900 in Chicago and $1,500 in Dallas and Atlanta.
The below listings are industry averages for tools and heavy equipment pricing. Pricing and availability will vary based upon the location and season. Most national firms will provide favorable pricing and additional customer services based upon client rental requirements.
Note that true owning costs, the green transactions, come in two families. First are those that have to do with compliance. These include licenses, insurances, property taxes, and the like. Some companies carry the costs as a single line item in the equipment account, others allocate costs to individual units using metrics such as book or replacement value. Still others bill every transaction to every individual unit in the fleet. Regardless, it is an administrative process with few risks.
The tricky and controversial portion of the owning-cost side of the diagram starts when we look at the depreciation and interest charges we levy to write down our own capitalized assets and ensure that book values remain reasonably in line with market values. This involves depreciation, depreciation rates, and depreciation charges. It is a complex subject, but our diagram helps us to understand how the two blue arrows work together to (a) generate internal charges that bill the jobs for the equipment they use, and (b) take a portion of these charges from the equipment account to the capital account shown in the lower left of the diagram. 2b1af7f3a8