Say a project’s equipment rental costs make up 40% of the project’s total costs then just saving 5% of these costs could translate to an additional 2% or more profit. That doesn’t sound like a lot of money, but many projects only make 10% profit so an extra 2% of profit means the project will make 12% profit which is an increase of 20%. Wouldn’t the bosses be pleased with that? But put some of these tips into practice and you could find the savings are even larger – resulting in even bigger profits.
In this article I discuss some ways that you could save money on equipment rentals on your project.
Pass these tips to your project team.
Ordering the equipment
- Make sure your order the right equipment of the right size. Some contractors think that bigger is better. But, bigger usually means more expensive to hire. It almost certainly means more fuel, which means more money. So unless you can use that extra capacity don’t go for the bigger model. Of course the opposite happens and contractors get a machine that’s too small and it’s scratching at the dirt or taking hours to load the trucks meaning it is inefficient.
- Ensure you are getting reliable equipment. Often cheaper items are older which could mean they aren’t as efficient as newer models, consume more fuel and break down more often. Older machines may also not have the latest safety features and they could be noisier, leak oil or be smoky. What you saved on a cheaper machine could be far exceeded by lower production and an increased fuel bill.
- Check what the rental rate covers. Often the extra charges can be nearly as expensive as the basic rental cost. The cheaper rental could work out more expensive than the expensive rental once all the additional costs are factored in.
- Ensure the equipment is insured. You don’t want to be paying several hundred thousand dollars should something happen to the equipment. Also check what your company’s insurance covers. Frequently contractors pay extra for insurance for equipment, while the company already has insurance in place which covers hired equipment. Many rental companies make extra profits on selling insurance for their equipment so it may be advisable to investigate alternative insurances.
- Some items may be cheaper to buy than rent. Projects are sometimes quick to rent a piece of equipment because it is cheaper. However, do the math and you may find, particularly for small items, or items required for an extended period, that it’s cheaper to buy than rent them.
- Make sure the rental company understands how long the equipment is required for. Longer rentals may have a reduced rate.
- Rented equipment is usually charged at an hourly rate, a daily rate or a monthly rate. Often there is a minimum period that the rental company expects to be paid. Will your project work the machine for those hours? The rental agreement may state that you have to pay a minimum of 10 hours a day. Well if your project only works 8 hours a day you’ll be paying 2 hours for nothing.
- Enquire what happens when the project can’t work because of inclement weather. One can often negotiate that equipment rental is reduced to 50% should the project be unable to work because of rain. If you are a good customer or a good negotiator you may even be able to negotiate this to a nil rate which is even better.
- The agreement is in line with what you ordered, and the terms and rates are what were negotiated.
- There are no terms hidden in the small print that can’t be complied with.
- That you understand the terms and conditions in the agreement and ensure that these are complied with.
- Check that it is the item you ordered before it is off-loaded at the project. It can be expensive to reorganise transport to return the incorrect item of equipment.
- Check for any visible damage and report it immediately. Remember the owner will charge you for any damage when the item is returned. Prior damage that hasn’t been reported may be incorrectly charged to your company.
- Check the condition of wearing parts (such as; teeth on excavator buckets, cutting edges on graders, etc). Normally the project is charged for replacing these items and they can be very costly.
- Check the condition of tires. Again the hirer is usually responsible for the cost of worn or damaged tires. In addition badly worn tires may become punctured easily, causing lost time.
- Ensure that the equipment doesn’t have any oil leaks. Vehicles should have all the correct safety features and they must be functional. Equipment that travels on roads must be road worthy including having a current vehicle license.
- Check the fuel level and report the amount of fuel to the rental company if it’s not full. Most rental companies expect that the machine is returned with a full fuel tank, yet often the machine arrives with an empty tank. Large machines could have a capacity of hundreds of litres which could cost several hundred dollars to fill.
- Obviously it goes without saying that the equipment should only be operated by skilled and licensed operators. Using operators who aren’t qualified to use the machine could; void warranties and insurances, result in accidents, damage the machine and result in poor productivities.
- Ensure that the equipment is properly maintained and that repairs and maintenance are only done by qualified people. Damaged equipment shouldn’t be operated until a competent person has assessed the damaged and warrants that it is safe to operate the machine.
- Check that the equipment is only used for appropriate work. Equipment is often damaged when it is used for purposes it wasn’t designed to do.
- The equipment must be used productively – this includes:
- Ensuring it is used for what it was hired or rented for – often, for example, loaders are used for transporting equipment around the project instead of loading dirt.
- Making sure that equipment that isn’t required anymore is returned to the hirer.
- Ensuring the work couldn’t be performed by a cheaper item of equipment.
- Checking that there isn’t too much equipment on the project.
- Ensuring, particularly with earthmoving equipment, that the equipment teams are balanced – that the size of the excavator is correct for the trucks being loaded and that there are the right number of trucks so that the excavator isn’t waiting for trucks to load or that trucks aren’t waiting to be loaded.
- Check that the equipment has completed all the tasks on the project that it is meant to complete. Too often machines have to be remobilised because they were returned to the hirer before they had completed all the tasks on the project.
- Ensure the hire, or rental, company is notified in writing that the equipment is no longer required and organise transport to send it back.
- Check that all the items rented with the machine are returned with the equipment. Non-returned items may result in additional costs such as continued hire costs and extra transport costs to get the item back to the owner.
- Make sure that the item is clean and that the condition of the machine is checked and recorded. Unfortunately there have been cases of construction companies being charged for equipment damages that didn’t occur on their project
It is important that the project team understands the cost of equipment and ensure that it is properly looked after and operated by competent operators, that it is used productively and is put off hire when it is no longer required.
Equipment costs contribute significantly to the overall cost of the project. Reducing these costs will improve your project’s profit.
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This article is adapted from information in the author’s popular books: 'Successful Construction Project Management: The Practical Guide' and 'Building a Successful Construction Company: The Practical Guide'.
'Construction Claims: A Short Guide for Contractors' has just been published. These books are available on Amazon and other online book stores.
Paul publishes articles regularly on LinkedIn and his website.
Paul writes regular articles for other websites, gives lectures, mentors, and is available for podcasts and interviews.
© 2016 This article is not to be reproduced for commercial purposes without written permission from the author.