Construction Equipment Rates

[Old-Dog]

If a contractor uses the Blue Book for pricing equipment rates, does it have to make adjustments in the rate if the equipment is fully depreciated? Also, are any other adjustments required? I have included the relevant (I think) FAR provisions below.

Thanks,

George

According to FAR 31.105 (d) (2) (i) (A)

Actual cost data shall be used when such data

can be determined for both ownership and operations costs for

each piece of equipment, or groups of similar serial or series

equipment, from the contractor’s accounting records. When

such costs cannot be so determined, the contracting agency

may specify the use of a particular schedule of predetermined

rates or any part thereof to determine ownership and operating

costs of construction equipment (see subdivisions (d)(2)(i)(

and © of this section). However, costs otherwise unallowable

under this part shall not become allowable through the

use of any schedule (see

31.109©).

FAR 31.205-11 (f)

(f) No depreciation or rental is allowed on property fully

depreciated by the contractor or by any division, subsidiary,

or affiliate of the contractor under common control. However,

a reasonable charge for using fully depreciated property may

be agreed upon and allowed (but, see

31.109(h)(2)).

[joel hoffman]

Are you referring to the "Rental Rate Blue Book"? I've never used it. If it has any similarities to the USACE Construction Equipment Ownership and Operating Expense Schedule EP 1110-1-8, there is an adjustment for depreciated equipment. There are also other possible adjustments for severity of the conditions, actual purchase prices, etc. The firm should be able to produce the Blue Book for examinatio and verificationn, shouldn't it?

[Old-Dog]

Joel, most contractors that I audit only adjust the fuel costs upward. I have never seen anyone adjust for CFC, depreciation, or severity.

If I understand the FAR correctly, they are required to eliminate unallowable cost, but they normally don't.

[HCuffage]

Let's take the first steps first. Is the contractor using owned or rented equipment. If he is using owned equipment, he should be charging you some rate related to the company's accounting records and practices for depreciation and operating costs. Some equipment is depreciated on an operating hours basis, for example. The contractor should not be charging you rental rates out of the blue book. If he is using owned equipment that has been fully depreciated on the company books, then you should negotiate a nominal but reasonable price for using the equipment plus operating costs.

If he is using rented equipment then he can provide proof of rental price through a contract or invoice. You should use the Rental Rate Blue Book for your IGCE and to test the reasonableness of the proposed charge.

It does not make sense to adjust a rental rate for the depreciated value of an owned piece of equipment, which if I understand your question correctly you seem to be suggesting. Get the basic facts first. If you know the make and model of the equipment you can research original purchase prices, useful life, depreciation methods, operating costs, etc., to evaluate the proposed price or charge.

Contractors just love it when they can use fully depreciated company owned equipment and get the Contracting Officer to agree to pay rental rates.

If you are saying, however, that he is renting really old equipment, fully depreciated on the rental company's books, then you have to reimburse him for what it cost him to rent as long as the rental rate is fair and reasonable. However, if that equipment is not doing the job efficiently, constantly breaking down such that it has to be rented longer and is delaying the project, you should require the contractor to obtain adequate working equipment.

[joel hoffman]

Just noticed this old thread this morning. I want to add some advice to cost analysts and negotiators concerning rented equipment.

If thie contract action is a claim or modification and if the proposed equipment has already been rented (e.g., is on-site), then the contractor has already agreed to pay for the rental for the period of the rental. Normally, there would be no additional hourly or daily rental costs unless the action requires an extension. The only additional operating cost should be electricity for electric powered equipment or "fuel, oil, grease" ("FOG") for fueled equipment. The lessor normally is required to repair rental equipment, unless the lease specifically states otherwise. Various pricing guides may define what is included in "FOG". For instance, the fueler and mechanic who would fuel, grease and perform little maintenance tasks are often included in FOG, including their vehicles - which are already on-site and already a cost to the contractor.

Some rentals, such as tower cranes, might have a monthly limit of clock hours, which start when the machine key is turned on until the end of the day. Unless the work icauses the timer to exceed that monthly limit or extends the lease, there won't be any more rental cost. If the crane operator is on the clock all day, extra picks don't involve additional operator labor unless the modification requires additional days or extended daily overtime.

We were able to save several hundred thousand dollars a couple of years ago on a project by determining what equipment was rented and analyzed the rental agreements. In some cases, the contractor had priced the equipment for mods as though it were owned equipment. In other cases, it had calculated hourly costs for rental equipment that didn't directly vary with the workload. Do NOT normally allow the contractor to price rented equipment as though it were owned.

Of course, if the contractor can show that -but for the change or other impact - the contractor would have turned in the equipment early for a credit, that may be a valid argument.