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Construction Equipment Ownership Cost Elements


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#1 Old-Dog

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Posted 08 December 2011 - 07:04 PM

Is major overhaul an allowable element of construction equipment ownership cost?

#2 joel hoffman

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Posted 09 December 2011 - 09:44 AM

Is major overhaul an allowable element of construction equipment ownership cost?


George, this is a general question. I don't know what the specific contract you are working on specifies for development or use of ownership and operating rates. This is covered in general in FAR 31.105(d)(2). You mentioned ownership cost so I will dismiss the idea that the equipment in question is rented. No costs are allowed for major repairs on rented equipment (see also FAR 31.105(d)(2)(B). They are a responsibility of the rental company, not the lessee and are supposed to be accounted for within the rental rates.

For owned equipment, I don't know if you are trying to determine the actual cost for determination of ownership and operating rates (see FAR 31.105(d) (2)), if you are using a predetermined schedule such as the USACE Construction equipment ownership and Operating Expense Schedule (EP 1110-1-8, available by geographical regions and is available on the Internet), if you are trying to develop actual ownership costs and use the schedule for the operating costs, use the schedule for ownership costs and determine operating rates, etc.

For owned equipment, when using the USACE Schedules, the cost of repairs and major overhauls are included in the operating rate - not in the ownership cost. The methodology is explained in the Engineer Pamphlet. If you are trying to Develop actual ownership and/or operating rates, or even more importantly if you are mixing and matching schedule and actual costs, it is critical to know what is considered in the two rate calculations. Please also note that the contractors other indirect and direct costs will have to be examined carefully when using the schedules, because costs such as supporting repair facilities such as field and main office repair shops complete with parts and supplies inventories and shop overhead are included in the USACE hourly rates. Contractors often include some of these costs in their G&A or other overhead accounts or in their field overhead pool accounts. Those costs must be treated as direct costs in the hourly operating rates and be removed from the other direct and indirect cost pools. Another example is the mechanics' labor and the cost of service trucks and other equipment used during repair, fueling and maintenance. Those are also included in the USACE hourly operating cost rates and should not be separately charged.

When the use of the USACE manual was specified or just used in a contract for pricing ownership and operating rates, I always asked for and examined the costs that the contractor included in their G&A and other overhead rates, because some that are included in the hourly rates usually are included in contractors' usual overhead pools. So I adjust the rates or have our in-house DCAA laison folks help adjust rates used in mods or for cost contract reimbursement. When we used DCAA for audits, I usually provided them with a guide that I developed years ago, because they generally weren't trained in the methodology used in developing the USACE ownership and operating rates.

Note that the pre-determined operating rates include some costs that aren't allowed for rented equipment (like major repairs), so when equipment is rented, those book hourly operating rates must also be adjusted.

Government price analysts and estimators must also be trained on the rates makeup when the USACE guide is used.

I'm going deer hunting today and wont have access on my Blackberry to this forum. But if you need or want to discuss in more depth, you can call me or email me with your phone number next week.

#3 joel hoffman

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Posted 09 December 2011 - 09:55 AM

George, as a disclaimer, due to time limitations, I reviewed and referred to an old, hard copy of EP 1110-1-8. I didn't look up the latest version on the Internet, which may have changed the methodology. You can (and I will, next week) check to see if the methodology has changed. I'm willing to bet that it hasn't, because the guys who developed the methodology have retired long ago. :)




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