Managing Contractor Owned Equipment Leased To the Owner`s

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In this quarter’s newsletter, we will focus on leased
equipment. Is your Contractor actually using all of the
equipment they are billing to your project? Or, are they
storing it on your site, while they await its use on another
project? Are the lease terms in the Owner's best interest,
or is there hidden profit built in for the Contractor? We
have the expertise and experience to tighten your
contract language to avoid these hidden
Contractor equipment profit centers BEFORE they erode
your bottom line.
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Leased
Equipment
Focus Area
It is critical to ensure all
equipment rental charges have
actually been incurred and are
billed at actual cost or in
accordance with the contract.
For Contractor-Owned
equipment there are specific
circumstances to test
including:
Managing Contractor
Owned Equipment Leased
To the Owner’s Jobsite
By Doug Plyler (Fort Hill Associates, Principal)
Test for duplicate
charges of insurance,
fuel and repairs billed
directly when these
costs are already
included in the
rental/lease rate.
If the contract stipulates
limitations on the
aggregate amount of
Owners often see a backhoe or a Superintendent’s truck at
their job site every day during the lifecycle of a construction
project. Many of these Owners realize these costs are incurred
by the Contractor, but they do not sense the impact to project
cost. They may not understand how much they are being
charged and/or the value of the equipment being utilized by
Contractor. While the potential for excess billings is less with
equipment than labor or insurance, control points can be put in
place on Contractor-owned equipment to save a great deal of
money – especially on a project of long duration.
Contractual Language
The easiest place to minimize cost for leased equipment is to
have strong Contract language. Language should be inserted
to specify an aggregate cap on lease payments pertaining to
Contractor-owned equipment leased to the project. This cap
should be 70 to 85% of the fair market value at the time the
equipment is placed on the project site. While the Owner is still
a charged a large portion of the equipment’s fair market value
with this cap, it limits the opportunity for profit above actual
cost. Additionally, language limiting the rate to 70% of the AED
(Associated Equipment Distributors) Green Book rental rate is
recommended. The AED Green Book contains regionally
adjusted rental rates for construction equipment limits the
opportunity for the Contractor to garner excessive profits. Read
More...
lease payments for a
specific piece of
equipment, it is
necessary to audit to
ensure the contractor is
not rotating the
equipment to avoid the
maximum cut-off.
During a recent project review,
the Contract stated the
aggregate payments for an
item leased to the Owner that
was Contractor-owned could
not be in excess of 90% of its
fair market value. Numerous
instances were identified in
which the aggregate lease
payments exceeded 90% of the
fair market value. The
aggregate recovery for the
Owner was $71,000.00.
Top 5
Areas of
Leased
Equipment
Overcharges
Rates billed are not in
accordance with
Contract*
Aggregate lease
payments exceed fair
market value
Equipment is idle on
the job site
Vehicle Allowances excessive
rates; recipients not on
job roster
and/or approved; billing
mileage,
maintenance/repairs,
Photo Courtesy of Ford Motor Co.
insurance, etc. directly.
Equipment is being
leased from a
Subsidiary or related
party who doesn't
Ford F-150 Will Go
Aluminum in 2015
January 14, 2014
necessarily have the
most competitive rate.
*The AED Green Book is the
industry standard often used
to validate rental rates.
Engineering News-Record (ENR.com)
Ford Motor Co. says the "military grade" aluminum alloys it will
use to build its next-generation F-150 full-size pickup will be
tougher than traditional steel yet light enough to give the
vehicle a significant boost in fuel economy.
Introduced on Jan. 13 at the Detroit auto show, the 2015 F-150
is the first truck to adopt an all-aluminum body, which helped
engineers shed 700 pounds throughout the half-ton truck. It
also incorporates a new high-strength frame with 70,000-psi
steel. Ford says the new structure will cut down the truck's fuel
consumption, which, along with pricing, has not yet been
announced.
Available at year's end, the F-150 will come with new power
options: A 3.5-liter V-6 replaces today's standard 3.7-liter
engine and promises better fuel economy, due to twin
independent variable camshaft timing. A new, 2.7-liter V-6
EcoBoost turbocharged engine with auto start-stop will join the
fold, while the current truck's 3.5-liter V-6 EcoBoost and 5.0liter V-8 engines will return. Read More...
And the survey
says....
Last month we asked, "How
strongly do you feel an Owner
should pay for a Regional
Safety Manager if the project
has an on-site Safety
Manager?" 100% of the
survey responses were a 1 or
a 2; overwhelmingly agreeing
the Owner should not pay for
both on-site and off-site
Safety Managers. Are you
paying for redundant labor on
your project?
This quarter's
survey:
How strongly do you feel an
Owner should pay for a Sr.
VP/Project Executive's leased
vehicle for a monthly
rate equating to driving the
car at 50,000 miles a year
(using IRS guidelines)?
lowest 1 2 3 4 5 6 7 8
9 10 highest
Sorry, voting is closed.
Construction laborers Thursday w ork on the pavement of an unfinished apartment
building in the mountain media village at the Rosa Khutor alpine resort near Sochi.
Michael Dalder/Reuters
Russian Officials Fire Back at
Olympic Critics
One Sochi Defender Claims Only 103 Registered
Complaints; 'Surveillance Video' in Hotel Rooms
February 6, 2014
By Paul Sonne, Gregory L. White and Joshua Robinson (Wall Street Journal)
SOCHI, Russia—Rooms without doorknobs, locks or heat,
dysfunctional toilets, surprise early-morning fire alarms and
packs of stray dogs: These are the initial images of the 2014
Winter Olympics that foreign journalists have blasted around
the world from their officially assigned hotels—and the wave of
criticism has rankled Russian officials.
Dmitry Kozak, the deputy prime minister responsible for the
Stay Tuned....
Next Quarter's Newsletter will
focus on project insurance.
If you have questions in the
meantime, please contact
us at:
877-286-0408
or
contact@forthillassociates.com
Olympic preparations, seemed to reflect the view held among
many Russian officials that some Western visitors are
deliberately trying to sabotage Sochi's big debut out of bias
against Russia. "We have surveillance video from the hotels
that shows people turn on the shower, direct the nozzle at the
wall and then leave the room for the whole day," he said. An
aide then pulled a reporter away before Mr. Kozak could be
questioned further on surveillance in hotel rooms. "We're doing
a tour of the media center," the aide said.
Please join Fort Hill
A spokesman for Mr. Kozak later on Thursday said there is
absolutely no surveillance in hotel rooms or bathrooms
Associates in Booth 910 at
the 2014 PDC Summit &
occupied by guests. He said there was surveillance on
premises during construction and cleaning of Sochi's venues
Planning, Design &
and hotels and that is likely what Mr. Kozak was referencing. A
senior official at a company that built a number of the hotels
also said there is no such surveillance in rooms occupied by
guests.
Mr. Kozak toured the giant, gleaming new media center
Thursday morning, marveling at the huge workspace built
specially for the thousands of journalists who have come from
around the world to cover the Games.
Asked about the widely reported problems with hotel rooms not
being ready for guests, he was dismissive. "We've put 100,000
Exhibition on Health Facility
Construction on March 16 - 19
in Orlando, FL and again on
April 22 - 24 at the Mandalay
Bay Resort and Convention
Center in Las Vegas for
the 2014 MedAssets
Healthcare Business Summit.
guests in rooms and only gotten 103 registered complaints and
every one of those is being taken care of," he said. (It wasn't
clear what Mr. Kozak was counting as a registered complaint).
Read More...
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