To Rent or Not to Rent?
Finding the Best Way to Manage Your Equipment Dollar
By Paul McDonnell
Today’s contractor has a lot on his mind — the environmental push to  upgrade water and sewer systems, new transportation infrastructures and excavation compliances, among other things. In regions where opportunities abound, utility contractors are keeping a close eye on the economy and doing everything possible to maximize their bottom line. Flexibility is the key — successful contractors position their businesses to adapt to the marketplace by controlling fixed costs.
With the weight of responsibility square on his shoulders, a contractor looks for relief wherever he or she can find it.
The growing tendency of contractors renting equipment suggests that the benefits of renting are more appreciated now than in the past. Knowledge is the trigger. Most rental companies carry a product range spanning hundreds or even thousands of equipment categories, but to some contractors, rental still means excavators or trench shields, road plates or portable power.
In fact, most equipment that sits idle for any significant time is better off rented.
When equipment is purchased, the buyer assumes all costs of ownership, including capital outlay, transportation, storage, preventative maintenance, repairs, parts, licenses and insurance. When equipment is rented, these costs and responsibilities shift to the rental company, while the customer’s capital is preserved for other, more profitable uses. Rental is also kind to the balance sheet, as the equipment is not recorded as a liability. This results in a more favorable assets-to-liabilities ratio, which can impact your borrowing power.
Years ago, convenience and availability were valid arguments for owning equipment outright. Now, the opposite is true. Renting enhances productivity by minimizing downtime and providing the correct equipment for the job.
The past several years have seen an amazing range of new equipment technologies come to market. Many of these developments are in the form of highly-specialized equipment. One example is slide rail shoring systems, which is a series of panels and rails that are installed when a trench is excavated to allow the trench to be properly shored through installation; these greatly enhance production for the contractor, adding profit to the bottom line.
Rental companies are constantly investing in new models to remain competitive. This puts the very latest technologies in the hands of contractors, project engineers, facility maintenance managers and other renters at a fraction of the cost.
 There are a lot of equipment options out there so be sure to develop a relationship with a good rental company, whose salespeople are trained to evaluate project needs before making a recommendation. All relevant information — environmental constraints, operator skills, soil conditions, ground movement, noise restrictions, budget and timeframe — should be taken into account.
Another consideration when it comes to productivity is after-hours assistance. With ongoing advancements in temporary lighting, climate control equipment, power generation and changing soil conditions, construction crews often work far into the night. If equipment fails or additional equipment is needed after hours, a rental company is the most viable solution.
 On larger and time-critical jobs, deal with a rental company that offers pre-arranged emergency response service around the clock and can dispatch a technician or product shoring specialist directly to your jobsite, if needed. Confirm before you sign the contract that, should a rented machine fail and cannot be repaired on site, the company will replace it temporarily with a comparable machine at no charge.
Any genuine cost analysis of owned equipment will unearth a startling number of associated costs. Many people are surprised to find that equipment is never really “paid for,” even when it is owned outright. It is well worth the time to do a little research into past expenditures before placing hard numbers next to each of these four areas:
Maintenance: Preventative maintenance is a necessary, ongoing cost of equipment ownership. Without it, a machine can quickly become unsafe and unproductive.
If you service your own equipment, it may seem cost-effective on the surface, but often is not. The cost of maintaining shop premises, a spare parts inventory, one or more mechanics and extra staff to process warranty and service paperwork can be substantial. When you deal with a reputable rental company, all these costs disappear while you enjoy the use of well-maintained equipment.
Warehousing and transport: With few exceptions, the rental customer bears no costs of warehousing and transporting rental equipment. The rental company is responsible for storing idle fleet and can deliver equipment directly to the point of use, transporting it between jobsites, if necessary. You pay only the delivery charge, which reflects the cost of that one transport. This eliminates any need for you to own special vehicles and trailers.
Personal property tax and insurance: Personal property tax on owned equipment can be considerable, whereas renting completely eliminates this cost. The same is true of property insurance. Most rental companies offer levels of protection in the form of a damage waiver, which is optional on the part of the customer.
Disposal: This may well be the most overlooked cost of equipment ownership. Many contractors sell their used equipment when it still has market value, so they can replace it with newer models. Disposal costs mount up quickly — cleaning, pre-sale servicing, parts replacement, advertising, time spent selling and, in some cases, transporting the equipment.
The drain on your time and wallet can make it tempting to hold on to tired equipment much longer than is safe or advisable. With renting, you don’t have to “turn” equipment to get the benefit of the newest, most productive model on every job.
Rental companies aren’t just equipment pushers, they are also documentarians — logging the ins, outs and costs associated with their borrowed goods. A rental transaction matches specific equipment costs directly to specific tasks, budget items and time periods. For long-term rentals, continuous billing correctly applies equipment costs to multiple accounting periods as value is received. If your company has government or municipal customers, make sure you choose a rental company that accepts purchase cards to comply with purchasing criteria.
On the documentation front, renting simplifies even the most complex bidding and billing processes, giving you clearly defined expenses: the rental charge and related fees. On many utility jobs, bid specifications can be revised several times, so it is important to work in tandem with a responsive rental company. Your rental salesperson can determine how each change in specs affects your equipment needs and furnish new estimates accordingly. This ensures that you have the most cost-effective solution for your application.
On the job, a paper trail comes in handy when monitoring the whereabouts of miscellaneous equipment. The very nature of the rental transaction encourages accountability, as most equipment is logged on-rent and off-rent by date, time and address. Because rentals have a paper trail, they are “on the radar,” while onsite and typically stored in a secure environment after hours. These practices discourage theft and vandalism.
The licensing, inspection and safe condition of rental equipment are responsibilities of the rental company, as are the costs associated with registration. State and local laws regulating certain equipment are subject to change, making it difficult for contractors to ensure compliance at all times. By developing a relationship with a national rental company, you can be confident of compliance in the way you tow and operate equipment, even if your projects span multiple jurisdictions.
A major consideration for utility contractors is the safe and compliant operation of in-ground jobsites. There is a real value to arranging your Excavation Competent Person and Confined Space Entry Training with the national utility contractor association (NUCA) or the company that supplies your trench safety equipment rentals.
Equipment rental demand doesn’t tend to wane in a good economy or a bad one; there are viable reasons to rent in both operating environments. Even if you choose to purchase some equipment outright, you can use capital prudently and rely on rentals to expand your fleet on larger jobs. This is asset management at its best, because your full-time dollars are no longer committed to part-time needs. Paul McDonnell is vice president of trench safety, pump and power region for United Rentals Inc. |
