Module 6: Construction Equipment Policy.
A policy is a pre-determined guidelines that provides direction for decision
making or action taking. Construction Equipment Policy is also the framework
from which the operating principles of equipment acquisition, utilization,
maintenance and management are derived. It is also a general statement or
understanding which guide thinking in decision making. The essence of policy is
the existence of discretion within certain limit in guiding decision making.
Policies are generally enough to give the manager sufficient freedom to make
judgements while at the same time they are specific enough to establishing
constraining boundaries. Policies must be made upon thorough analysis of
objectives and should be consistent with the company’s mission and philosophy.
The functions perform by policies in an organizations are:
a. It tends to prevent deviation from planned causes of actions
b. it ensures consistence of actions
c. it facilitates co-ordination of actions
d. It fosters an intelligent exercise of initiatives.
e. It furnishes a basis of judging the quality of executive actions.
f. It provides a guide for thinking in future planning.
g. It provides intelligent co-operation.
1. Determining the size and value of construction equipment fleet that could be allow
under the control of a single manger.
2. Know the size of construction contract they will be able to take in relation to the
availability of their equipment and the nature of construction equipment
investment they would be able to undertake on a given project.
3. Assess the cost and complexity of the individual machine in relation to technical
changes.
4. The need for computer facilities to undertake investment analysis and cost record
keeping on construction equipment.
5. Appreciate the existence of competition in business and the need for adopting
improved management methods so as to be able to remain in business.
Policy helps to make decisions to guide individual on what to do most especially on site.
Policy are usually pre-determined.
It is obvious therefore that, when construction equipment policy is being considered you
are indirectly the pre-determined guidelines surrounding equipment accusation,
utilization, maintenance and replacement.
Plant acquisition policy
This is a pre-determined guidelines that provides direction for decision making and action
taken as regards the issue of plant acquisition. It is obvious that a contractor can never
afford to own all types of sizes of equipment that might be used for the kind of work he
does. Therefore, it is imperative to have a policy in deciding whether to own a plant or
hire. Moreover, in deciding whether to acquire a plant through ownership various options
are available.
- Outright purchase
- Hire purchase
- Through leasing
What can be finance or operational leasing
Factors to consider/hiring/owning plant
Factors to consider
A major construction equipment policy decision is whether to hire or own a plant. The
argument for and against each are as follows.
a. If an item of plant is needed on a contract for sufficient length of time for the
machine to pay for itself based on the average hire rate, it will be wise to buy if
only to collect the residual value of the contract.
b. if there is a continuous requirement for such an item on all or other future
contracts, outright purchase is favoured i.e owing
c. If however, the total cost of the item cannot be seen to be recovered from the
contract or the contracts, to hire should receive consideration.
d. A specialist machine requiring the services of a specialist trained operator, and
which will be expensive initially, and unlikely to be used on future contracts, then
the equipment should be hired
e. In the case of a contractor already owing one or more of a certain type of machine
but whose immediate needs for a limited period are greater than the capacity of his
own owned machine, the contractor should hire.
To be specific/factors
These are other specific factors data could be considered by a contractor to own or hire
construction equipment
a. For outright / cash purchase
1. The price of the machine
2. Interest on loans from the bank or finance house
3. Capital investment grant
4. Depreciation allowances
5. Operators wages and degree of training
6. Overheads and maintenance
7. Repair cost likely to be incurred over the period under consideration
8. Insurance
9. The advantage of immediate call on the machine
10. Transport cost likely to be incurred
11. Residual value
12. Continuity of use
13. Rapidity of wear due to site condition
14. Possible lack of availability of hire machine
15. Security and storage accommodation for the plant when not in use.
b. For hiring
1. The hire rate over the period
2. No capital investment / investment grant
3. No allowance
4. Specialist operator
5. Higher transport cost
6. Inefficient use of machine
7. Less insurance cost
8. Freedom from maintenance and undue wear
9. No capital expenditure involved
The options selected i.e to hire to buy an item of equipment should be the one that will
provide the use of the equipment at the lowest total cost, consistent with the use that the
contractor will make of the equipment.