Model of uniform cost policies and procedures for the establishment of construction equipment rates

Equipment costs in construction represent a considerable portion of the total cost incurred by contractors when working for State Transportation Agencies (STAs) and other public works agencies under force account conditions that include change orders, emergency operations and claim disputes. The rates used to compensate for the use of heavy equipment vary widely, depending on factors such as type and age, capacity, operation costs, overhead allowances, and availability of the machine; geographic and climatic conditions at the job site; proposed length of use; and applicable operative federal and state cost reimbursement regulations.

Preliminary research indicated that most STAs lack specific policies regarding actual cost reimbursement for contractor-owned equipment. As a result, 44 of all STAs (89%) rely on the use of privately published nationwide averages of rental rates. The drawbacks of this practice are many, as STAs have no control over the methodology by which equipment data are gathered, the cost parameters included and their acceptable ranges of variability, the methods and formulas used in calculations, the types of overhead included, the kinds of rate adjustments allowed, or whether the prescribed rates guide adheres to applicable federal and state laws and regulations concerning equipment expenditures.

The objective of this study is the development of a comprehensive standard model of uniform cost policies and procedures that could be adopted and implemented by any public or private user to establish predetermined rates for heavy equipment used in construction. Research included a nationwide survey of STAs and other public and private organizations regarding current cost reimbursement procedures for force account operations; review of current Federal Highway Administration regulations and standards of cost and their effect on determination of equipment rates by STAS; determination of relevant cost parameters and applicable methods of calculations; sensitivity analyses of each of the cost parameters and variables involved; case study formulation of calculation procedures according to the cost policies of the user; and a summary of research topics to be further addressed for the successful application of the developed model.