Heavy Highway Contractor

Hi everyone,  should equipment rates for a given piece of equipment be consistent from one job to the next?  My understanding is yes because it generally costs the same to operate a given piece of equipment for an hour on one job as it does the next.

This came up because we recently were awarded a job in which we received additional revenue to cover the increased fuel costs.  It was suggested that our internal cost rates be increased for that job only.  I am hesitant to do that for just one job as it doesn't seem to be true job costing - my thought is that the rates should be consistent from job to job, whether or not we get compensated for the additional fuel cost.  That additional compensation would just be more margin for that job.  

Thoughts?  Any input would be appreciated.



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Alicia Wensmann CPA, CCIFP
Accounting Manager
Landwehr Construction, Inc.
St. Cloud MN
(320) 252-1494
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You are correct that the equipment cost should be the same for all jobs if it is for the same piece of equipment.  The equipment cost should not be affected by what you are being paid by your customer.  It should reflect the actual cost that you incur to run that piece of equipment.  With that being said, the rising cost of fuel may be increasing your hourly equipment cost.  When was the last time that you calculated equipment costs?  The current inflation is causing the cost for many items to be increasing, so it may be a good idea to review your equipment costs.  If the cost has increased, the cost applied should be increased across all jobs, not just that one you were fortunate enough to get increased revenue to cover it.

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Dennis J. Shindle, Jr. CPA, CCIFP
Senior Manager
RKL LLP.
Chambersburg PA
(717) 251-3771
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Thank you everyone who took the time to respond!

We recently increased our equipment rates to reflect the increase in fuel prices.  It was suggested that the job in question be charged additional costs in excess of our already increased equipment rates simply because we received more revenue to cover the fuel.


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Alicia Wensmann CPA, CCIFP
Controller
Landwehr Construction, Inc.
St. Cloud MN
(320) 252-1494
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Original Message:
Sent: 06-03-2022 08:28
From: Dennis Shindle
Subject: Consistency of Equipment Rates??

You are correct that the equipment cost should be the same for all jobs if it is for the same piece of equipment.  The equipment cost should not be affected by what you are being paid by your customer.  It should reflect the actual cost that you incur to run that piece of equipment.  With that being said, the rising cost of fuel may be increasing your hourly equipment cost.  When was the last time that you calculated equipment costs?  The current inflation is causing the cost for many items to be increasing, so it may be a good idea to review your equipment costs.  If the cost has increased, the cost applied should be increased across all jobs, not just that one you were fortunate enough to get increased revenue to cover it.

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Dennis J. Shindle, Jr. CPA, CCIFP
Senior Manager
RKL LLP.
Chambersburg PA
(717) 251-3771
------------------------------

Hi Alcia,
  Have you considered charging fuel costs, over what you have in your rate, direct to the job.  That way, when the job receives the additional revenue it also has the additional fuel costs and you have preserved your rental rate.  That being said, Dennis makes a good point, we are in the process of reviewing our equipment costs and increasing our job rates to recognize the additional operating costs.

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Lisa Punches
Controller
C. A. Rasmussen, Inc.
Valencia CA
(661) 367-9082
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There are many theories about this, so here are my three cents...

[Disclaimer:  I am the Product Manager for Spectrum.  These comments are based on my work with clients over the years.]

First of all, it always depends on your facts and circumstances...as well as what your objectives are here.  Here, the theory is that we are charging the job the costs of our ownership and operating costs that relate to the specific project.

The equipment rate we charge to jobs is comprised of two components:

• Ownership / Fixed Costs - Depreciation, License, Insurance, etc
• Operating / Variable Costs - Fuel, Repairs and Maintenance, etc

So if everything was the same, we would only have one set of charge rates.  This is the starting point.

Based on the job though, we can opt to increase the operating/variable portion to cover the fuel surcharges.  I have also seen folks increase the operating costs as the terrain is so difficult to work in that the asset has to be repaired and requires replacement parts.

Again, just my three cents.

What do others think here?

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Geoffrey Falk CPA
Product Manager
Trimble Viewpoint Inc
Seattle WA
(206) 777-6811
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I agree that there are instances where a specific job may have a higher cost due to rough terrain causing a higher percentage of the sales.  The way that I understood the original post is that the fuel surcharge was awarded them in the contract with the customer.  Therefore, that would not have any affect on the actual cost of running the equipment.  I would only see a higher rate being charged to cost if you are paying a higher fuel price on that job than other jobs.

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Dennis J. Shindle, Jr. CPA, CCIFP
Senior Manager
RKL LLP
Chambersburg PA
(717) 251-3771
------------------------------

Original Message:
Sent: 06-03-2022 11:48
From: Geoffrey Falk
Subject: Consistency of Equipment Rates??

There are many theories about this, so here are my three cents...

[Disclaimer:  I am the Product Manager for Spectrum.  These comments are based on my work with clients over the years.]

First of all, it always depends on your facts and circumstances...as well as what your objectives are here.  Here, the theory is that we are charging the job the costs of our ownership and operating costs that relate to the specific project.

The equipment rate we charge to jobs is comprised of two components:

• Ownership / Fixed Costs - Depreciation, License, Insurance, etc
• Operating / Variable Costs - Fuel, Repairs and Maintenance, etc

So if everything was the same, we would only have one set of charge rates.  This is the starting point.

Based on the job though, we can opt to increase the operating/variable portion to cover the fuel surcharges.  I have also seen folks increase the operating costs as the terrain is so difficult to work in that the asset has to be repaired and requires replacement parts.

Again, just my three cents.

What do others think here?

------------------------------
Geoffrey Falk CPA
Product Manager
Trimble Viewpoint Inc
Seattle WA
(206) 777-6811
------------------------------

Hi Alicia,

We charge the same equipment rates to each job based upon the class of equipment with two exceptions:

1. Rental equipment - the job on which the equipment is used absorbs any rental premium over above our standard rates.
2. In the event of significant differing site conditions, we have used a rate override to recover additional fuel costs (due to difficult site conditions, soil friction, etc) which would increase fuel consumption for certain equipment (ex. scrapers) for that particular project.  Another scenario involved very rocky site conditions which led to excessive tire wear / cuts on articulated dump trucks and faster consumption of wear items (drill bits, bucket teeth, cutting edges) where we increased the repair cost factor for certain equipment (drills, excavators, dozers).  This is similar to the concept that Geoff had shared.

Hope this helps.  Thanks, --Rich

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Richard King CCIFP, CPA
CFO
Schlouch Incorporated
Blandon PA
(610) 926-7070
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Original Message:
Sent: 06-03-2022 14:33
From: Dennis Shindle
Subject: Consistency of Equipment Rates??

I agree that there are instances where a specific job may have a higher cost due to rough terrain causing a higher percentage of the sales.  The way that I understood the original post is that the fuel surcharge was awarded them in the contract with the customer.  Therefore, that would not have any affect on the actual cost of running the equipment.  I would only see a higher rate being charged to cost if you are paying a higher fuel price on that job than other jobs.

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Dennis J. Shindle, Jr. CPA, CCIFP
Senior Manager
RKL LLP
Chambersburg PA
(717) 251-3771
------------------------------


Original Message:
Sent: 06-03-2022 11:48
From: Geoffrey Falk
Subject: Consistency of Equipment Rates??

There are many theories about this, so here are my three cents...

[Disclaimer:  I am the Product Manager for Spectrum.  These comments are based on my work with clients over the years.]

First of all, it always depends on your facts and circumstances...as well as what your objectives are here.  Here, the theory is that we are charging the job the costs of our ownership and operating costs that relate to the specific project.

The equipment rate we charge to jobs is comprised of two components:

• Ownership / Fixed Costs - Depreciation, License, Insurance, etc
• Operating / Variable Costs - Fuel, Repairs and Maintenance, etc

So if everything was the same, we would only have one set of charge rates.  This is the starting point.

Based on the job though, we can opt to increase the operating/variable portion to cover the fuel surcharges.  I have also seen folks increase the operating costs as the terrain is so difficult to work in that the asset has to be repaired and requires replacement parts.

Again, just my three cents.

What do others think here?

------------------------------
Geoffrey Falk CPA
Product Manager
Trimble Viewpoint Inc
Seattle WA
(206) 777-6811