Most contractors have rented construction equipment at some time or other. It could be small or large, a skid-steer, a hydraulic hammer, or a large excavator. There’s certainly no dishonor in doing it! For many years now, contractors have realized that renting one or two pieces of equipment for a particular project can make excellent sense. A good example would be the excavation needed for a project you’ve bid on and won. You already own a great midsize excavator, but for one long stretch of the job a larger model would be much better and more efficient because it can dig so much more and earn more per hour than the one in your yard. You don’t want to put out a few hundred thousand for a bigger excavator that you may not need again for a year, so you rent the right size for a few weeks. That’s a wise decision and one reason why rental business has stayed strong in these recent years when other aspects of construction have wobbled. An interesting observation after that positive aspect of rentals is that a good percentage of contractors have also bought equipment, new and used, in these last two years.
Uncertainty in the marketplace makes every type and size of equipment fair game for rental.
If you read or talk about the pros and cons of renting versus buying, you will almost certainly come up against people who relate the whole issue to accounting. Here is one of the key questions: Is contracting just about accounting? Or, to put it a little differently, is everything that a contractor does all about accounting, about statistics, theories, and very little about the work of contracting? One comment I have read from financial folks, more than a few times, is that smaller contracting companies may be good at excavating, grading, and dozing, but they are no good at accounting. “There’s an obvious solution to that,” comments one of my neighbors. “Let the accountants do the digging so that we can all see how it should be done profitably.” There is some good sense evident in the characterization of small business owners as less shrewd operators, but it is based on the fact that they are small and cannot afford the financial luxuries of bigger companies. By “small business,” I mean what most of us think of as a small business, with a few employees, not the government-defined small business as any one having less than 250 employees. I believe my biggest contractor neighbor has eight employees, including himself.
Many of us do worry too little about controlling expenses when we are excited by the potentially good results of a winning bid for a decent project. We were discussing the advantage of renting equipment recently, and one gentleman told us that a good accountant could determine the real annual cost of ownership of a certain machine would be about $35 per hour if we rented it, but only $15 if we owned it. He smiled smugly, until a contractor reminded him that he should add in the cost of a “good accountant or two” to work it out accurately. There are many “ifs” in discussions about renting and purchasing equipment: if you keep it a year, if you use it all the time, if it sits idly in your yard for six months, if you intend to keep it for several years, if the resale price is important, if…if…if… This is of little consolation, perhaps, but the merits of renting depend very much on your company’s particular ifs. What suits a contractor with hundreds of employees and dozens of jobs nationwide may not suit you in your territory. Let’s face it. Most contracting companies in our sector do not have hundreds of employees, but many of them make a good living and, more importantly for everybody, they do a good job for their customers.
Flexibility in Contracts
Most contractors own some, if not most, of their equipment. Their range is based on the jobs that they usually do. This makes sense, doesn’t it? Many contractors keep their work within certain parameters, only bidding on jobs that they know they can do profitably. Sticking to those rules, they have developed profitable businesses. Most of them have not become mega contractors (or whatever today’s word is for such giants of business) but they have made a decent living and are happy doing it. When such contractors need a special tool or machine for a project, they usually rent it, because that involves less initial spending, less maintenance, or less insurance for one short job or short part of a larger project.
In the recent, tough years, new contracting businesses have appeared, and some have used rental equipment to get started. When the older guys say that newcomers (usually, but not always, younger people) must watch their expenses, they are not criticizing them just because they are new and young. They are warning about the costs of contracting that we sometimes don’t learn for months or years. One event that can upset rental plans for a contractor is a break in the project. Let’s say your excavation is delayed for a few weeks. The reason for the delay has nothing to do with you; it’s a problem the owners have, or perhaps the general contractor with whom you are a subcontractor. To have rented equipment lie idle for a few weeks could be disastrous. You’re paying the rent but getting nothing for it.
There are rental agreements that can address this problem. It is certainly something you should discuss with your rental agency. It is also something that emphasizes what can be a big difference between rental agencies. There are local places to rent and they have a good range of what you might call everyday equipment: loaders, skid-steers, pumps, air compressors, small compactors, etc. When the reason for renting is that you require a specialized piece of equipment (which could be an attachment) you may find that your local rental agency does not have it. There is going to be a great difference in what is available from a large agency such as United Rentals, Mabey, or Sunbelt Rentals, and what your local store has available. For many contractors, the distance from the rental supplier can be a problem; my nearest “big” rental agency is more than 100 miles away. This brings up the thought that, if your project is a few hundred miles away, it may be better to rent equipment at the site location when you consider the costs of transportation. Renting near the job site, for service and emergencies, could be a good reason to rent locally, especially when one considers such additional costs as the truck, the driver, fuel, loading, and unloading,
As with any business or personal contract, you should be aware of possible pitfalls and hidden expenses. For construction equipment, it would be normal to ask who covers taxes, insurance, and maintenance on the rented equipment. For insurance, are you already covered before the renting with your existing policies? Are there penalties for the contractor if his or her company uses what are described in the contract as extra miles, or if there is damage to the machine, or if there is unusual wear and tear? Who decides such issues? Who pays for returning the equipment to the leasing company after the rental period is over? What happens if the equipment breaks down? What are the expenses incurred if the rental period is shortened by the customer? One aspect of a proposed rental agreement is the beginning cost. If it is unusually low, to encourage users, it may be a program where the rate increases dramatically (as much as a dozen times its original level) as the rental use continues.
Future Acquisitions of Equipment
Ignored in all I’ve emphasized so far are the manufacturers. Renting is just one way in which contractors acquire new equipment. There are currently several options available, including purchase, renting, rent with option to buy, leasing, leasing with option to buy, and whatever individualized plan your supplier can develop for you. They all have one thing in common: good, new equipment. We would be willfully ignorant if we thought the manufacturers were sitting back in offices wondering what they could do. Some of the leading manufacturers (Volvo, Caterpillar, and Bobcat spring to mind at once) already have numerous rental locations nationwide. Manufacturers want to sell their equipment, and they will devise all kinds of methods for getting contractors to own it, methods that may well demand the expertise of a good accountant to understand but methods which let the contractor deal directly with the people who designed and made the equipment needed. There may be a wealth of value in that word “directly.” This is only my personal opinion, but it seems likely that an excavator or skid-steer acquired directly from Caterpillar, Doosan, or Volvo through a “rental” plan may offer superior terms to one acquired through a middle man.
A job might need a special bucket.
This doesn’t ignore or belittle dealers, distributors, or rental companies. Simply, it reminds us that the end result desired is a great loader, grader, excavator, or other piece of construction equipment. Should a contractor be restricted in his efforts to obtain what is needed? Isn’t the future likely to introduce ways of acquiring equipment that we have not imagined and isn’t it likely that the successful providers will be the best of the manufacturers, distributors, dealers, and rental companies? Renting may be just a guidepost for what is to come! Do some research. See what variations of “rental” are available today. One may suit your needs perfectly; it may provide you with the equipment you need for a specific project, for a specific time, at a cost you can accept.
One reason given most often for renting new equipment is that it gives a contractor the chance to test new technologies before committing wholeheartedly to the product. Even if construction equipment is expensive-with much of it priced about a hundred thousand, or much more-it doesn’t mean that new is necessarily better, for you. Renting a new product with a genuinely new technology in its operation does make good sense. That new technology may be too much for what your crews normally do, or it may be just the thing to improve your performance. A short rental on an appropriate job could certainly decide this.
As rental gains in popularity and rental companies keep their equipment up-to-date, there will be another effect on the construction marketplace. There will be some excellent equipment available as “lightly used.” This could also change the overall picture of the market. In recent years, a good proportion of used equipment from North America has gone abroad, but the quality of used equipment left here has improved steadily. Used equipment is seldom a repainted, rusty crane with an I Like Ike sticker on it. The energy of the rental market has given contractors some excellent used equipment. Will this in itself become a threat to the rental activity? Only yesterday I received a brochure/catalog from a company that sells used construction equipment. This was not a four-page flyer but a full catalog with good information and photos about the machinery for sale. The machines looked good and the prices asked were quite appealing. In the rent-versus-purchase debate, there may be another significant factor soon: used equipment of high quality. These would be the equipment, much of it probably excellent stuff, of those contractors who were forced out of business by the weak market in recent years. Have you noticed the impressive array of construction equipment at the leading auction sales?
Telehandlers are among the most popular rentals when the project involves structures.
This train of thought brings to mind another group who can help contractors acquire the equipment they want: banks and other finance companies. Some of the biggest banks (such as Wells Fargo) and finance companies (General Electric and CTI) are well known for their financing of heavy equipment as well as for more office-bound works. Accepting that rental is a way to acquire equipment when you want it but may not have the money instantly available to get it, these entities whose whole life is lending money to make money may well be a good solution for you. A good example of this, though not in construction, is my hometown’s leading bank, which has lent many millions to ranchers and farmers for the benefit of both parties involved. The bank knows the clients as neighbors, knows their industry, and makes deals that are perceived as good for that industry. The same could be said of banks that finance construction equipment. The best ones know their customers, know the market, and can make contracts that are both flexible and affordable. They are certainly another source for acquiring the equipment we need.
Choosing the Right Source
The first thing to know is that most rental companies are honest dealers. Of all businesses, rentals must be high on the list of those who want you to come back for more! You cannot generalize about the selection of dealing with an office that is a branch of a large corporation or simply a local business that has seen a need and is trying to fill it. Your local rental house may be a branch of a large, efficient organization. United Rentals, for example, has several billion dollars of equipment available through its more than 800 branches in North America. Your local rental company could be one of those, even if you’ve known the people who run the office all your contracting life. Who uses all those branches? United Rentals tells us that 47% of its customers are nonresidential construction and 4% are residential. Among the 49% described as nonconstruction are municipalities, government agencies, and industrial companies. A much-praised advantage of dealing with branch of a large rental company is that the people there can usually find you the specialized equipment you need to rent for your job, whereas a smaller company might have difficulty finding and obtaining it for you.
The rebound of construction equipment acquisition since the bad days of 2008″“2011 has shown something that should interest readers of this magazine. A good share of the increase in acquisition (in sales or rentals) has been for excavating equipment, and related machines. As growth is reborn, grading and excavation contractors will see good results from today’s work in tomorrow’s contracts. This is a situation where rent-purchase contracts gain appeal; they are techniques you should certainly investigate if you feel your company is developing a good excavation reputation again. Whatever your financial advisers or markets tell you, your future will depend on how well you do your basic work, which is excavating, grading, dozing, and all jobs related to moving the earth. In all the discussions and arguments about renting or purchasing outright, remember that they all take it for granted that you do a good earthmoving job.
A main reason for serious discussion of whether to rent, buy, lease, or use some other (as yet unnamed) approach to the acquisition of equipment is the importance of winning bids in our industry. Bids are a way for the owner of the project, public or private, to have the best qualified people doing that project. Again, we come back to the prime reason for choosing a winner: the ability to complete the job successfully and within budget. Your skill and history as an earthmover is of paramount importance to the project owner, and to do the job properly you have to have the right equipment available when it’s needed. Knowing what you will need to perform a project well is essential. Knowing that you can rent the equipment when you need it helps. If you don’t have the equipment necessary to win a bid, the time you spend on trying to find that equipment is invaluable.
Are there likely to be changes in the rental business in the future? What could possibly change from today’s simple agreements? We could ask similar questions about any aspect of any business. We have seen companies fail because they did not respond to the needs of their customers-and those were customers “who would never leave us.” We have seen that especially in retail businesses that concern clothes, appliances, and even what used to be familiar grocery products. In the rental sector of our industry it is not the agreements or the types equipment that will change, it’s probably the service that a rental company offers its customers. Rental companies are likely to offer more training, maintenance, and asset management to their customers, and not just for the equipment they have rented. Think of banks and how different they are from what they used to be. They have offered new programs, new ways to use your money; it has been their way to grow. Rental companies will probably do the same, growing their offerings and increasing the qualified help they can give their customers.
Above all, the continuing arrival of new technologies to help contractors will dictate the behavior of those contractors. They want the latest, the best available. This, of course, will concentrate more skilled technicians with the rental companies, fewer with individual contractors. Consider the maintenance technician’s position. Will he or she stay with an individual company where the work could suddenly stop in bad times, or go to a company that will be more likely to survive, even prosper, because its business does not vanish when money and credit are difficult to find for many individual owners?
The economy will dictate the future of the rental business. When credit is difficult to find, contractors will go for a rental with its higher cost but fewer built-in problems, as they have done in the last few years. When the economy is better, when credit eases, when more work is advertised and available, many contractors will buy their equipment rather than renting it. The challenge as always, with every business, is guessing correctly when that will happen.
