I know of some large construction companies have differing accounting practices and management philosophies. I am not sure but I think that on some when on jobs the equipment is basically rented from itself. Superintendents have to make their job profits outside of the profit of the equipment used. Also, their profit is measured on what is up and above the value of the capital used on the job in what could be made in the stock market (around 7% before the recession). So if $1,000,000 of capital (aside from heavy equipment) was used on a job lasting one year in duration $70,000 would be counted against the profits. The thinking being that instead of running a construction company that the capital should just be invested in the stock market (back in the pre-recession days). Like I say, the equipment is basically rented from themselves. If a piece of equipment does not get used 500 hours per year they get rid of it and say that they would be better off renting. Using this method a superintendent can say that a job lost money when in reality the company made money but the superintendent just did not make enough money to exceed the 7% capital return and the equipment made money but was accounted separate from the job. I know of other companies who rarely get rid of equipment and sometimes equipment can sit for years between jobs but the equipment is owned. Apparently the owners don't account much for the idleness of the equipment. If a piece of equipment is well taken care of and is in good shape it is rare to receive a good price for it when it is sent to auction. Does anyone have any other thoughts, knowledge, or opinions on this?
We are currently seeking alternative strategies within our company. Currently we practice, "It doesn't cost anything to sit there," approach and we do not have an internal rent structure in place. This fosters a hide and hoard mentallity from superintendents that want to have spare machines laying around just in case they need it. When factoring in the depreciation and maintenance costs associated with the equipment, an internal rent practice is a better alternative. Also, from an equipment management stand point you want to be able to track expenses for the equipment, including annual overhaul, PM services, etc. If you are not making enough money to support the equipment then something needs to change. Rent vs. Own or Replace vs. Rebuild. By charging an internal rent in the future we will have better forcasting ability in regards of annual overhaul budgets.