Three contractor-owned equipment tactics to help grow profit and reduce risk

Construction projects are picking up steam as pandemic-related economic uncertainty begins to recede. This change could provide opportunities for construction companies to apply often-overlooked pricing strategies for contractor-owned equipment and contract administration.

Below, discover three key contractor equipment pricing and management strategies that can help your construction company yield significant savings, mitigate audit exposure, and prevent unprofitable operations.

1. Establish set rates and equipment pricing caps in the contract

Contractors should establish equipment rates, allowable equipment charges, and charge caps at the beginning of a project. This can help protect project owners from unexpected overruns and contractors from potential audit risks and profit-margin issues.

If contractor equipment and tool costs aren’t controlled by the contract from the outset of a project, rates can be open to construction audits.

Fair pricing

Contractor equipment and tool pricing is generally based on prevailing competitive rates for renting similar equipment in the project vicinity, or it’s based on third-party retail rental rates and specifications books.

Defining in the contract whether rates are charged hourly, daily, weekly or monthly, and including owner- or developer-approval requirements, can help facilitate productive conversations among project management and support a successful project.

Contract definitions

Establishing a strong cost-of-work definition surrounding contractor equipment has many benefits when coupled with a guaranteed maximum price (GMP) contract and right-to-audit clause.

• GMP contract. A GMP contract allows owners and contractors to define adequate allowable and unallowable equipment cost for a project, which helps both parties manage and control cost.
• Cost-of-work definitions. Cost-of-work definitions need to be clearly established to enable efficient and effective validation of compliant project charges.
• Right-to-audit clause. This clause shields contractors from potentially being exposed during a contract audit, especially if minimum reporting standards are written into the contract. This is because the clause clarifies all required, necessary documentation at the beginning of the project.