NOTES - 07
EQUIPMENT
MANAGEMENT TIPS FOR THE CONSTRUCTION ENGINEERS
AND
PLANT & MACHINERY ENGINEERS
AN
INTRODUCTION TO CONSTRUCTION PLANT AND EQUIPMENT
HOW
TO DECIDE ABOUT PROCUREMENT OF EQUIPMENT
Options
A number of options
are available in respect of obtaining construction equipment for use on any
specific project.
I.
Outright purchase
This option is adopted
by construction agencies in respect of items of construction equipment which
are expected to be utilised on a number of projects during the useful life of
the equipment. Though huge initial investments are involved, the equipment so
owned by the construction agency will pay for itself over its useful life and
also earn substantial profits. Whenever such equipment is idle, it is also
possible to rent it out to others for short durations.
There are a number of
sources of financing for equipment purchases. These include the following:
i. Internal resources
ii. Bank loans
iii. Loans from other
financial institutions
iv. Buyers credit
v. Sellers credit
vi. Financing by
Industrial Development Bank of India (IDBI)
vii. Financing by
Industrial Credit and Investment Corporation of India (ICICI)
viii. Government
credit
ix. Advances by the
clients
Most of the above
sources of financing involve payment of interest charges varying from a small
percentage right up to about 25%, depending upon the sources of finance and
credibility of the borrower. In many cases it may be necessary to hypothecate
the equipment to the creditor until all the loans are repaid.
II.
Hire of equipment
In the international
market and in other developed countries, there are a number of organizations
who maintain a wide variety of equipment; items specifically for hiring the
same to the contractors on short, medium or long term basis. This option is
naturally more expensive to the construction agency, as the profits of the
hiring agencies are also included in the hire charges. However, it may be
attractive to hire the equipment under certain circumstances. If the job for
which the equipment is required is not likely to be repeated, hiring may be
more attractive. There may also be situations where the construction agency may
not be in a position to mobilize the requisite funds for outright purchase of
the equipment. Hiring is also attractive in respect of some of the very
specialized items of equipment which are used only occasionally. If for
instance a big crane is required for handling a large load once or twice only,
obviously the equipment needs to be hired and not purchased.
The hiring industry is
at best in its formative stages in India. Items of equipment which are commonly
available include trucks, cranes, tractor trailers, compressors, generators,
concrete mixers, road rollers, water pumps, etc.
III.
Equipment owned by clients
Until recently, the
pattern of letting out small contracts by many of the government agencies had
resulted in inability of small construction agencies to purchase and maintain
the necessary construction equipment. In such cases, the concerned government
departments/owners used to purchase and maintain various items of equipment.
These items used to be supplied on hire to the construction agencies as and
when required. This practice is still prevalent in many of the Public Works
Departments all over the country. Common items under this category include
trucks, road rollers, compressors, crushers, etc. Usually the operators will
also be provided by the owners. The construction agency is required to bear the
hire charges, cost of POL and routine maintenance.
In the case of a
number of major irrigation/hydroelectric projects, heavy earthmoving items are
purchased by the owners and are either hired to the construction agencies, or
operated under the owners' supervision directly in a number of cases. In the
latter case, the construction agency provides materials and other services
based on the free supply of equipment by the clients.
This system is also
being practiced by some enlightened owners in the private sectors.
In many cases, the
owner advances money to the construction agencies for purchases of specific
items of equipment required for the project, with the condition that the
equipment should be offered for sale to the owners at a mutually accepted price
after completion of the particular project. This practice is being followed by
some power station authorities, particularly where import of equipment is
involved.
In a few cases, the
owners have also offered to sell the equipment to the construction agencies at
mutually accepted prices. Some authorities involved in hydroelectric projects
have been following this practice.
A number of Indian
construction agencies have been involved in export contracts in the Middle East
during the last 10 years and in the process have purchased a wide variety of
sophisticated items of equipment from developed countries. Such purchases have
generally been effected out of their export earnings. Most of these items of
equipment have been imported into the respective countries for operation of the
project on a temporary basis with the specific understanding that on completion
of the project the equipment will be re-exported out of the country. This
practice is being followed to avoid payment of customs duty during the first
import.
Now that the export
opportunities are on the decline, it has become obligatory for the Indian
construction agencies working abroad to remove the construction equipment from
their respective countries and bring them over to India. This process has
already been started and more and more imported construction equipment could be
expected to be brought to India by these agencies during the next few years.
Such items of equipment also form a vital source for carrying out construction
in India.
IV. Secondhand
Equipment
In a number of cases,
it is advantageous to go in for purchase of used equipment provided such
equipment is in reasonable working condition. Obviously the prime attraction is
the reduced cost. This option must be very carefully evaluated for various
factors before affecting the purchase. The factors to be considered will
include the following:
a. The condition of
the equipment
b. Availability of
spare parts
c. Fuel consumption
d. Price
e. Delivery time
f. Cost of
transportation and installation
g. Customs duty, if
any
The secondhand
equipment is obtainable either from another construction agency or from hiring
agencies. In many of the advanced countries, there are a number of
organizations specifically dealing with purchase and sale of secondhand
equipment. Such organizations serve as a central exchange for the purpose and
in many cases they publish regular bulletins, giving detailed information about
the equipment and the price levels.
In the case of high
values, specialized items of equipment such as large cranes, tunneling
machines, etc., the original equipment manufacturers themselves follow the
practice of buying back the secondhand equipment, reconditioning them and offer
such reconditioned equipment for sale at prices which may be mutually
attractive both to the seller and the buyer. It is also possible to effect the
purchase of such specialized new equipment from the manufacturers with a
specific provision for selling back the equipment to the manufacturers after
completing the project for a specified period of time.
V. Leasing of
Equipment
Of late, a number of
leasing companies have sprung up all over the country and this mode of making
available the equipment for construction is becoming increasingly popular. The
lease may be for a particular item of equipment or for a group of items,
subject to a ceiling value, under a common lease deed.
The lease deed
generally contains the following conditions:
a. Period of lease
with provision for extension
b. Details of rental
charges, generally on a permanent basis
c. Warranties - The
lessor generally does not make any commitments regarding warranties.
d. Title,
identification and ownership of equipment. The ownership generally rests with
the lessor.
e. Conditions
regarding cost of transportation
f. Indemnity -
Generally the lessee is required to indemnify the lessor against any damages
arising from the use of equipment.
g. Operating
conditions.
h. Repairs - loss and
damage. The lessee at its own cost will be required to keep all the equipment
in good repair condition and working order.
i. Insurance
j. Commitment fees
The user of the leased
equipment does not get the benefit of depreciation/investment allowance.
Instead, the lease amount payable is treated as revenue expenditure.
Leasing of equipment
is generally resorted to in the face of liquidity problems. Otherwise, this
mode is perhaps more expensive than the others, because of high overhauling and
interest rates.
It is also possible to
convert the lease into an outright purchase subject to certain conditions.
VI.
Information Sources
In the case of
traditional items of equipment the construction agency may decide on the choice
of manufacturer based on its own past experience, as well as the availability
of trained manpower for handling such equipment. On many occasions the
construction agencies enter into a system of rate contract for various items of
equipment with one or more established manufacturers of their choice. Such a
system is mutually advantageous to both. The manufacturer is assured of a
market while the construction agency can expect to get more favorable payment
terms and lower rates.
Trade catalogues and
advertisements in trade journals are important embodiments of information for
evaluation and sources of equipment. Most of the established manufacturers of
equipment all over the world are available on telex and respond immediately to
each telex enquiry with complete trade literature, manuals as well as
quotations. In quite a few cases, the manufacturers have been providing video
films depicting the operation of the equipment in response to trade inquiries.
There are a number of
monthly periodicals published with a large number of advertisements from the
equipment manufacturers. Many of such periodicals are meant for free
distribution to established construction agencies and other users. More
prominent of such periodicals are the following:
1. World Construction
2. International
Construction
3. Worldwide Projects
4. Construction
Industry International
These periodicals
contain a wealth of information of various technical aspects for construction
equipment including new developments, in addition to the advertisements.
Another useful source of information for updating the details of construction
plant and equipment is a wide variety of annual publications by a number of
agencies in the UK and USA. For example, Morgan- Grampian Book Publishing Code
of UK has been publishing an annual directory of construction equipment.
Similar publications of American and French origin are also available. These
publications provide complete specifications including the following:
a. The name of the
manufacturer
b. Model number
c. Engine type, horse
power and speed
d. Machine Dimensions
e. Type of controls
f. Operating pressures
g. Fuel consumption
h. Type of
transmission
i. Weight and shipping
dimensions
The Indian Roads Congress
has also brought out a publication recently giving details of various
construction equipment being manufactured in the country. Most of the
established equipment manufacturers from various parts of the world are
represented in India by a number of agents. While replying to inquire from the
purchasers, the manufacturers also furnish the name and address of the Indian
agent who is expected to supplement the information and follow up the enquiry.
Specialized
international trade fairs are being periodically organized to popularize the
use of latest items of equipment. Such trade fairs serve a very useful purpose
of providing information on latest developments. In most of the cases,
prototype equipment is displayed in operating condition. The manufacturers' representatives
are available to explain the various features of the equipment and furnish
clarifications to inquiries. Notable examples of international trade fairs
dealing with construction equipment are the following:
1. BAUMA International
Trade Fair for construction equipment and building material & machines held
in Munich, West Germany after every three years. The next exhibition of Bauma
is scheduled.
2. International
Construction Equipment Exhibition in Birmingham, UK held every alternate year.
3. Expomat
Construction Equipment Exhibition held in Paris every alternate year.
There are a number of
International Chambers of Commerce representing various countries in India.
Such organizations readily respond to the enquiries regarding construction
plant produced by various countries. For instance, the Indo-German Chamber of
Commerce located in Bombay and other major towns in India will readily respond
to enquiries regarding construction equipment of German origin and provide
useful information.
Similar is the case
with equipment manufactured by other European countries, UK and USA.
Trade Commissioners
are also attached to a number of Embassies/Consulates of many of the countries
represented in India. Such Trade Commissioners take an active interest and are
in a position to advice regarding the availability of the equipment from their
respective countries.
The widespread use of
computers has also had its impact in disseminating information regarding
construction equipment. There are a number of organizations worldwide who
provide automatic computerized information in response to enquiries regarding
the availability; prices of new and secondhand equipment and other details.
Such information can be obtained by taking out an annual subscription with the
facility of getting the computerized information on line as and when required.
This can be obtained usually through Telex, Fax or Pager.
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