Main Feature
BUY, HIRE OR LEASE
– how complex are modern options? written by Ian Clarke
ian@nodigmedia.co.uk
For most people the choice to buy, hire/rent or lease would seem to be simple. If you want equipment for a specific project or operation you either buy it or hire it in one form or another. More recently the option to ‘lease’ has also become ever more popular. But what do these options really entail? It can be more of a mine field than many might think.
ADVANTAGES AND DISADVANTAGES
Perhaps it would be best to star by looking at the various advantages and disadvantages of the various options.
BUY – The first and most obvious advantage to buying a piece of equipment is that it is yours. This means it is available to use as and when required, nobody else is likely to have it when you need it and it will be used by, and therefore familiar to, your own crews when they need to operate it (once trained at the point of purchase if they are not already familiar with the equipment from a previous ownership). In buying an item of equipment, particularly one aimed at a specific project requirement or operation, it is also possible to ensure that unit offers precisely what is needed to complete a specific operation. Otherwise it is perhaps also obvious that there are many instances when one machine that is owned may be able to perform a variety of functions in differing scenarios, making it highly cost effective option with the unit/machine in almost constant use.
The downside to buying of course can have disadvantages that are in the view of many precisely the same as those mentioned as advantages, starting with the fact that you own the equipment. There is always a cost of ownership, as the commonly adopted modern phrase now puts it. To own it first you need to buy it and that means in any cases significant capital investment which could be direct from company funds (if your company is lucky enough to hold large amounts of available cash – not too common these days though) or it can be purchased through some form of financing (but more on that later).
This also means that the costs of maintenance, repair, road taxes and other related costs for transportation vehicles, compliance costs to ensure that equipment meets all current standards and other costs that are yours to bear. In terms of project suitability, if a machine has been purchased to fill a role on a specific project, it raises the question will it fill any role anywhere else in your business. Bear in mind the old airline adage, ‘If it is not flying it is not earning’. This goes for construction equipment or any other piece of equipment you may own, ‘If it is sat in the yard it is not earning’ but it is still costing you money to keep in good order etc.
Finally even if the item is not earning but it is still available for use if needed, the owning company still has to ensure that the relevant personnel maintain their trained status to be able to use it immediately as required without delays due to retraining requirements and that the equipment is in good enough working order to be accessed at any time.
Back on the other hand however, if the equipment is in daily use on a variety of projects or in a variety of circumstances and is rarely in the yard then it can be a highly effective means of investment for the company.
There is also the question of residual value. If the owed equipment is no longer suited to the works undertaken by the owning company is there any trade-in or on-selling value to the machine. Is it a piece of equipment that might be useful to another company or is it simply a pile of scrap.
These are all questions that should perhaps be asked before heading down the purchase route.
However, one further disadvantage if you own the equipment and it breaks down mid-job, is the question do you have a replacement or will the job be delayed as the unit is repaired either on site or after being removed from site to enable the repair to be completed effectively? In many instances there may only be the one piece of suitable equipment for this job and the client will have to wait for the repair to be completed. This is often the scenario that brings the hire option into play.
HIRE – For many the hire option is seen as the back-stop to emergency situations in that when owned equipment fails to proceed something similar (or even exactly the same) can be brought in to fill in the shortfall as a temporary stop-gap. For the hiring option this often far from the whole truth.
When questioned about hiring options John O’Hagan, Rental Manager at Xylem, explained some of the benefits of equipment hire as an alternative to purchasing, and why sourcing equipment on a case-by-case basis makes sense saying: “It is often assumed that rental solutions are only for emergency breakdowns. However, with opportunities to avoid capital expenditure and receive first-rate maintenance, the benefits of short or long-term rental as part of an ongoing contingency plan, or even as a try-before-you-buy option, are clear. Flooding is a classic example of a situation that requires fast action and results. Water needs to be diverted elsewhere quickly to reduce structural
4 drain TRADER | June 2018 |
www.draintraderltd.com
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