Intermediate Equipment Handbook
Intech Associates
Where an opportunity cost is used, this should represent the assessed REAL
value of the capital deployed. This should be determined with reference to the
market interest rates for capital and local inflation.
Equipment may be provided to a road authority free of charge or at a subsidised
loan rate, however this is not a realistic or sustainable method of costing,
particularly for a national equipment fleet. Contractors MUST take account of this
component to realistically cost their equipment.
Steps 1 to 5 are the most difficult in the costing process to assess as assumptions are
made dependent on a prediction of future conditions and equipment performance
throughout its life. Over-assessment could lead to non-competitive bids by a contractor.
Under-assessment will provide inadequate funding for loans and/or replacement of
equipment.
SHEET 3
6. Insert the selected interest rate assumed for reference purposes in the box
provided.
7. Insert in the Box C1 the depreciation/replacement charge selected as described
in Step 3.
8. Insert in the Box C2 the finance charge selected as described in Step 5.
9. Insert the actual cost of procurement or replacement of the piece of equipment in
the Box C3. This will almost certainly be different from the ‘COST NEW’ shown
on Sheet 1; an adjustment for this will be made in the following steps. The cost
inserted should be the actual current cost new of purchasing the equipment
including all taxes, duties and charges involved. Even if you purchased the
equipment new some time ago, insert the current cost new, otherwise you will
undervalue the life being used up by each hour of use.
Alternatively, if the equipment will be, or was, purchased second hand, that
price can be inserted, however there should also be an adjustment for the
reduced economic life at time of purchase and possibly lower annual utilisation
compared to a new equipment model. Again it is important to adjust purchase
costs with inflation. This can be done by relating the price paid for the second-
hand piece of equipment compared to the price new at that time (as a
percentage) and apply the same percentage to the current price new.
10. Insert the assumed number of operating hours each day in the Box C4.
11. Calculate the DAILY OWNERSHIP COST based on the formula shown and
insert the figure in the Box C.
This DAILY OWNERSHIP COST should be adjusted for the expected value of
the equipment on ultimate sale, disposal or scrap. Second hand and scrap
October 2012
47