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A Closer Look at Equipment Rental
The workload of maintenance and engineering departments has continued to grow in recent years as facilities expand and their operations become more complex. To meet these changing needs, managers are looking for cost savings in all areas to stay within budgets.
In making equipment decisions, managers more often are looking into equipment rental companies — instead of automatically purchasing equipment — to help them address the need for specialized equipment on a short-term basis.
When managers compare the cost of buying and owning equipment over the long-term, the costs associated with rental often present managers with an appealing option. But to make the transaction work, managers must look carefully at a range of issues before reaching a decision.
When deciding whether to rent or buy, managers must consider their budgets, says Dan Mcareavey, Home Depot’s senior director of tool operations and merchandising.
“If they have enough dollars to invest in certain products, they need to look at how often they need that product,” he says. It isn’t smart management to buy a product the department wouldn’t use much.
Managers also need to determine how to store equipment, how to protect it, and how to dispose of it at the end of its useful life. Each of these decisions will drive up the cost of the purchase.
“Sometimes, I think managers assume the cost of renting is a little high, but if they take a look at all of the services that a rental company provides, i.e., the delivery, the service, the breakdown recovery, I think that they would change their minds,” Mcareavey says.
The costs related to maintaining a piece of equipment also can make renting more attractive than purchasing. When an organization owns a piece of equipment and it breaks down, managers need to find someone to fix it, then pay for the repair costs.
“In a rental transaction, the rental company assumes all of that responsibility,” Mcareavey says.
Organizations can have more maintenance-related responsibilities when it comes to long-term rentals, so it is important managers understand these responsibilities and the associated costs before signing the rental agreement.
They also should clearly understand all costs they would incur if the rental equipment is damaged while in their possession. One option is to ask for a damage waiver as part of the rental agreement. If an employee damages the fender of a rented grounds care vehicle, the additional money spent for a damage waiver might be a good investment, says I. Charles Maltese, executive director of the California Rental Association.
“If the employee rolls the vehicle over and down a hill and it’s demolished, however, the damage waiver wouldn’t cover it,” he says. In that case, the organization’s insurance policy would have to cover damage costs.
To avoid disputes regarding damaged equipment, managers need to carefully inspect the rental equipment before taking possession, Maltese says. Employees who pick up equipment from the rental company should inspect it carefully before leaving the premises. If the rental company delivers it, employees should look at before the delivery person leaves the site. According to many rental contracts, if an organization accepts delivery, it also assumes one of its employee inspected the equipment.
“Rental companies expect it to come back with just normal wear and tear,” he says. The person renting the equipment is responsible for any damage beyond that. Finally, managers also should be aware of what happens if the equipment is stolen.
“A lot of rental companies will not insure a product if it is stolen,” says Mcareavey. By carefully understanding all of their equipment-acquisition options, managers can make the best financial decisions.
Communication between the rental company and the facility’s end user is essential for a cost-effective rental.
“In terms of the overall rental experience, I think that (managers) want to make sure they give whoever their provider is a clear picture of what the job is, what they want to accomplish with the equipment and what their expectations are in regards to the total cost,” Mcareavey says.
Before agreeing to a rental contract, the two parties should talk about any fees — such as those for fuel, delivery and pick-up — that can be added to the rental rate.
When discussing the duration and cost of the rental, along with late fees, managers need to clearly understand the terms of the contract. This step is particularly important for one-day rentals because some rental companies consider eight hours as a day, while others operate on a 24-hour workday, Mcareavey says.
Managers also should make sure to ask for an off-rent number that equipment users can call when they are done using the equipment, says Ken Rothmel, national strategic account manager for Sunbelt Rentals. The equipment user notifies the rental company that the equipment is ready for pickup, and the clock stops ticking on the rental rate.
“Even if the rental company doesn’t pick it up for a few days, the organization isn’t paying rent on it,” Rothmel says. Organizations often forget to call the off-rent number, Maltese says.
“Somebody sees it two days later and realizes nobody called the rental company,” he says. Managers also need to be clear with rental companies about service expectations, Mcareavey says. For example, if a crew working needs 24-hour emergency service for a piece of equipment, the manager needs to explain that requirement up front.
“If we don’t know that detail, we don’t know that we need to provide that level of service,” he says.
One of the best ways for a manager to avoid miscommunication with a rental company is to plan for jobs that require equipment rental and establish good relationships with equipment providers ahead of time.
“I think it is really critical for managers to look at the whole year and the things that they know they are going to do,” Mcareavey says. “If they know they are going to do a big job, it would be a good idea for them to do some analysis between different vendors to see who offers the best service and the best price.”
Managers next can meet with the potential rental partners to discuss projects on the schedule over the next year.
“When you build that relationship, it makes it easier for rental companies to understand your needs,” Mcareavey says. Having good relationships with rental companies becomes especially important when emergencies arise.
“You don’t what to be looking through the Yellow Pages at 3 a.m. when you have a flood going on,” he says. “It’s also a good idea to have a couple rental lists standing by in case of such situations.”
A growing number of maintenance departments now include equipment-rental strategies in their overall disaster-response plans, Rothmel says.
“Some people are reserving generators for the whole hurricane season,” he says. “Others are renting the equipment when they realize the storm is targeting their area.”
Because the floods that followed Hurricane Katrina damaged many facilities’ back-up power equipment, many organizations along the Gulf Coast are opting to rent, not buy, this type of equipment.
“Some of them spent tens of thousands of dollars to have a back-up generator, and then when they went to use it, it wasn’t functioning,” Rothmel says.
A Look at Leasing
Equipment leasing offers maintenance and engineering managers still another option to supplement their department’s equipment inventory.
“Some people would consider leasing a form of renting, and vice versa,” says Ralph Petta, vice president of industry services at the Equipment Leasing Association. Most often, equipment providers consider the contract a lease if it is for long-term use of the equipment.
Leasing companies are often more like financial providers that equipment experts and might not be as knowledgeable in the equipment as rental companies, Petta says. “In a lease, you’re entering into a contract with someone who is basically lending money, so it’s really a form of financing. There is no one type of lease. One of the benefits of lease financing that leasing companies offer is flexibility. They can structure a lease to help an organization achieve its financial goals.
“In that respect, it is different from other types of financing, particularly debt financing, where you go to a bank, put down a sizable down payment, and the bank lends the money. You have to pay back the money on a very fixed schedule. Leases can be very flexible in developing a schedule that meets the cash-flow payments of the lessee. It is much more flexible than a straight loan.”
When selecting a leasing company, managers need to make sure the leasing company is easy to work with and that the documents are straightforward. As with rental contracts, managers need to understand lease contracts, most importantly the rights and responsibilities of both parties.
“The biggest mistake that people make regarding leases is they don’t read the documents,” Petta says. When a dispute arises, it often involves the lessee not reading the contract. Managers might want to have an attorney review the contract before signing it.
— Renee L. Shroades