Capital Equipment News June 2019

EDITOR'S COMMENT

ADDRESSING THE PROCUREMENT DILEMMA

F or speedy and economic comple- tion of projects, proper procure- ment choices of equipment are of critical importance for contractors. It is also essential to know what options are available to buy the gear. In tough economic conditions, the economics of equipment is one of the most important considerations for construction and mining contractors, especially when it comes to buying options. Business owners, project managers and general contractors in the construction industry, for example, know that heavy equipment can be so costly. The benefits and potential financial risks of acquiring new or used gear should be clearly determined before any decisions are made. There are different ways of satisfying a company’s equipment needs. The most popular ones in the local market are outright purchasing and renting. There is no right or wrong in these options, but they suit just different situations for different companies. It is of essence for equipment users to pick the right option suitable for their company’s needs and, more importantly, their bank balance. Traditionally, local contractors have always favoured outright purchasing. While buying equipment offers immediate ownership and deductions for depreciation and interest can bring down a firm’s taxable income, the depreciation cost of the new machine is also likely to be high, and this raises the owning cost of the equipment and thus the unit cost of work.

Rental, on the other hand, has not always been the best of options for local contractors. But, new trends show that it is gaining momentum. Figures from some of the credible local associations show that there is a definite rise in sales to the plant hire sector, and there is a continued growing trend towards “rental with option to purchase”, rather than the investment in new equipment, as was previously the case. I believe when times are tough like this, and projects are few and far between, the rent-to-buy option is ideal for equipment users, especially the new and upcoming contractors trying to find their feet in such a cutthroat trading environment. The key benefit is that you are not on the hook in such a deal. You can try and buy the machine if you like it, and can keep using it, or return it when the rental lease expires. Additionally, the dealer maintains the unit, so the contractor avoids the expense of upkeep. If a piece of machinery breaks down, the dealer will fix it, and if the repair will take an extended amount of time, the dealer will usually exchange the broken unit with a different one. I believe there is potential to conserve capital with this option, but it is important to note that it may not always be the best choice. I believe when a construction business needs to acquire new equipment, it needs to know what suits its portfolio best. This is especially true for new and upcoming contractors.

Munesu Shoko – Editor

capnews@crown.co.za

@CapEquipNews

CAPITAL EQUIPMENT NEWS JUNE 2019 2