*Contractors' Call

Aug. 1, 2000
Years ago, equipment rental was primarily for emergency situations. If a contractor's machine broke down on the job, if an unexpected surge of work created

Years ago, equipment rental was primarily for emergency situations. If a contractor's machine broke down on the job, if an unexpected surge of work created a need for extra equipment, if a new product came along that a contractor wanted to try, or if a job called for a machine the contractor didn't own, it was time to rent.

In other words, for many businesses, rentals were the exception - not really part of the plan.

In this day and age, however, rentals are a big part of the plan for a growing sector of the construction community. From small contractors working out of the back of pickup trucks to $1 billion-plus international construction companies, rentals are now factored in as a cost-saving strategy.

Some contractors plan equipment usage on a project-by-project basis. Others plan in terms of months when multiple projects are on the horizon. Whichever way they map it out, small contractors and large construction companies tend increasingly to plan and budget for equipment rentals on a long-term basis.

In the past, renting was just a convenience factor to augment the fleets many contractors owned. While that is still the case for some, many look to equipment rentals as an outsourcing solution to reduce infrastructure costs and convert fixed costs to variable. The key points are cost-reduction and convenience.

Consider: If contractors own equipment, they must maintain it, which means mechanics and the tools, equipment and facilities they require. The contractors will need storage space for the equipment, security and insurance, and will incur transportation costs. Another expense is the cost of capital to lease or buy the equipment. Costs are associated with searching for, comparing and researching equipment as well as disposal. Rental is the perfect solution for many to reduce or even eliminate those expenditures.

Equipment is continually evolving. Therefore, if a construction company has a fleet of mechanics, that fleet must be evolving as well, keeping up with changes and developments in capabilities, electronic controls and diagnostic breakthroughs. Mechanics must be educated and retrained on a regular basis on a widening array of machines. Part of the value a rental company has to offer is its ability to keep up with the evolution of equipment and the demands of servicing it effectively and promptly.

Given that rental companies play a role of growing importance for contractors, what do they look for in rental companies? RER spoke with a number of contractors about what they value.

One of the key points was that a rental company can make life simpler for contractors by letting them concentrate on their core competency - the process of constructing, whether it be a highway, a house, a shopping mall or performing maintenance on an industrial plant.

"I ask myself, what do I make money at?" says Dan Hubbard, executive vice president of Lake County Grading, Libertyville, Ill. "I make money moving dirt, layingasphalt and laying pipe. I don't really make money at owning equipment. So we are leaving that for the equipment guys. As long as we do what we do best economically, it takes a lot of headaches away."

An equipment rental company can free contractors from concerns involved with buying, selling, transporting and maintaining equipment.

"I don't want to have to deal with equipment costs, mechanics, delivery, trucks, lubricants and all the other service costs," says Monty Glover, president of Raytheon Engineers & Constructors in Birmingham, Ala. His company, recently sold to construction giant Morrison Knudsen, uses rentals for nearly all of its equipment needs.

"It's kind of a no-brainer," says Doug Nitsch, retired equipment manager for Chicago-based Inland Steel. "Do you spend a lot of money on equipment that you only use once in a while and then you have to maintain it, or do you just rent the equipment where you don't have to maintain it?"

Most contractors say that while price is a factor they can't completely ignore, the quality and consistency of service are the most important elements of the rental relationship.

"The most important thing is when I say I need a 120-foot manlift on the job at 7 that it will be there for my guy to unload at 7, not at 9," says Frank Kazenske, equipment manager for J.S. Alberici Inc., St. Louis. "If you tell me you can do it, you've got to perform. The salesperson has to tell me the truth. I can accept it if you don't have something available and you're honest about it upfront. I'll still give them another chance the next time. But if you tell me you'll get it and then you can't, I have a problem with that."

"That the equipment is of a certain standard, that the maintenance is certified to that standard, and the company can back that up - that's most important for us," says Barrie Bridgeman, manager of purchasing and strategic initiatives for PCL Industrial Constructors in Edmonton, Alberta. "We like a company to keep service records. We look at the provider's philosophy and if they have a long-term vision about supplying equipment."

Remote locations bring particular requirements for companies such as PCL.

"We're involved in a lot of petrochemical and hydrocarbon work in very remote areas in northern Alberta," Bridgeman says. "Contingency planning is very important. If they haven't figured out how they're going to get the equipment or the parts or the service people to our locations, we can't really do business with them."

One of the attractions of renting for contractors is that rental companies have the latest models. "In today's business, with all the regulations and all the risks we take, I'm willing to pay to reduce risk and exposure, and I want the best technology to do that," Kazenske says. "I expect the latest technology."

While not all contractors are concerned about having the latest technology, most say the condition of the equipment and the quality of the products offered are important in choosing rental companies.

"You have to make sure the product is not a piece of junk," says John Lesley, vice president of J.H. Reed Co., South Plainfield, N.J. "I know the rental company I do business with is going to provide me with good products."

Still, ultimately, while the brand of the equipment has importance to many contractors - who at least want to be secure in the knowledge that the brands their rental companies choose are among the best - most maintain that support for those products is the rental company's most important quality.

"Product is product, but it's the support that's most important," Lesley says.

Customers call the shots Most rental company sales personnel will tell you over and over again that getting to the job site, meeting the customers and getting to know their needs are the most important parts of their job. But establishing those relationships is not always easy. Many contractors say the last thing they want are salespeople from rental companies showing up unexpectedly to promote their companies' services.

"My day is busy and long," Kazenske says. "I get 25 e-mails a day, 17 to 25 voice-mail messages a day and probably 100 pieces of mail a day from all over the country. So I really don't have time for a lot of visitors. We've established long-term relationships around the country. We're open to new business. If people have something new to bring to the table, we're willing to listen as long as they make an appointment."

"I hate the guy who drops in every two weeks unannounced and wants to take you to lunch," adds Jimmy Parker of Day & Zimmerman, Greenville, S.C. "I don't mind if they call in advance and make an appointment. I'll listen to him. But giving gifts doesn't go down so well. That's the old way of doing business."

Although some rental sales staff might find themselves caught between a rock and a hard place, they obviously have to find a way to further those contacts. Contractors advise rental developers to prepare presentations, ask for appointments in advance and respect the privacy and time demands of equipment procurement managers.

OK to re-rent? Some contractors take the view that as long as the equipment arrives in good shape and on time, they don't care if it originated from a company different from the one with which they have the primary relationship. A re-rented machine can work as well as any other as long as the company with which the contractor has the contract can service it and take responsibility for it.

J.S. Alberici's Kazenske isn't among those contractors. "I might consider a re-rental if they tell me upfront that that's what they have to do, but I'd rather get it myself from another preferred vendor. I don't want them to re-rent it for me and then I'm stuck paying the re-rental charge when I could have gone to that other company across the street myself and just rented it directly from them."

To some contractors, relationships with rental companies go far deeper than day-to-day rental arrangements. A growing trend is for long-term integrated solutions in which the construction firm outsources all of its equipment arrangements to rental companies.

"We sold all our equipment to United and formed a partnership with them," Raytheon's Glover says. "Although we do listen to bids from other companies, we mostly do business with that one company. It's like having our own equipment company."

Raytheon's relationship with United is typical of relationships contractors develop with rental companies when they have work in a variety of states or countries. The idea is to simplify their fleets and inventory requirements by owning as few supplies and machines as possible and letting the rental company manage their equipment. These kinds of relationships, while more common with big contractors or industrial facilities, also can be established by smaller rental companies on local and regional levels.

Rental companies also need to pay attention to billing preferences, contractors say. Some customers are very particular about when and how they are billed, with a growing tendency toward e-commerce solutions. And while many rental companies keep accurate records about when machines were delivered and picked up and how many hours they were used, customers often do as well.

"We expect to be post-billed; don't try to pre-bill us and then offer us a credit for time not used," Kazenske says. "If I use something for 10 days, that's what I want it billed for. We keep exact records. We know exactly what job each piece was assigned for. We assign a rental number to each specific piece as a tracking number. We pay our invoices by our own internal system. We don't go by the rental company's tracking system because a lot of times it is inaccurate."

Rates up, rates down Speaking of payment, it would be impossible to deny that rates play a part in the rental equation. Contractors, like any other business people, need to conform to budgets and cut costs wherever possible. But the money saved on cheap rental rates can evaporate quickly if the rental company's performance costs the contractor money in other areas.

"Price is a factor," Lake County Grading's Hubbard says. "We need to be able to stay competitive, so we need good pricing. But price doesn't mean a lot if it is given without the ability to deliver the machine on time or service it properly when down. If they give a good price but keep our crews waiting, they won't last very long on our jobs."

The consensus among contractors is that good rates might get a rental company in the door, but it won't stay there if the performance isn't good as well. And one-time performance without consistent results won't go far either.

"We've been in business almost 100 years," PCL's Bridgeman says. "We like to deal with rental companies who are committed on a long-term basis, people who will be around for a while. We want to know your track record and your safety record. Then, if you can perform for us at the same level over and over again, you have a chance."