Can You Offer Pavement Milling?

Rick Royals bought a milling machine almost because he had to. The co-owner of Royals Contracting, a Raleigh, NC, paving, milling, and patching company, had bid a 4-inch-thick patching job in 2002, planning on doing the work with a pavement saw, a backhoe, and a 12-person crew.

Royals' crew began the job and for the first three nights generated $1,235 of income a night—at a cost of $3,240 a night, resulting in a loss of more than $2,000 a night. That was quickly followed by a letter for damages charging them an additional $2,000 a day for slow progress. As Royals says today, "A decision had to me made."

So Royals Contracting did some research and learned what a lot of paving and pavement maintenance contractors are learning: that pavement milling, which until a few years ago might have been out of reach of the small and mid-sized contractor, is now an accessible service option.

Partly that's a result of milling becoming commonplace on large and small paving jobs across the country, but it's also the result of manufacturers producing a broad range of milling equipment. Contractors of virtually any size can enter the milling market at just about any level they choose; the key is determining what that level is and what your market needs.

And there are different ways of getting in the milling business. Royals Contracting and Reid Paving, Gilbertsville, PA, took one route; Fonseca & McElroy Grinding, Santa Clara, CA, took an entirely different approach. The three contractors work in distinctly different areas of the country, and they approach the milling business from completely different aspects. Royals Contracting and Reid Paving are standard paving and pavement maintenance businesses that after subcontracting milling work and renting milling machines decided to buy the equipment and incorporate milling into their own services. FMG, on the other hand, runs a pavement milling business, owns 11 milling machines, and works as a subcontractor to a variety of paving and general contractors.

And both approaches have proved successful. But as with virtually every other piece of pavement maintenance equipment, the key to adding milling to your operation is return on investment: How much does it cost to own and operate a milling machine, and can you keep it busy enough to make a profit.

Royals Contracting recognized quickly that milling could save them money by, at the very least, speeding the work along. To solve their immediate problem Royals rented a 4-foot milling machine at a cost of $2000 a night. Production quickly increased to 120 tons a night (from 13 tons a night) and income rose to more than $11,000 a night. Using the rented milling machine Royals finished the job and ended up with $40,000 in net profit, even after paying the late charges. On another job a year later Royals ran into a similar situation. Instead of renting a milling machine Royals subcontracted for a 4-foot milling machine, completed the job on time, and generated $38,000 net profit on job income of $256,000.

Not surprisingly, milling attracted some serious attention from Rick Royals, and he took stock of the company's situation: Royals Contracting had a backlog of six jobs involving roughly 6,000 tons of asphalt, he had received a number of calls to bid some pavement profiling work on North Carolina Highway 70/50, and word on the street was that contractors in the area were having a tough time getting all their milling work done.

So Royals Contracting bought its first milling machine, a 4-foot-wide Marini unit, in October 2003. And after a brief operator-training period and some learning curve mistakes, Royals Contracting had completed all six patching jobs within two months.
"It was a very profitable November," Royals says.

Initially Royals had the milling machine working six days a week through December 19, 2003, when worked stopped for Christmas. Work started again in January 2004, and Royals says his milling operation was so successful it was down only 16 days in 2004 as a result of weather or gaps in backlog. With all that work Royals leased second Marini machine in October 2004, then purchased the unit in March 2005.

Today Royals Contracting has integrated milling into its overall operation. It relies on the milling machines for its own use, and it will subcontract the machine out to other contractors. Royals averages 170 tons of milling per day, which includes milling existing pavement or dirt, replacing milled grindings, compacting the fill, paving, and traffic control. He says Royals high point was milling and replacing 880 tons of 6 inches in one day. Most of Royals' milling work (78%) is on asphalt, with 22% on concrete.

Milling uses at Reid Paving Contractors

Another contractor who has successfully braved the milling market is Reid Paving Contractors. Started in 1983 by Chip Reid, president, Reid Paving provides high-quality paving services by relying primarily on one paving crew to do all the company's paving work. Reid says 80% of the company's work is for the private sector and 20% is for the public sector.

Starting in the mid-1990s, Reid encountered an increasing number of paving projects calling for milling the pavement as a prerequisite to the repaving. Initially Reid bid the jobs, subcontracting the milling work, but he encountered problems with his subs.

"It was a failure in more ways than one. Often the milling machines were poorly maintained and they would break down during the middle of the work. That brought the whole paving process to a halt," Reid says. "Many projects call for us to repave any milled out sections before the day's end and with a milling machine broken down we would fall behind schedule. Reliable milling contractors who supply reliable compact milling equipment are difficult to find, so I hired whoever I could get."

After five years of subcontracting milling and working through problems associated with the subcontractors, Reid took bold steps to rectify the problem.

"I did not want to lose the milling-paving projects, yet I knew I had to do it differently," he says. "Frankly it was potentially a good, profitable business."

Reid did not relish the idea of investing in a cold planer milling machine because he was not sure he could justify what he considered a large investment. But he looked into his market, decided to buy a milling machine, and milling has since become an essential part of his business.

For example, Reid recently had a paving job at an exclusive residential area where another contractor had laid the base and binder courses incorrectly by not meeting the streets' specified lateral pitch. It is not the first time Reid was called in for profiling another contractor's paving.

"I cannot lay a wear coat over a poorly laid base and binder," he says. "Some of the street areas were paved with small area lows in them or they were poorly pitched so surface water gathered in puddles after a rain instead of running off to the gutters. This remedial work calls for profiling the binder by milling out the high areas and putting on an acceptable pitch before we could pave."

Other applications Reid finds for his milling machine are in revamping golf course paths that are constructed with asphalt paving. A recent project was the Skippack Golf Course. It is an 18-hole golf course that had an existing 6-foot-wide paved walking and service-vehicles path that connects all 18 tee areas. The project called for widening the path to 8 feet and repaving it. Since the pavement was degraded by weathering, it was more cost-effective to first mill it to a 6-inch depth. The total job involved milling 23,000 feet of pavement measuring 96 inches wide.

"Our milling machine was ideal for this job," Reid says. "Its narrow overall tracks width was close to the width of the new pathway so none of the immediate surrounding landscape was disturbed. The milling machine was used for both milling out the existing pavement and the adjacent ground that had to be excavated for the widening."

Still another good application is the milling and paving of existing parking lots, no matter how small they might be. Reid undertook the Montgomery County Eagleville Correction Prison parking lot remedial project, where 5,000 tons of existing pavement was milled out and replaced with new hot mix asphalt. Reid says on projects like this where continuous milling can be done, the hourly production averages 100 tons.

Reid says there are few milling contractors in his market and he has managed to make pavement milling a profitable part of his paving business. If Reid temporarily does not have work for the milling machine, he rents it to other paving contractors, supplying both the machine and the operator.

"Operating one of these machines correctly requires a trained and experienced operator," Reid says. "If a good operator is not used, the machine might prematurely breakdown or the quality of the milling is unacceptable. In either case, it is due to the ineptness of the operator."

Reid justifies the investment in his milling machine by operating it about 500 machine hours a year. He says his gross return is $300 per hour, whether operated on one of his own projects or rented to others, resulting in a gross income of $150,000 per year (plus mobilization charges). He considers his milling machine a very profitable investment.

"The only thing I regret is that I did not buy one earlier than I did; it sure is a good money maker," he says.

Reid says that in addition to the machine's direct financial return, there are additional benefits in owning a milling machine. He says he now has far better control on the quality of milling performance and much greater control on scheduling its use at a project that leads to more efficient production. Plus, some customers want him to be responsible for both the milling and paving.

Fonseca & McElroy Grinding explains costs, production

Fonseca & McElroy Grinding offers even greater insight into milling financials because the contractor runs a milling-only business. Established in 1999, FMG today employs 25 people and sells its milling services to a customer base of roughly 150 general engineering or paving contractors throughout northern California.

The company leases and owns a broad variety of milling equipment, including a CAT 248 high-flow skid steer with a 16-inch-wide milling drum attachment; Wirtgen 1200 FT models with 24-inch and 48-inch drums; several half-lane mills, up to its largest machine, a CAT PM 565 with an 86-inch drum that can mill up to 4,000 tons of asphalt in an 8-hour shift; and its newest machine, a Marini MP 2100 with an 80-inch drum.

McElroy says the broad variety of milling equipment FMG operates is essential to the success of his milling-only business, enabling his company handle just about any milling job that comes its way.

He says the skid steer unit is effective without being a big investment and is likely a reasonable way for smaller patching contractors to test the milling market. He says that while the smaller machines are necessary to his fleet, they are limited in the type of work they can do, namely work that requires cuts less than 6 to 8 inches deep.

"You can't compete for the big jobs when you invest all your money in all small machines," McElroy says. "You need a larger machine with larger horsepower for cuts deeper than 6 to 8 inches."

Plus, where Royals Contracting, for example, mills roughly 170 tons of material a day on its own paving jobs, FMG can mill out 4,000 tons a day.

McElroy, who with Royals presented "Pavement Milling: An Affordable, Profitable Service" at the 2005 National Pavement Expo West in Las Vegas, outlined the estimated costs of operating a single milling machine.

He says that assuming an acquisition price of $500,000 for a larger piece of equipment, the milling machine will require roughly $175,000 in maintenance – providing you follow manufacturers recommended maintenance procedures – over a 7-year life span for a total machine cost of $675,000.

Assuming 7,000 working hours over the life of the machine, maintenance costs about $100 an hour, or about $800 a day to keep the machine running.

Among the costs contractors need to take into account are:

  • Fuel, at least 100 gallons per working day
  • Replacement teeth, up to 150 per day
  • Labor, figure two people per machine per day
  • Insurance
  • Transportation and mobilization of each machine
  • General company overhead per machine each day it's in the field

McElroy says that after determining whether your market can support a milling machine, analyzing your costs and determining a daily and hourly rate is the most important step contractors can take.

"Each contractor needs to work through the figures himself. Think about what wear items you're burning through and make sure you put that cost in your bid or your rate," McElroy says. "You don't want to set your rate by what you think you can get or by you're your competition is charging. You need to set it according to your costs and the profit you expect your machine to generate."

He says that some contractors don't charge a transportation or "mobilization" fee, but thinks that is essential, especially for milling equipment. He also says it's essential that contractors charge a minimum fee for bringing the unit out to a job. FMG's minimum rate is a one-day fee.

"This equipment is expensive to operate, expensive to transport, and expensive to maintain," he says. "If you are going to be providing quality work and timely service you have to be able to keep the machine running in optimum condition, so you need to charge a one-day minimum."

 

 

 

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