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Recovering project costs is critical to the success and, in some cases, the survival of your business.

Because equipment expenses can represent as much as 50% of job costs, you need to understand what those expenses are and ensure they’re covered during the bid process. According to “Controlling Equipment Costs -- 3 Steps to Nailing Down These Often Unexpected Expenses” (The Edge, Construction Edition, Summer 2003, Blackman Kallick, Bartelstein, LLP), one way to factor equipment costs into bids is to develop a “rental rate” for each type of machine.

The first step is to determine your equipment ownership costs. Start with the initial price of the machine, then calculate an annual, monthly and even hourly depreciation charge. You can do this by taking the actual cost of the equipment (i.e., $50,000) and subtracting the salvage value (i.e., $10,000) you anticipate at the end of the machine’s useful life. Divide the result, or depreciation base, by its expected useful life (i.e., $40,000 ÷ 5,000 hours = $8/hour).

Do the same type of calculation with insurance premiums. Add together the initial purchase price plus insurance costs and finance charges you expect to incur during the equipment’s life. Then divide that figure by the total hours of expected use.

Your next step is to calculate operating costs. The key to accurate calculations is to account for all operating expenses, including: