Shortly after the founding of the first construction equipment rental company, the great debate began: Is it better to rent or buy? Decades later, the debate continues, as contractors and engineering firms constantly re-evaluate how to best deploy their capital and weigh this against their equipment needs.
Equipment needs can be divided into three subcategories:
- Utilization rates, or how often do you need to use the equipment?
- Volume, or how many welders do you need?
- Technology requirements, or what welding technology do you need to use for optimum productivity?
In the construction industry, a general rule of thumb is that if you don't utilize a piece of equipment at least 60 to 70 percent of the time, you should consider renting.
However, if your utilization rate exceeds a certain threshold, consider purchasing or leasing the equipment. Another factor that weighs in favor of the purchase option is this: if you don't have the right equipment immediately available, are there significant cost consequences? For example, would your service trucks be unable to perform a field repair without welding or generator power, thus idling a critical piece of equipment and disrupting the job schedule?
Because they are used so frequently for both welding and generator power, most contractors choose to purchase gas engine drives like Miller's Bobcat 250 (250 amps of multiprocess CC/CV welding output and 10.5 kW of Accu-Rated generator power).
Volume requirements may dictate supplementing equipment you own by renting additional welders. For example, building a power or processing plant, or working on a scheduled plant shutdown, may easily demand 100 to 300 arcs. To meet this sudden increase, most contractors prefer to rent rather than incur the capital expenses to purchase such a large fleet of equipment.
Note that two trends have emerged to meet high volume arc needs, whether you chose to buy or rent. The first is running an inverter off an engine drive with strong simultaneous welding and generator power. This enables a two-man team to work from a single engine drive, cutting all costs associated with the second engine drive (note: Miller recommends using the Trailblazer Series or PipePro 304 units in this application for best performance). The second trend, when work is confined to a smaller area, is to power a 4- or 8-arc XMT or CST inverter rack off an 80 or 100 kW generator. This will lower costs compared to using four separate diesel engine drives (see Fig. 1. However, note that if you need to run hundreds or thousands of feet of welding lead from a multi-arc welder, separate engine drives may be more cost effective).
Fig. 1: Powering a 4-arc XMT inverter rack off an 80 or 100 kW generator will lower costs compared to using four separate diesel engine drives.
Technology requirements may also influence your decision to rent or buy. If you only need an engine drive with a Stick or carbon arc gouging output, you'll have no problem renting the right equipment. However, if you routinely require equipment with a premium multiprocess arc, lightweight portability or strong generator power, it may make better sense to purchase it so it will be available when you need it.
Fortunately for contractors, leading rental houses and welding supply distributors recognize the need to offer the latest welding technology so they can help their customers work more efficiently. Equipment available today includes plasma cutters, multiple-arc inverter racks and flux cored welding using suitcase-style wire feeders paired with an engine drive that has a CV output (which many welding codes and procedures now require).
Other industry trends may dictate equipment needs, too. As older welders retire, more young welders are entering the workforce, and these welders have been exposed to new technology in technical schools and training centers. As a result, you may need access to new technology to meet the demands of this younger, tech-savvy generation.
Working with an up-to-date rental house or welding supply distributor can allow you to gain experience with new equipment before buying it, and it can allow you to make head-to-head comparisons before purchase. In addition, moving up to new technology might enable you to bid a job more competitively (such as offering shorter lead times by switching from Stick to flux cored welding or replacing flame and/or resistance heating with induction technology).
Financial Decision Drivers
When considering financial decision drivers, many contractors overlook total cost of equipment management. For example, say you're based in Chicago and successfully bid on a job in St. Louis. You now have think about the cost of transporting welding equipment 300 miles, and that includes the cost of the truck, the driver, loading and unloading time and diesel fuel. Then, once on the job site, you'll need to hire someone to maintain and fuel the engine drives.
Fig. 2 - Factors Influencing the Rent or Buy Decision
- Utilization Rate
- Capial Expense
- Interest Rate (if financing a purchase or lease)
- Tax Incentives
- Rental Rate
- Maintenance Costs (parts and labor)
- Transportation & Storage Costs
- Technology Advances
- Core Competencies
Also, ask yourself if your core competency includes fleet management. If you excel at transportation, storage, logistics and equipment service and maintenance, purchase your own fleet. Otherwise, consider outsourcing equipment management. Another trend in the construction industry is to create a separate division (or even a separate corporation) for equipment management. By focusing solely on this task, these divisions or entities can excel at controlling costs while meeting the needs of their "internal client" or sister company.
If you decide to rent, the cost of renting is treated as job cost, so you can charge it directly to the project. Further, if the value of the equipment rental compared to the total project is low, then the "lost" profits due to renting are almost immaterial. Conversely, if the equipment costs comprise a large portion of the job's budget, then a contractor owning the equipment operates at a competitive advantage.
Renting equipment also adds a tax incentive, as there are no associated property taxes or licensing fees, and you can write off the rental charge as a business expense. Further, if you own a large fleet of welders, you'll need storage space, which in turn adds all the cost of building ownership. With a rental house, all the equipment is off your hands once you're done with it.
In the construction industry, most companies choose to purchase gas engine drives and rent additional diesel engine drives or multiple arc welders to supplement a smaller, core fleet. The reason is simple: gas engine drives cost just one-third to one-sixth of a diesel engine drive (see Fig. 3). With a strong economy over the last several years, many companies have elected to invest their capital in good welding equipment.
Fig. 3: Equipment Costs
Many companies also choose to buy engine drives because the technology remains relatively stable (with a few notable exceptions, such as Miller's PipePro 304 engine drive, which essentially blends a Kubota diesel with an XMT 304 CC/CV. Most engine-driven technology advances focus on improved quality, reliability and simplicity, as opposed the process advances common most often associated with manufacturing (e.g., pulsed welding). With "ordinary" Stick, flux cored welding, carbon arc gouging and DC TIG as the "core" construction process, a CC/CV engine drive is much less likely to become obsolete, so there is little of a chance of buyer's remorse. Also, an engine drive holds its resale value very well. Unlike a car, for example, you can use an engine drive for 1,000 hours and still get close to what you paid for it if you choose to sell it.
Miller offers the CST 280 Stick/TIG welding power source in four (355 lbs.) or eight (640 lbs.) arc rack configurations. The racks' small footprint takes up minimal jobsite space and enables construction contractors to store a multiple premium arcs in one convenient location.
The one "technology trend" that has evolved rapidly is the use of portable inverter-based welders, plasma cutters and suitcase-style wire feeders on job sites. If you are hesitant to invest in this equipment, try it out on a rental basis before you purchase it.
Because they are used so frequently for both welding and generator power, most contractors choose to purchase gas engine drives like Miller's Bobcat 250 (250 amps of multiprocess CC/CV welding output and 10.5 kW of Accu-Rated™ generator power).
With pressure on companies to increase productivity and efficiency, contractors constantly analyze what it takes to set themselves apart from the competition. This means taking a much closer look at equipment costs and needs before the next bid. Rental companies and welding supply distributors are well aware, and they want to make it easy to do business, which is why many offer rental, rent-to-own, outright purchase or even lease options (although the latter is not a major trend for welding equipment-yet). To determine which avenue is best for you, use the worksheet in Fig. 4, contact both your local rental house and your welding supply distributor and weigh the options they present.
For more answers to key business issues, please visit millerwelds.com/results/construction.