Reducing risk

JULIAN FORD: Renting equipment has advantages

The sky-rocketing growth of construction projects in the gulf region has been a source of amazement for industry analysts around the world.

Despite the ever-present question of "How long until the bubble bursts?" the number of projects in countries such as the UAE, Qatar, Bahrain, Saudi, Kuwait and Oman has only increased.

In April 2008, Meed announced that the gulf project market had exceeded $2.1 trillion, with no slow-down in sight.

While this may seem like good news to construction companies, the high growth of projects is actually proving to be a double-edged sword. With so many companies winning tenders, suppliers are hard-pressed to supply the materials and equipment needed by their clients.

This is beginning to result in major delays for companies who then find themselves scrambling to meet their deadlines.

The financial consequences for construction companies who fall behind are staggering. Not only are they increasingly being faced with contractual penalties, but the damage that can be done to the reputation of a company is incalculable.

It is therefore no wonder that contractors are looking for ways to mitigate the risks of project delays, with many turning to renting equipment which offers more immediate and hassle-free solutions for their equipment supply.

Costs aren't always obvious

The case for renting equipment can be illustrated by the example of power generation systems. Many construction companies choose to purchase generators to run their equipment on site, but the purchase of generators includes a host of added costs that are not always immediately obvious.

Spare parts for the equipment need to be purchased and stored, as well as consumable products such as oil.

With contractors running sites in various locations, logistical problems occur as they attempt to ensure that equipment is regularly serviced and that spares and consumables are readily available for all project sites. Refuelling is an additional cost which is often forgotten when the decision is made to buy equipment.

Refuelling one generator is a time-consuming task; a project site with thirty to forty generators on it will require the contractor to purchase trucks and staff simply for refuelling.

A company purchasing generators must also be prepared to hire and train specialised engineers in order to ensure that the machines are kept in good working order.

Flexibility

Estimating the power demand of projects also becomes a problem. Purchased generators are often either under or over-utilised since power needed on a construction site tends to follow a specific pattern of ramping up and then falling away.

This means that a contractor who purchases enough equipment to meet peak demand on site may find that the generators are under-used and burn fuel less efficiently for most of the project.

The answer to why rental power is an attractive service to construction companies lies in one word: flexibility. Renting power generation equipment allows the contractor to increase or decrease their capacity depending on the demand of their specific projects.

Rental equipment capacity can be increased as the power demand on a project increases, ensuring that equipment is always running at maximum efficiency.

Another benefit is that generators can be rented on a short or a long term basis, and because ownership lies with the rental company, all risks lie with them as well.

Turn-key service approach

Some power rental companies also provide a turn-key service approach to rentals, in which technicians work with the contractor to engineer and design systems which are more efficient and which ensure compliance with ISO standards.

The specialist knowledge that a rental company can provide is often greatly appreciated by contractors who struggle to fill technical positions in a region where salaries for site engineers have increased by over 40% since May 2005.

As more construction projects come on-line in the coming years and existing projects continue to require resources and equipment, it seems likely that the risk of delays due to lack of equipment supply will only increase.

In this context, the benefits provided by equipment rental companies including flexibility, lowered risks and turn-key service, become even more apparent.

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