Construction Equipment Management Practices of Major Contractors in Saudi Arabia

ABSTRUCT
Construction equipment constitutes a major resource for a contractor. This paper presents the results of a
survey performed to unfold the practices followed by contractors in Saudi Arabia in managing their construction equipment. It was possible to find that contractors in Saudi Arabia follow practices similar to those followed by top contractors in the USA. They were found to identify needs, evaluate alternative proposals quantitatively and qualitatively, and make decisions to acquire equipment. During its useful life, contractors maintain accurate records and subject equipment to preventive and scheduled maintenance programs. The contractors also use several economic analysis techniques to determine the economic life, pricing, rate of returns, accounting, etc. of equipment. This information and other parameters are used in equipment replacement evaluation. Finally, the contractors standardize equipment on equipment brand or on the family engine.

Keywords: Equipment, Management, Purchasing, Replacement, Maintenance, Contractors, Saudi Arabia.

Introduction

The evolution of the Saudi construction industry has paralleled the rapid growth in oil revenues that has supported the various national construction investment programs in Saudi Arabia. Since oil was discovered in commercial quantities in Saudi Arabia in 1933, the Saudi government has been using the revenues generated from its sale to support and finance the country's development plans. The government has been very successful in executing those plans and changing the living conditions of people living in the country. In the past, people used to live in mud-brick houses and goat, sheep, or camel hair tents and used animals for transportation. Today, they live and work in buildings made of modern materials and use modern transportation facilities to move from one location to another. Highways, roads, and airports and seaports with terminals have been constructed to ease transportation. The government has also built other necessary infrastructures such as hospitals, and utilities.

These and future developments necessitate contractors to import needed resources, among which is construction equipment. This equipment constitutes a major resource in the construction process of building projects, especially those that are machine intensive such as highways and engineering. This equipment is very expensive comprising a major component of a contractor's assets and the country's resources. At the macro level, equipment owned by contractors and dealers represents a good portion of Saudi Arabia's assets. At the micro level, equipment represents a major component of a contractor’s or dealer’s assets. The increased size and cost of equipment and the existence of economic factors such as inflation, obsolescence and interest rates have complicated decision analysis of equipment problems. This complicated environment calls for proper management of this asset to optimize the rate of investment and eventually improve profits. Some contractors have developed a uniform equipment policy from which established rules and procedures are drawn for prudent management of their equipment.

Although many researchers have addressed construction equipment, the majority has concentrated on how to improve productivity via engineering modifications. Very few researchers have paid serious attention to equipment management. The Construction Equipment Committee reported in 1960 major equipment problems confronted the construction industry due to the lack of preventive maintenance programs, training and motivating operating and maintenance personnel, influencing standardization and improvement in determining maintenance costs, and controlling spare parts inventories [1]. The committee found, in a follow-up survey conducted in 1961, that most of the problems in this field were people oriented[1]. That is, they are related to the attitude, motivation, training and organization of the personnel related to the equipment. This study concluded that an equipment policy was needed for the unified support of all levels of management [1]. Stanford University’s Construction Institute concurrently surveyed, via personal interviews, firms that had an interest in construction equipment ownership policies. This survey spanned the entire construction industry of the U.S., from dealer to user and from small companies to large. The study recommended that all contractors determine the best policy for their organizations under a given set of circumstances [1]. Tavakoli [2] surveyed the construction equipment policies of the top 400 U.S. contractors and concluded that equipment policies sometimes vary between large and medium firms and heavy and non-heavy firms. The survey also indicated the more frequent use of traditional accounting methods over the other more accurate discounted cash flow methods. This finding corroborated the conclusions of a survey conducted on utility contractors by Hinze and Ashton [3].

Recently, Stewart [4-7] addressed equipment maintenance, standardization, and economic life determination. In [4 and 5], he argued that training equipment operators and automation of management systems will lead to positive improvement to maintenance practices and cost reduction. Stewart [6] presented the monetary and other tangible and intangible benefits generated from equipment standardization. Finally, he presented a method for determining the proper economic life for equipment [7].

Moore [8] advanced ten ways to stretch maintenance resources for saving time, money and efforts.
This study is first of its kind in exploring equipment management practices among construction contractors in Saudi Arabia. To the best knowledge of the authors, no researcher has ever addressed such an issue in Saudi Arabia.

Objective of the Study

The objective of this study was to investigate the equipment management practices followed by major contractors in the Eastern Province of Saudi Arabia.

Research Methodology

The required data were collected from contractors operating in the Eastern Province of Saudi Arabia. A structured questionnaire was used to collect the necessary information. The study performed by Tavakoli, A., et al. [2] set the foundation for developing the structured questionnaire, which was divided into three sections. The first section contained questions seeking general information about the firm such as its size and the value of its equipment fleet, etc. The second section consisted of questions seeking information related to the contractor’s practices in equipment acquisition, equipment economics, replacement, operation and maintenance, record keeping and standardization. The last section of the questionnaire contained miscellaneous questions on safety policy, classification methods and the utilization of computers for the management of equipment.

The questionnaire was sent in the spring of 1999 to all contractors in Grades I, II, and III listed in the trade directory published by the Ministry of Public Works and Housing in Saudi Arabia. The ministry classifies contractors into grades for a construction general category. For this study, the contractors listed in the top three grades and who undertake civil construction projects in buildings, roads, water and sewerage, and dams defined the population for the survey. The top three grade contractors were selected because they undertake considerable work. Also, the types of projects listed for such contractors require the use of construction equipment on a large scale. A total of 70 contractors were found to meet these requirements forming the population for the study. The questionnaire was sent by mail to all the contractors in this population. Subsequent phone and fax follow-ups were performed.

Analysis of Results

A total of 33 responses were received. However, seven respondents did not answer the questionnaires due to various reasons. Five of these seven companies said that they were no longer in the construction business, and a couple of the companies indicated that they had moved their businesses out of the Eastern Province. These seven companies were, hence, removed from the population, reducing the population size to 63. Therefore, a total of 4, 5, and 14 completed questionnaires were received from Grade I, II, and III contractors respectively. Another three completed questionnaires were received from contractors whose grade was not declared. The grade distribution reflects the actual existing rating. The received data were analyzed statistically to achieve the study’s objective.
Because the number of participants was small, it was mandatory to draw upon other researchers' studies of equipment management in the U.S.A. to confirm or negate the results. This action augmented and compensated for the small sample size and made inferences about equipment management practices followed by contractors more reliable.

Characteristics of the participating contractors
This section presents the characteristics of the participating contractors on the basis of their experience, type of work performed, owned fleet value, and annual work volume. Table 1 shows the distribution of the contractors according to each of the above criteria.

Table 1. General characteristics of contractors
Number of contractors
Categories (1) All contractors (2)* Grade I
(3) Grade 11
(4) Grade Ill
(5)
Experience (years)
20<25 9 2 2 5
25<30 8 - - 7
30<35 6 2 2 -
35<45 2 - - 2
Above 45 1 1 - -
Type of work
1. Residential 14 1 4 8
2. Commercial 15 1 4 9
3. Industrial 15 2 6 7
4. Highway 9 1 2 4
5. Others 11 1 2 5
Owned equipment fleet value
(million SR)
0 (Value not indicated) 6 1 - 3
1<10 6 - - 6
10<20 4 - - 4
20<30 3 1 2 -
30<40 1 - 1 -
Above40 6 2 2 1
Equipment ownership %
0-20% 1 - - 1
60% - 80% 2 1 - 1
Above 80% 23 3 5 12
Annual lease value (million SR)
0 (Not indicated) 7 - 1 4
0 < 1 Less than 1 10 1 1 8
1 < 2 5 1 1 2
2 < 3 1 1 - -
3 < 4 1 1 - -
Above 4 2 1 1 -
* Including three contractors who did not declare their grades.
Experience: The contractors who participated in the survey are well-established organizations with experience in the construction industry ranging between 24 and 47 years with an average being 27.9 years. This fact gives more credibility to the obtained results and hence to the study findings.

Type of work: Regardless of their grades, the participants are involved in different types of work. They construct residential, commercial, industrial, and highway projects requiring a large volume of equipment.

Owned equipment fleet values: The results indicate that most of the participants own more than 80% of the equipment they use. The participants believe owning equipment will provide them several advantages, most important of which is full economic utilization of purchased equipment.

The fleet values of the equipment owned by the participants range between SR 1 million and SR 300 million with an average of SR 38.73 million. Almost all Grade III contractors have equipment fleet values less than SR 20 million. In contrast, the respondent contractors in grades I and II own equipment valued greater than SR 40 million. These range between SR 170 million to SR 300 million in value. Five contractors have an equipment fleet whose value is above average, while 16 contractors have a fleet value less than average. This finding indicates the appropriateness of the selected contractors for investigating the practices followed by construction contractors in managing construction equipment. Contractors in the U.S. own a smaller percentage of their equipment. This could be due to the maturity of the renting and leasing markets in the U.S.A.

Annual work volumes: The annual work volumes of the contractors range between SR 3 million to SR 600 million. The average annual work volume of the contractors is SR 109.385 million. Fourteen contractors have an annual work volume below the average volume and eight contractors have an annual work volume above average.

Equipment management practices
This section presents the reported practices of contractors in managing construction equipment from acquisition to retirement of the equipment.

Equipment acquisition: While contractors in the USA rent or lease needed equipment for testing before buying, the results indicated that contractors in Saudi Arabia directly purchase necessary equipment to replace old equipment. Despite this difference, contractors in both countries identify equipment needs, evaluate alternative proposals, and decide on an acquisition. Table 2 presents the practices followed by contractors in Saudi Arabia to acquire construction equipment.

Table 2. Equipment acquisition
Number of contractors
Categories (1) All contractors (2)* Grade I
(3) Grade 11
(4) Grade Ill
(5)
Initiation of equipment investment proposals organizational level
1. Headquarters 14 1 4 7
2. Equipment department 7 4 1 2
3. Project manager 14 2 2 9
4. Others - - - -
Are equipment proposal alternatives searched
1. Yes 23 4 5 11
2. Net cash flows 13 3 2 7
3. No response 8 - 1 6
Comparison factors for quantitative evaluation
1. Disbursements of alternatives 5 1 2 1
2. Net cash flows 13 3 2 7
3. No response 8 - 1 6
Method for determination of minimum rate of return
1. Cost of specific sources of funds
5
1
1
3
2. weighted cost of sources 5 - 1 4
3. Firm's historical rate of return 5 2 2 1
4. Management determined 10 2 1 4
Method for determination of receipts of equipment proposals
1. Allocating revenues to investment
3
1
-
2
2. Rental rates from local dealers 6 - 2 3
3. Rental rates from government 1 - - 1
4. Rates based on in house data 15 3 4 6
Equipment investment factors which influence investment decision
1. Business ratios 16 2 3 9
2. Bank guarantee 5 - - 5
3. Cash flow 18 1 5 10
4. Discounted cost 4 - - 4
5. Others 1 1 - -
Final decision responsibility for acquisition
1. President (CEO) 20 3 3 12
2. Board of directors 5 - 1 3
3. Project manager 4 1 2 1
4. Equipment manager 2 2 - -
5. Others
Financing type utilized
1. Outright purchase 23 4 5 11
2. Short term bank loans 13 4 2 6
3. Long term bank loans 6 2 2 2
4. Service leases 4 - 2 1
5. Trade credits 12 2 4 5
6. Others
Table 2. (Contd.)
Number of contractors
Categories (1) All contractors (2)* Grade I
(3) Grade 11
(4) Grade Ill
(5)
Equipment buying decisions
1. Full economic utilization 18 4 4 8
2. Less cost of using equipment 11 2 2 7
3. Increase in company assets 13 1 4 7
Source of rental rate determination
1. Company's own data bank 20 4 5 9
2. Governmental rtes 1 - - 1
3. From standard publications 4 - 2 2
4. Others
* Including three contractors who did not declare their grade.

Need initiation: The acquisition of new equipment starts with identification for its need somewhere in the organization. Table 2 shows the sections of the contractors responsible for initiating the need for equipment. The majority of the equipment investment proposals originate from a company’s headquarters from project managers and from equipment departments of Grade II, Grade I and Grade III contractors respectively. Many contractors stated that project managers are usually charged with the responsibility of making requests for equipment investments on their respective projects.

Proposal evaluation: The second step in the acquisition process is to identify alternatives to satisfy the identified need. The results indicate that almost all the contractors, regardless of their grade, in Saudi Arabia as do the majority of contractors in the U.S. search and consider alternatives to investment proposals that are evaluated quantitatively and qualitatively.

Quantitative evaluation: The participating contractors indicated that they evaluate alternatives quantitatively only for equipment having a value exceeding a minimum markup value. This value is found to be between SR 10 thousand to SR 2 million with an average of SR 0.35 million and a median value of SR 0.2 million. Hence, it can be concluded that a value of SR 0.2 million is the markup value for an investment requiring a thorough quantitative evaluation. Contractors in the U.S. follow a similar practice utilizing a lower markup value.

The results indicated that contractors evaluate equipment proposals quantitatively by making an economic comparison of costs. The majority of the participating contractors regardless of their grades identifies and determines their values primarily from in-house data and secondary from rental rates obtained from local dealers. Contractors then use these data for calculating rate of return for alternative proposals by comparing their net cash flows. The results indicated that the participants use different techniques for determining the rate of return. The accounting return and the payback period were found to be the most popular methods used for quantitative evaluation of equipment. The findings parallel the popularity of these methods among contractors in the U.S.

The calculated rates of return values are compared with minimum rate of returns, which are set by top management and/or determined from in-house historical records. It seems a contractor sets a minimum rate of return when the situation calls for such a decision. The set rate/value depends upon the management’s expectations from the investment.

In addition, contractors in Saudi Arabia, as do their counterparts in the U.S., evaluate the influence of purchasing equipment on several business factors. Contractors in both countries seriously consider the effect of the decision on business rates and cash flows. The influence on business ratios is given more importance by contractors in Saudi Arabia than those in the U.S.

Qualitative evaluation: The results indicated that contractors consider additional qualitative factors (shown in Table 3) in making equipment investment decisions. Management goals and employee safety are the most important qualitative evaluation factors for Grade I and Grade II contractors. It seems that Grade I and Grade II contractors in Saudi Arabia desire to achieve their objectives through safe procedures giving little attention to their image in the industry. On the contrary, Grade III contractors ranked image as a high priority when making equipment purchasing decisions.

Renting/Leasing: The participating contractors spend between SR 50 thousand and SR 12 million annually for renting and to a lesser extent leasing construction equipment. It seems that leasing is not popular in Saudi Arabia. Only one participant reported that his firm leases almost all of the equipment it needs and hence has an exceptionally high lease cost of SR 12 million. This is a natural balance for contractors owning the majority of equipment they need. In comparison, the lease market is much more developed in the U.S. Therefore, leasing is a more popular practice among contractors in the U.S. than their counterparts in Saudi Arabia. Contractors in the U.S. are dependent on rates suggested by government and standard publications while contractors in Saudi Arabia depend on their own data banks.

Decision maker: After quantitative and qualitative evaluations are performed and it is decided to invest in particular equipment, it is the responsibility of the contractors' top management, regardless of the grade of the organization, to make a final decision on the acquisition. The president usually makes the final decision for acquisition of equipment. Project or equipment managers of contractors in the U.S. are given more authority to decide on purchases. This indicates that centralization in management is more in contracting firms in Saudi Arabia than the management of contracting firms in the U.S.






















(Wide Table 3)





















Equipment financing: A contractor in Saudi Arabia has several methods (shown in Table 2) available to finance the purchase of a major piece of equipment. Almost all contractors, as do their counterparts in the U.S., use cash from retained earnings to outright purchase needed equipment. In addition, some contractors use short-term bank loans to either fully or partially finance an equipment purchase. It seems that contractors in Saudi Arabia prefer using cash rather than using bank loans because of interest, which is considered a sin in Islam. Therefore, contractors plan funds for purchasing their equipment. It was noticed that short loans and trade credits are used in Saudi Arabia more than in the U.S.

Equipment economics: Equipment economics is concerned with management practices regarding capital budgeting, economic life and depreciation of equipment.

Table 4. Equipment economics
Rank order
Categories
(1) All contractors
(2)* Grade I
(3) Grade II
(4) Grade III
(5)
Budget prepared for capital budgeting?
1. Yes 18 2 4 9
2. No 7 2 1 4
Is standard forms used?
1. Yes 16 3 2 9
2. No 9 1 3 4
Factors determing economic life
1. Depreciation and replace- ment costs
19
4
3
9
2. Investment costs 8 1 1 4
3. Maintenance and repair costs 22 4 4 11
4. Downtime costs 8 1 1 4
5. Obsolescence costs 2 1 1 -
6. Profits accured 6 - 2 4
Depreciation accounting method
1. Straight line method 9 3 1 3
2. Double declining balance 3 - 1 1
3. Sum of years digits - - 1 1
4. Percent of life 10 1 2 7
5. Others
* Including three contractors who did not declare their grades.

Capital budgeting: The majority (about 70%) of the participants indicated that they prepare short- and long-range capital budgets for acquiring construction equipment. It seems that contractors in Saudi Arabia appreciate budget planning for determining and monitoring the economic status of their firms.

These contractors reported the use of standard forms for capital budgeting purposes. The contractors use either government published forms, standard forms, or custom-designed forms.

Equipment life: Equipment, like any other resource, has a duration in which it serves its owner and another in which it becomes a burden to its owner. The results indicated that the participants, as do contractors in the U.S., consider factors for determining the economic life of their equipment. The most influential factors considered by the participants and contractors in the U.S. in determining equipment life are maintenance and repair costs, depreciation, and replacement costs, investment costs, and downtime costs. It seems that the major decisive factor in determining the economic life of a piece of equipment is maintenance and direct and indirect repair costs. Determining the economic life of a piece of equipment is not only important for the equipment replacement decision process, it is also important for calculating annual equipment depreciation. Contractors in the U.S. also use other quantitative methods, such as cost curves, for determining the economic life of a piece of equipment. This indicates that higher levels of analytical methods are used by American contractors.

Depreciation methods: The results indicated that the majority of the participants do depreciate their equipment for pricing and zakat (taxes) on the equipment. The most popular methods for depreciating equipment are the straight-line method (Grade I) and the percentage of life method (Grade II and III). In the U.S.A, contractors use the straight line and double declining balance methods to depreciate equipment. It seems that contractors in the U.S. use the latter method for tax purposes and the former method for pricing. The double declining method allows high depreciation value in the early years of life of a piece of equipment and as consequence high tax deductibility. This method is not popular in Saudi Arabia because zakat (tax) is only 2.5%.

Equipment operation and maintenance
Operation and maintenance of equipment are an important element of equipment management, which is concerned with the usage of equipment.

Equipment operation: Equipment is acquired to perform desired activities. During its operation, policies are set to regulate its performance for keeping it in excellent shape and to prolong its economic life. The most popular strategy of contractors in Saudi Arabia is to assign a single piece of equipment to a qualified operator who is then solely responsible for its operation, reporting and routine maintenance.

Equipment maintenance: Maintaining equipment is a very important activity to keep it working with the minimum possible idle time and to prolong its economic life. The results indicated that the participating contractors undertake routine and overhaul maintenance.

Routine maintenance: When equipment is assigned to work on a project, it might need one or more of the programs shown in Table 5 depending on the duration of its assignment. The majority of the participating contractors indicated that maintenance is performed periodically for all their equipment, but the time interval between routine maintenance differs from one contractor to another depending on his workload and the proximity of the equipment to the workshops. Preventive and scheduled maintenance are found to be the most popular programs among the majority of the participating contractors.

Table 5. Equipment operation
Rank order
Categories
(1) All contractors
(2)* Grade I
(3) Grade II
(4) Grade III
(5)
Frequency of undertaking routine maintenance
1. Periodically 20 4 3 10
2. Whenever the machine needs 10 1 3 5
Type of routine maintenance
1. Preventive 19 3 3 11
2. Scheduled 16 3 3 8
3. Unscheduled 3 - 1 2
4. Corrective 9 1 2 5
Maintenance personnel
1. Operator 8 2 1 3
2. User's mechanic 3 - 1 2
3. Independent mechanic 8 - 3 4
4. Dealer's mechanic 6 2 1 3
*Including three contractors who did not declare their grades.

The majority of the participating contractors across all grades, as do their counterparts in the U.S., were found to use preventive, unscheduled or corrective maintenance for their equipment. It seems that contractors have noticed the benefit obtained from keeping equipment on site and working through routine maintenance.

Routine maintenance is performed by different personnel depending upon the fleet size, organizational size, and the proximity of the equipment from a workshop. The results showed that some contractors assign equipment operators to perform the necessary routine maintenance. It seems when equipment is on site, contractors prefer to perform routine maintenance on site, thus preventing loss of time from transporting the equipment to the dealer or the workshop. When it is possible, the equipment owner’s mechanic performs the routine maintenance. Routine maintenance is usually done by the equipment user’s mechanics. If there is any special requirement for maintenance, it is performed by the equipment dealer’s mechanics. In the U.S., contractors use their own mechanics to perform routine maintenance.

Overhaul maintenance: Overhaul is a major repair. This type of maintenance is very costly and time-consuming. The participants indicated that they qualify equipment to undertake overhaul when the machine’s productivity falls very low and it becomes uneconomical to operate. If productivity cannot be restored by running a complete check or by replacing some parts, then an overhaul is undertaken. Almost all of the contractors undertake major overhauls for upgrading the performance of their equipment.

Equipment record keeping
Equipment Record Keeping It is very interesting and encouraging to find that more than 85% of the participating contractors maintain accurate utilization records for each piece of equipment. It seems the size of investment on equipment motivates contractors to keep close monitoring over their equipment.

Record keeping responsibility: The operator’s daily report is an important record for following the condition of equipment. Due to his close relation with a piece of equipment, the person who knows best the behavior of that piece of equipment is the operator. He can spot any performance variation that he can report to maintenance before it becomes a major problem. Contractors in both the U.S. and Saudi Arabia have foremen and equipment operators to complete daily equipment reports.

The equipment management policy delegates the responsibility of keeping equipment utilization records. Table 6 shows the distribution of those responsible for gathering data. Job superintendents generally collect data on the equipment.

Table 6. Equipment record-keeping
Rank order
Categories
(1) All contractors
(2)* Grade I
(3) Grade II
(4) Grade III
(5)
Is equipment utilization record maintaned
1. Yes 22 4 3 12
2. No 4 - 2 2
3. No response
Does operator fill operator's daily report
1. Yes 16 3 2 8
2. No 10 1 3 6
Date gathering level
1. Job superintendent 15 4 3 7
2. Foreman 9 1 1 7
3. Operator 2 - - 1
4. Mechanic 4 - - 3
Frequency of making equipment reports
1. Daily 6 - 1 4
2. weekly 3 - - 3
3. Monthly 10 4 3 3
4. Job wise 13 - 1 10
5. Others
Method of data recording
1. Labor time cards 7 3 3 -
2. Work item cards 6 2 1 3
3. Daily log of construction 8 2 - 4
4. Engineers calculation 4 - 1 3
5. Others
*Including three contractors who did not declare their grades.
Report making frequency: Although necessary data are collected continuously by various personnel of the participating contractors, equipment reports are made periodically as shown in Table 6. All Grade I and the majority of Grade II contractors prepare reports monthly. Most Grade III contractors were found to maintain reports job-wise. It seems that the majority of Grade III contractors work on projects that are short in duration. This influences them to wait until project completion to collect needed records.

Record keeping forms: The results indicated that participating contractors use various standard forms for gathering data on equipment. The forms most popular with contractors from both countries are labor time cards, construction daily logs and work item cards. In addition, some contractors in Saudi Arabia use engineer’s calculation sheets for recording data. It seems that contractors value the use of standard forms, which facilitate uniform data collection and recording.

Replacement analysis
The timing of replacement is as important as the selection of a piece of replacement equipment. As shown in Table 7, the contractors use different methods for determining the proper replacement time. Two-thirds of the contractors replace equipment when it becomes inefficient. The other third uses economic studies to determine the economic life of their equipment.

Table 7. Equipment replacement
Rank order
Categories
(1) All contractors
(2)* Grade I
(3) Grade II
(4) Grade III
(5)
Replacement time
1. Economic study 7 2 1 3
2. inefficient equipment 19 4 4 10
3. Before a new job 5 - 1 4
4. Usually replace before major overhaul
1
-
-
-
5. When equipment is obsolete 5 - 2 2
6. Good financial position 7 1 - 6
7. Others
Frequency of replacement
1. High competition 7 - 2 4
2. Low competition 3 - 1 2
3. No change 15 4 2 7
4. Others
Method of determination of replapcement time
1. Generating cost curve report 1 - - 1
2. Replace when high repairs 22 4 5 12
3. Economic life determination 4 1 - 3
4. Others
Table 7. (Contd.)
Rank order
Categories
(1) All contractors
(2)* Grade I
(3) Grade II
(4) Grade III
(5)
Replacement decision analysis
1. Formal economic analysis 2 - - 3
2. Experience and formal analysis
16
2
3
10
3. Experience and informal analysis
7
2
1
2
Factors in replacement analysis
1. Inflation 4 - - 3
2. Downtime costs 17 4 4 7
3. Obsolescence 10 2 3 4
4. Depreciation 12 1 2 9
5. Zqkat (Taxes)
6. Time value of money 6 - 1 4
7. Others
Influence of obtainable salvage value
1. Yes 8 2 1 5
2. No 3 - 1 1
3. Sometimes 13 2 3 7
Method of disposition
1. Trade to dealer 7 3 1 3
2. Auction sale 9 2 2 5
3. Sell to third parties 19 4 4 8
4. Others
*Including three contractors who did not declare their grades.

The optimum replacement time for a piece of equipment is determined by various methods as shown in Table 7. The results indicated that the most popular method is to replace it when the cost for necessary repairs becomes too high. This finding confirms the practices followed by contractors in the U.S. The participating contractors indicated that they perform economic analysis before deciding to replace equipment. Experience and formal analysis play a major role in replacement decision analysis. They evaluate many factors affecting the decision to replace equipment as shown in Table 8. The effects of many factors, such as inflation, downtime costs, obsolescence, depreciation, taxes, and time value of money, are considered in the replacement analysis. The most influential factor that a contractor uses to make replacement decisions is downtime costs. This is followed in importance by depreciation and obsolescence costs. In addition, the results indicated that almost 90% of the contractors are of the opinion that the obtainable salvage value (net resale price) has an influence on the replacement decision. It seems that contractors sell old equipment if an attractive price is offered.


Table 8. Standardization
Rank order
Categories
(1) All contractors
(2)* Grade I
(3) Grade II
(4) Grade III
(5)
Standardize?
1. Yes 18 4 3 9
2. No 8 - 2 5
Percentage of standardization (%)
Did not indicate - - - -
0-20 6 2 1 3
41-60 5 1 2 1
61-80 2 - 1 1
Method of standardization 3
1. By brand 8 1 2 5
2. By engine family 6 2 1 2
3. Others - - - -
4. No response - - - -
Advantages of standardization
1. Saving in spare parts 12 2 3 5
2. Lower maintenance cost 9 2 2 4
3. Lower operator cost 8 1 2 4
4. Better safety 9 2 1 2
5. Better dealer relationship 5 1 1 2
6. Easier administration 7 1 2 2
7. Others
Disadvantages of standardization
1. Higher competition 5 1 2 2
2. Dealer rejection 3 - - 3
3. Bugs in families of engines - - - -
4. Others - - - -
*Including three contractors who did not declare their grades.

Disposition methods
When equipment grows old, it ceases to function economically, and it is usually disposed of after its optimum use by either trading it off for new equipment or by selling it to smaller contractors. The contractors in the U.S. tend to trade their used equipment while contractors in Saudi Arabia prefer to sell it to other contractors through auctions. The users usually depreciate their equipment to a certain pre-determined value and then they dispose of it. In this process they sometimes realize profit and sometimes they don’t. The results indicated that half of the contractors do not claim either a loss or a gain when they sell their equipment. This means that equipment book values were equal to their market value. A quarter of the contractors claimed gains on the sale of their equipment indicating a market value exceeding its book value. A lesser number of the contractors claimed a loss on the sale of their equipment. Hence, it is found that the users usually claim a gain from the sale of their equipment as a result of their depreciation policies.
Equipment standardization
The utilization of equipment with identical components is a desire for many contractors for spare parts, storage, repairs, etc. Participating contractors in Saudi Arabia, (especially Grade I and Grade II) as do those in the U.S., realize the importance of equipment standardization. More than two-thirds of the contractors standardize their equipment.

The participating contractors agree with contractors in the U.S. in almost all advantages and disadvantages (shown in Table realized from standardization. The economic benefits are the top rewards identified by contractors in both countries. However, contractors in U.S. value better relationship as compared to contractors in Saudi Arabia. On the other hand, contractors in both countries fear standardization for it may give the upper hand to equipment dealers, which may not be favorable to contractors. Some participating contractors who do not standardize equipment presented reasons for not standardizing. The most important reason is increasing competition among dealers to supply equipment.

The results indicate that the most popular standardization methods among contractors in Saudi Arabia are purchasing from one manufacturer and purchasing the same family of engines. These two methods are also popular in the U.S.

Equipment safety
Safety is an integral part of a work site, and it is the prime responsibility of those who supervise and manage work on the site. Use of equipment on the work site calls for a safety policy to oversee its safe operation. All contractors in Saudi Arabia were found to execute safety programs related to equipment use.

Although safety is a continuous responsibility of the management, safety programs are organized, from time to time, to check the procedures and to educate the workers on safe work procedures. It was found that all the participating contractors, as do those in the U.S., undertake and implement continuous and periodical safety programs in all their projects. The continuous safety program aims at preventing accidents in the site. The periodical safety programs are organized to measure safety procedures application in the work place and to educate workers on the importance of safety and the adherence to the company safety procedures.

Although safety programs are implemented, sometimes equipment-related accidents do occur. The results indicated that most of the participating contractors agree with contractors in the U.S. that poor equipment operating techniques are the major cause of most equipment-related accidents.

Classification codes for equipment
Equipment is classified, and the classification codes are painted on the equipment. This helps in maintaining security and in the easy identification of the equipment. Different classification codes are used in Saudi Arabia as per the convenience of the contractor and size of equipment fleet. One contractor used the Saudi Classification system but did not elaborate it. By this he may mean that he uses the vehicle registration number for classification. One contractor used the German BGL system to classify his equipment. Most of the contractors used various types of alphanumeric codes to register their equipment. For example, M2-100 meant mechanical division pickup truck. Some used alphanumerical codes in addition to the asset numbers. For example, Asset #00175 Badge #PC002 meant Petcon crane no. 2. Some contractors use abbreviations for actual equipment to classify equipment. For example, MC102 meant mobile crane # 102. Some numbered their equipment serially, i.e. 1,2,3, etc. Some used the classifications according to their clients, such as Saudi Aramco. Hence, it was found that there are no standard classification codes in Saudi Arabia.

Written equipment management policy manual
An equipment management policy is a set of procedures for setting the framework for managing equipment. Usually this policy is kept in a loose-leaf binder named the “equipment management policy manual.” This allowed for effective communication within an organization. Interestingly enough, the results indicated that a majority of the contractors (about 70%) manage their equipment through unwritten policies. In addition, the written policies for three contractors are limited to sections covering only the operation and maintenance of their equipment. Only five participants indicated they have all the sections in their policy manuals that cover various aspects of equipment management as shown in Table 9.

Table 9. Written equipment management policy
Rank order
Categories
(1) All contractors
(2)* Grade I
(3) Grade II
(4) Grade III
(5)
Existence of written equipment management policy
1. Written policy manual 8 1 3 2
2. No written policy manual 18 3 2 12
Section of written policy
1. Selection 5 - 2 2
2. Purchasing 5 - 2 2
3. Economic Evaluation 5 - 2 2
4. Usage 7 1 3 2
5. Maintenance 7 1 3 2
6. Cost-production record 7 1 3 2
7. Operators 5 1 2 1
8. Security 6 1 2 1
9. Standardization 6 1 2 1
10. Replacement 5 - 2 1
11. Disposal 5 - 2 1
12. Others (Misc.)
Updating frequency
1. Monthly 2 - 1 1
2. Yearly 2 - - 1
3. Whenever needed 4 1 2 -
*Including three contractors who did not declare their grades.
The participants who have written policies indicated that they update the contents of their manuals from time to time for the purpose of incorporating necessary changes in the policies.

Use of computers in equipment management
Computers are also used in equipment management to serve various purposes. All Grade I and Grade II contractors were found to use computers for managing their equipment. Unfortunately, less than 30% of Grade III contractors use computers for equipment management. Most of the contractors who used computers have their own customized software for management of equipment. In addition to this, standard software, such as MS Excel, FoxPro, Dbase, Cobol, Compaq Wang, and Oracle, are also used extensively. The contractors indicated that these software are used for different purposes such as for asset control, for maintaining maintenance schedules, for allocation of equipment to specific sites, to update repair costs, and to record usage of equipment. Hence, the computer as a tool is recognized by the contractors and is used extensively for record keeping.

Conclusion

Although only a third of the contractors were found to have documented policies, it was found that there is a uniform practice of management among all the contractors. This indicates that there is a policy for management although it is not properly documented. The fact that contractors claim a gain from the resale of their equipment indicates that the equipment is managed profitably. The main goal of any management policy is to enable optimization of resources and maximization of profits. The management practices of the contractors of Saudi Arabia suggest that the contractors achieve the goals of good management, and they follow the best practice suited to their conditions. Even though there is no written policy with most of the contractors, the implementation of sound principles of management as well as the influence of experience leads to profitable management of equipment.

Acknowledgment. The authors thank King Fahd University of Petroleum & Minerals, Dhahran, Saudi Arabia, for supporting this research.

References

[1] Douglas, J. Construction Equipment Policy. New York, N.Y.: McGraw-Hill Book Co., Inc., 1975.
[2] Tavakoli, A., Taye, E.D. and Erktin, M. “Equipment Policy of Top 400 Contractors: A Survey.” Journal of Construction Engineering and Management. ASCE, 115, No. 2 (1989), 317-329.
[3] Hinze, J. and Ashton, W.B “Current Equipment Policies of Utility Contractors.” Journal of the Construction Division, ASCE, 105, No. 3 (1979), 225-237.
[4] Stewart, L. “Fleet Efficiency’s Future Belongs to Information Managers.” Construction Equipment, 100, Issue 2 (August, 1999), 77-82.
[5] Stewart, L. “How to Manage an Efficient Shop.” Construction Equipment, 97, No. 6 (June, 1998), 76-82.
[6] Stewart, L. “Buying Fewer Brands Cuts Maintenance Costs by 10%.” Construction Equipment, 100, Issue 5 (November, 1999), 44-54.
[7] Stewart, L. “How to Find the Sweet Spot in Equipment Life.” Construction Equipment, 100, Issue 2 (August, 1999), 77-82.
[8] Moore, W. “10 Ways to Stretch Your Maintenance Resources.” Construction Equipment, 98, Issue 5 (November, 1998), 44-54.
































واقع إدارة معدّات البناء والتشييد في مكاتب كبار مقاولي التشييد
في المملكة العربية السعودية

علي علي شاش وشعيب غازي
قسم هندسة وإدارة التشييد، كلية تصاميم البيئة، جامعة الملك فهد للبترول والمعادن،
ص . ب. 1627، الظهران 31261 ، المملكة العربية السعودية

(استلم في31/12/2001م؛ وقبل للنشر في29/09/2002م)

ملخص البحث. تعتبر معدّات البناء والتشييد من أهم أصول مقاولي التشييد. تقدم هذه الورقة النتائج التي تم الحصول عليها من مسح ميداني لعينّة من المقاولين في المنطقة الشرقية من المملكـة، ومن ذلك السياسات والممارسات التي يتبعها المقاولون لإدارة معدّات التشييد الخاصة بهم. وبينت نتائج هذه الدراسة أن المقاولين في المملكة يتبعون سياسات مماثلة لتلك التي يتبعها كبار المقاولين في الولايات المتحدة الأمريكية. كما بينت أيضا أن المقاولين المحليين يقدرون احتياجاتهم ويقومون بتقويم العروض المقدّمة لهم من ناحية النوعية والكيفية. ومن هذا المنطلق يقومون باتخاذ القرارات المناسبة للحصول على المعدّات اللازمة. وأثناء العمر الاقتصادي للمعدّات يقوم المقاولون بإخضاعها للصيانة الوقائية والصيانة المجدولة. ويستعمل المقاولون أيضا العديد من تقنيات التحليل الاقتصادي لتقدير العمر الاقتصادي ، السعر ، العائد المادي والمحاسبي ، وغيرها من التقنيات لاختيار المعدّات الجديدة أو عند إحلالها. أخيرا قام المقاولون بتوحيد معدّاتهم على أساس علامات تجارية وأنواع معينة ومحدودة من المعدّات والمكائن.

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