2.2. Value of Equipment Compared to Contract Value

Another point to be kept in mind is in some cases the value of the equipment may be greater than the contract value that means, there are some high end equipments like say tunnel boring machine it may cost so many hundreds or crores. Similarly, cranes of heavy lifting capacity like 2000 tons lifting capacity crane. So, they are all high end machines in this particular case, there are chances that value of equipment may be greater than the contract value.

This chunk discusses that certain types of equipment, particularly high-end machines such as tunnel boring machines and heavy-lift cranes, can have a value that exceeds the total amount of a construction contract. This creates a situation where if the equipment is expensive, it is likely that the contractor will not be able to recover the full investment of the equipment just from a single project. This is a critical consideration for contractors when estimating costs and planning investments in high-value machinery.

Imagine you want to buy a luxury car that costs significantly more than the price of a house you are constructing. If you only use this car for one job, you might not recover its full value through payments related to that job. Just like how a contractor must find ways to use that luxury car for multiple trips or projects to maximize its investment, contractors must anticipate multiple jobs when deciding to purchase expensive equipment.

In this particular case, it may not be possible for you to recover all the costs invested in the machine in one particular project itself. So, you may need so many series of jobs to recover the cost invested in the machine. So, when you plan for procurement of such high end machines, we should do proper economic analysis, whether there is a likelihood of future jobs which may involve the utility of the particular machine.

This chunk emphasizes the need for careful economic analysis before purchasing expensive machinery. Contractors need to consider whether they have enough upcoming jobs that will require the use of such high-end equipment. If not, the financial burden from purchasing the equipment could be significant without a feasible way to offset costs by using the machine over time in various projects.

Think of a multi-tool device that is expensive but can serve multiple functions. Before buying it, you'd want to be sure that you have enough projects or tasks that will justify its high cost. If you only take on small jobs that don't require all its features, it might not be worth the investment. Similarly, a contractor must ensure a steady stream of projects that would fully utilize the expensive equipment.

And another general point to be kept in mind is, it is not everyone then it is not possible for a contractor to own all the types and all the sizes of equipment. Say for example, if we take an excavator, there are different bucket capacities of excavator, so, it is not possible for the contractor to have all the bucket capacities models in the project site.

This chunk highlights the pragmatic aspect of equipment ownership. Not every contractor can own every type of equipment in various sizes due to costs and practicality. For example, if there are many different kinds of excavators with varying capabilities, a contractor must choose the right type based on frequent project needs rather than stockpiling every possible option. This selection must be based on what is most commonly needed.

Consider a chef who may specialize in Italian cuisine. Instead of purchasing every kitchen appliance available, they would invest in those that are most relevant to their dishes, like pasta machines or pizza ovens. This allows them to manage costs effectively while still preparing the best meals. Similarly, contractors need to be strategic about which equipment to acquire based on their project requirements.

Similarly, you have to think about the disposability of the equipment also before you plan for the purchase. Say at the end of the useful life of the machine. So, you should be in a position to sell the equipment at a reasonable price, there should be buyers for the equipment.

This chunk discusses the importance of considering the future ease of disposal of equipment when purchasing. Once a machine reaches the end of its useful life, it is crucial to be able to sell it at a decent price. Contractors need to ensure that there are potential buyers in the market for the types of equipment they purchase so that they can recoup some costs.

Imagine someone buying a computer for a specific task but not considering that after several years of use, technology advances might make it obsolete or valueless. They would ideally want to ensure that there’s a market for used computers or that they can upgrade easily when their computer becomes too old. Contractors should similarly assess if their heavier machinery will have resale value in the future.

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