WEMA Cost Overview

1. WEMA Cost Overview • Purpose: To present DOT an overview of the costs that we incur as grading contractors. • Goal: To foster a basic understanding of these costs and relate the cost to how we prepare bid prices. In addition, provide DOT an understanding of the true risk and investment that we have.

2. Source of Information • John Quillico, Fabco Inc. • Mary Kuhn, Caterpillar, Inc. • Caterpillar Handbook

3. Cost of Equipment • Ownership Cost • Purchase Prices of New Equipment • D6T Dozer $360,000 • D8T Dozer $640,000 • D10T Dozer $1,400,000 • 740 Haul Trk. $595,000 • 349 Backhoe $450,000 • 374 Backhoe $725,000 • 631G Scraper $900,000

4. Cost of Equipment • Ownership cost – per hour • Assuming 10,000 hr service life and 35% residual • Using D8T example • Purchase price $640,000 • Residual Value $224,000 • Value to recover$416,000 • Contractor cost is $41.60/hr for each hour machine runs. • Other cost to ownership: interest on money borrowed to make purchases, insurance, and property tax.

5. Cost of Equipment • Operating Cost – all out of pocket expenses • Fuel – grading equipment avg. 10 gal/hr ($3.75/gallon) • Grease and Oil • Tire wear • Track wear • Bucket and bucket teeth wear • Parts and labor • Labor to run equipment • Union labor approximately $70.00/hr package including wages, benefits, insurance, and payroll tax

6. Cost of Equipment • Total cost to run machine – D8T Dozer Ownership $41.60/hr Operating – labor $70.00/hr Operating – fuel $37.50/hr Operating – maint/repairs $20.00/hr Other (insurance, misc.) $20.00/hr Total out of pocket $189.10/hr Does not include overhead, profit, tax expense

7. Overhead • Office Overhead • Office staff, accounting, estimating, safety • Utilities • Business Insurance • Project staff during off-season • Mobilization of equipment to and from project • Shop Overhead • Mechanics and service trucks • Repair Facility • Specialized Diagnostic and Repair Tools • Parts Inventory

8. Cost of Components • GPS Base Station/Rover $52,000 • GPS installed on Dozer $72,000 • Replace tracks on D8T $46,000 • Tire for 740 Truck $8,150 • Tire for 631 Scraper $13,800 • Bucket teeth for 374 Backhoe $2,500

9. Bid Preparation • At bid time, all the costs are considered to prepare a crew cost per hour and production per unit. • Costs must include the time when equipment is not working (off-season), but contractor is still paying costs. • Assumptions are made on types of materials, lengths of hauls, crew size, and productions. • Bid factors that are difficult to factor include plan changes, differing soil conditions, utility conflicts, staging changes. These can all have negative effects on crew size and production which are not recoverable or predictable at bid time.

10. Bid Preparation • Bids are based on average unit prices. Expensive work averages with cheap work to get an average unit bid price. • Changes to the contract are generally the expensive type of work and cost is not reflected by the average unit bid price. • Different scope of work may require different type of crew that is not factored into unit cost at bid time. • Change orders – many times are executed well after work is completed, however we have had to pay labor, fuel bills, material invoices prior to that.

11. Bid Preparation • Example of preparing Unit Price bid for grading work. Project is 200,000 cy with 75% rural relocate and 25% urban intersection. Scraper/offroad work 170,000 cy $2.25/cy = $382,500 On-road truck (efficient) 25,000 cy $4.00/cy= $100,000 Intersection (night, flagging) 5,000 cy $12.00/cy=$ 60,000 Totals 200,000 cy $542,500.00 Average unit bid price $2.71/cy

12. Cost Impact of EBS • EBS and the 3 times payment often is disputed. • EBS in scattered areas using a small crew can cost over $10.00/cy. • Using the above example of a $2.71/cy bid price, even at 3 times pay the contractor is losing money.

13. Cost Impacts of a Utility Conflict • Storm sewer crew cost of $800/hr • Bid based on getting 25’ per hour equates to $32/lf • If utility conflicts result in 20’ per hour, cost goes up to $40/lf • Delay factors – if crew sits for 2 hours waiting for a utility, direct cost to contractor is $1,600. • This may not seem like a large number, but if this occurs 10 times on an urban project, out of pocket to contractor is $16,000 for the project. • If contractor has 3 projects like this, cost to contractor is $48,000 for the year.

14. Summary • Grading contractors have a huge equipment investment that generates cost year round • There are many unpredictable risks to production that cannot be controlled or predicted at bid time. • The low bid process ensures that contractors are bidding a minimal overhead and profit.