From: Specification Demystification
Low Bid vs Life-Cycle Cost
Among manufacturers, municipal specification writers have a bad reputation for underspecifying to cut corners and save money. That accusation isn’t always accurate, insists Mark Caton, fleet systems manager in the division of fleet services for the Lexington-Fayette Urban County Government in Lexington, KY.
“Buying the highest-quality equipment at the best price isn’t always an oxymoron,” Caton says. “Specifications are about establishing a standard of quality. Once that is met, then you can go for the best price.
“At the end of the process, the bid opening is the moment of truth. If I’ve done a good job, I feel confident recommending the lowest bid that meets the specifications. In many cases, the low bid is from a company we’re not familiar with, but I’ve addressed enough important aspects of construction that I feel comfortable recommending it. If it’s built to these specifications, it cannot be junk.”
Richard Hugger, sales engineering manager for chassis-maker Crane Carrier Co., says private contractors are comfortable with choosing preferred body and chassis manufacturers, then sitting down with them to work out the details and create a vehicle that can be built and will go together properly.
“To buy trucks,” says Jerry Wickett, vice president of purchasing and maintenance at Republic Services Inc., “we go through a negotiation process with prospective suppliers. We test the market, have a good feeling where we need to be, and negotiate from there.”
That could be considered bid rigging if a municipality did it, Hugger says. “When a specification goes out for public bid, it can’t be so specific that only one bidder can bid on it, so most municipal specs are more generic. You frequently do not know whose chassis will be combined with whose body. The chassis portion awarded may not match the body portion. There can be a lot of screening before we enter the order and get it to the production line.”
To avoid such a mismatch, Caton bids out the body of a refuse truck first, then tells chassis bidders what body will be mounted on their chassis. “This makes for a cleaner process,” he says. “It’s not muddied up by a chassis guy going out to procure a body to put the whole thing together. When you get a price on a complete unit, you don’t know what kind of markups may be involved.”
Total Cost of Ownership
Alan Charky, sales and marketing director for Industrial Lifters, says purchasers of tippers and other ancillary equipment should buy premium products because those with the lowest initial cost may not last as long and may cost more to operate, maintain, and repair. “Your waste-management operation is as strong as its weakest link,” he says. “A substandard tipper could ground a whole truck and its crew for a day or two.”
For trucks, Charky advises municipalities and private haulers alike to calculate the total cost of owning a vehicle, not just its acquisition costs, which may resemble the tip of an iceberg. He claims that over a truck’s entire life cycle (roughly seven years), a lower-priced truck’s operation, maintenance, and repair costs can tip the balance in favor of the truck that costs more to buy initially. In a hypothetical example, Charky compares two trucks, one costing 13% more to buy than the other but 17.5% less to own throughout its life.
In addition to the purchase price, Charky says, an analysis of the total cost of owning a vehicle should include its installation, financing, commissioning, energy-consumption, preventive-maintenance, and repair costs, as well as the vehicle’s ability to function productively, the risks associated with operating it, and the cost to dispose of it at the end of its useful life. “The onus is on the manufacturer to prove the benefits of his equipment by getting reliable and verifiable statistics from users of the equipment,” Charky says.
Database Insights
Some municipalities collect such detailed data; others don’t. A problem in many municipalities is that one department acquires assets while another maintains and repairs them. Each has an independent budget, and they don’t always communicate. In the private sector, recordkeeping tends to be more comprehensive and reporting relationships are less fragmented.
“We have 11 years of life-cycle information on our fleet,” says Jim Kennedy, director of purchasing and maintenance for Onyx-Superior Services Inc., a Milwaukee, WI–based subsidiary of the French firm Veolia Environment. He oversees 2,400 vehicles—200 at landfills, the rest at 77 locations in 12 states.
“Each shop records maintenance costs in the computer,” he says. “They’re responsible for analyzing the feasibility of remaining with a given vendor. We have meetings, and through our wide-area network I can access every location in the country and every truck live from my personal computer. I can get the information on a consolidated basis, too.”
At Republic Services, Wickett and his staff keep maintenance records for about 5,500 heavy-duty refuse-collection trucks in 22 states using Dossier, an off-the-shelf fleet-maintenance software system from Arsenault Associates in Atco, NJ. “It’s a tracking tool that captures our maintenance costs,” he says. “It offers month-to-date, year-to-date, and life-to-date information.”
Republic Services’ Dossier database is just four years old, but by looking at costs to operate older trucks over the past four years, Wickett can extrapolate anticipated costs for a similar new vehicle’s entire life.
Advertisement
“We keep our trucks longer than the typical municipality would,” he says. “Our trucks need to last 10 years, so we’re going to put in heavy-duty components as opposed to medium- or light-duty components, even though we’re spending more money up front to do it.
“Generally, maintenance and repair costs ramp up from year one to year six. Then we put some money into the body, transmission, and hydraulic cylinders. After we make that investment, we see the costs ramp down again. These analyses show us that the life cycles we’ve predetermined for our vehicles make sense for us.”
January-February 2007
From: Specification Demystification
Low Bid vs Life-Cycle Cost
Among manufacturers, municipal specification writers have a bad reputation for underspecifying to cut corners and save money. That accusation isn’t always accurate, insists Mark Caton, fleet systems manager in the division of fleet services for the Lexington-Fayette Urban County Government in Lexington, KY.
“Buying the highest-quality equipment at the best price isn’t always an oxymoron,” Caton says. “Specifications are about establishing a standard of quality. Once that is met, then you can go for the best price.
“At the end of the process, the bid opening is the moment of truth. If I’ve done a good job, I feel confident recommending the lowest bid that meets the specifications. In many cases, the low bid is from a company we’re not familiar with, but I’ve addressed enough important aspects of construction that I feel comfortable recommending it. If it’s built to these specifications, it cannot be junk.”
Richard Hugger, sales engineering manager for chassis-maker Crane Carrier Co., says private contractors are comfortable with choosing preferred body and chassis manufacturers, then sitting down with them to work out the details and create a vehicle that can be built and will go together properly.
“To buy trucks,” says Jerry Wickett, vice president of purchasing and maintenance at Republic Services Inc., “we go through a negotiation process with prospective suppliers. We test the market, have a good feeling where we need to be, and negotiate from there.”
That could be considered bid rigging if a municipality did it, Hugger says. “When a specification goes out for public bid, it can’t be so specific that only one bidder can bid on it, so most municipal specs are more generic. You frequently do not know whose chassis will be combined with whose body. The chassis portion awarded may not match the body portion. There can be a lot of screening before we enter the order and get it to the production line.”
To avoid such a mismatch, Caton bids out the body of a refuse truck first, then tells chassis bidders what body will be mounted on their chassis. “This makes for a cleaner process,” he says. “It’s not muddied up by a chassis guy going out to procure a body to put the whole thing together. When you get a price on a complete unit, you don’t know what kind of markups may be involved.”
Total Cost of Ownership
Alan Charky, sales and marketing director for Industrial Lifters, says purchasers of tippers and other ancillary equipment should buy premium products because those with the lowest initial cost may not last as long and may cost more to operate, maintain, and repair. “Your waste-management operation is as strong as its weakest link,” he says. “A substandard tipper could ground a whole truck and its crew for a day or two.”
For trucks, Charky advises municipalities and private haulers alike to calculate the total cost of owning a vehicle, not just its acquisition costs, which may resemble the tip of an iceberg. He claims that over a truck’s entire life cycle (roughly seven years), a lower-priced truck’s operation, maintenance, and repair costs can tip the balance in favor of the truck that costs more to buy initially. In a hypothetical example, Charky compares two trucks, one costing 13% more to buy than the other but 17.5% less to own throughout its life.
In addition to the purchase price, Charky says, an analysis of the total cost of owning a vehicle should include its installation, financing, commissioning, energy-consumption, preventive-maintenance, and repair costs, as well as the vehicle’s ability to function productively, the risks associated with operating it, and the cost to dispose of it at the end of its useful life. “The onus is on the manufacturer to prove the benefits of his equipment by getting reliable and verifiable statistics from users of the equipment,” Charky says.
Database Insights
Some municipalities collect such detailed data; others don’t. A problem in many municipalities is that one department acquires assets while another maintains and repairs them. Each has an independent budget, and they don’t always communicate. In the private sector, recordkeeping tends to be more comprehensive and reporting relationships are less fragmented.
“We have 11 years of life-cycle information on our fleet,” says Jim Kennedy, director of purchasing and maintenance for Onyx-Superior Services Inc., a Milwaukee, WI–based subsidiary of the French firm Veolia Environment. He oversees 2,400 vehicles—200 at landfills, the rest at 77 locations in 12 states.
“Each shop records maintenance costs in the computer,” he says. “They’re responsible for analyzing the feasibility of remaining with a given vendor. We have meetings, and through our wide-area network I can access every location in the country and every truck live from my personal computer. I can get the information on a consolidated basis, too.”
At Republic Services, Wickett and his staff keep maintenance records for about 5,500 heavy-duty refuse-collection trucks in 22 states using Dossier, an off-the-shelf fleet-maintenance software system from Arsenault Associates in Atco, NJ. “It’s a tracking tool that captures our maintenance costs,” he says. “It offers month-to-date, year-to-date, and life-to-date information.”
Republic Services’ Dossier database is just four years old, but by looking at costs to operate older trucks over the past four years, Wickett can extrapolate anticipated costs for a similar new vehicle’s entire life.
“We keep our trucks longer than the typical municipality would,” he says. “Our trucks need to last 10 years, so we’re going to put in heavy-duty components as opposed to medium- or light-duty components, even though we’re spending more money up front to do it.
“Generally, maintenance and repair costs ramp up from year one to year six. Then we put some money into the body, transmission, and hydraulic cylinders. After we make that investment, we see the costs ramp down again. These analyses show us that the life cycles we’ve predetermined for our vehicles make sense for us.”