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Achieving World Class Fleet Management Means
Viewing Maintenance in a Different Light
Are you happy with the performance and cost of your fleet maintenance program?

Or is asking that question like asking “Are you happy with how much you have saved for retirement?” A construction company’s operation is only as successful as its ability to provide effective bids and deliver cost-effective and productive work within the confines of that contracted amount.  However, unforeseen delays and exceptional costs caused by failed equipment can delay jobs and eat away at profit margins.  Certainly, equipment maintenance is not the only variable when laying a base down, building a bridge, or paving a large section of highway, but it can be an impactful one.

Having had the opportunity to work with many World Class organizations over the years as a consultant, I would like to share the common characteristics of a World Class maintenance organization.  In this article, I will start by describing what constitutes good maintenance practices. In the next article, I will further explore good maintenance practices and the systems used to support those practices.  In future articles, I will get into the financial impact of good maintenance practices and take a look at improvement strategies that can turn a “mediocre” maintenance operation into a World Class maintenance organization.  I will also go into greater depth about how to optimize a Computerized Maintenance Management System as well as shop organization, budget management, and life cycle cost. 

Starting at a high level of understanding maintenance, I have seen maintenance costs in this industry range from 15% to 40% of estimated replacement value (ERV).  Best in Class (within this industry) has averaged at 8% of ERV, while World Class (across all industries) is 2.5%.  Clearly, a range of 15-40% is too high for a heavy equipment fleet.  That means considerable money is not hitting the bottom line, but it seems that little is known about how to reduce it outside of cutting costs.  However, there are tools and techniques to drive this cost down. 

Maintenance, like accounting, should follow certain recommended practices; it is a science and not an art.  However, just like accounting practices at Enron or Global Crossing, sometimes things can get too creative with disastrous results.   

The maintenance organization of today, like many departments, is under continued pressure to cut costs, show results, and support the mission of the organization. After all, it is a logical expectation from the business standpoint—that’s why we pay them.  Unfortunately, many equipment managers have had little to no formal training in how this is done.  They often see their job as “keeping it going” rather than “keeping it from failing.”  This inability to understand the systems of maintenance is compounded by senior management’s lack of understanding as to how to provide overall oversight of these activities.  Lack of metrics to measure performance as well as not knowing what knobs to turn to change that performance is a constant issue.  To make matters worse, it is now getting more complicated.

In more and more cases, organizations are challenging their fleet maintenance operations by supporting the broader efforts of World Class Operations, or what many refer to as Operational Excellence.  I see increased use of contemporary improvement techniques like Six Sigma, Lean, and other major improvement initiatives, normally applied to manufacturing, now being used to improve heavy equipment performance. However, any operational improvement process can only be successful if it provides a “review and improve” cycle that examines the practices and systems that make up the maintenance function.  It is not just what we do, it is how well we do it that counts.

In fact, regardless of who does maintenance, whether it is a specialized skilled or multi-skilled tradesperson, outsourced contractors, or a highly trained operator/mechanic, solid maintenance practices are the keystone to World Class Maintenance, which leads to World Class Operations.

According to Paul Thomlingson, in his book Effectiveness Maintenance, the objectives of a good maintenance function are to: 

• Support operations by keeping production equipment in good condition so that production targets can be met 

• Maintain the plant facilities by keeping the plant site and its buildings, utilities, and grounds in a functional, attractive state 

• Conduct engineering projects like equipment modifications, construction, installation, and relocation 

• Develop a program to carry out maintenance services 

• Organize the maintenance function to support the equipment maintenance needs of production while conducting essential engineering projects 

• Execute maintenance programs while utilizing resources productively 

• Perform quality work 

• Anticipate and prepare for future work 

• Achieve continued improvement by evaluating performance, taking corrective actions, and measuring progress 

• Prepare for future changes by anticipating needs and organizing flexibly 

• This would be in addition to conducting those proactive activities to prevent failures from occurring. 

Cost-effective maintenance has its foundation in Best Maintenance Practices.  Those practices include the following twelve areas:

Leadership and Policy Deployment

World Class Maintenance relies on superior leadership providing direction, focus and support. This usually means changing the status quo rather than preserving it.  This requires management to establish a clear mission and vision supportive of the organization's direction and goals.  The goal of maintenance is to enable operations to do their job in an efficient and cost productive manner by providing equipment in a reliable state.  However, to do this, operations must accept some responsibility to maintain their equipment (more on this in the next article).  Only senior leadership can make that happen.  Leadership, in this case, is not confined to the equipment or fleet manager.  It includes his/her superiors and the methods they use to provide visible and focused support for improving equipment system efficiencies.

Leadership is also responsible for establishing the policies and expectations that serve to guide maintenance and the organization in supporting maintenance activities.  Once policies are developed, they must be deployed, communicated, and monitored.  Policies are the “law” of the organization, and are therefore, the foundation to what we hold dear and expect.  We know that un-posted speed limits leave much to interpretation; that’s why we have those little “policy reminders” posted along the side of the road.  It is important to communicate rules and expectations clearly.

Leadership should help to identify and address resource issues that could prevent improvements from taking place.  This can be accomplished through auditing or other forms of monitoring to ensure successful implementation.  

Organizational Structure

Maintenance organizational efficiency depends upon many interdependent variables.  Some of these include: organizational structure, goals and objectives, communications processes, policies and procedures, work processes (methodologies) and employee systems.  Maintenance organizations function at three major levels: organizational (functional and structural relationships), process (work activities done like PM) and job performer (individual worker).

The ineffectiveness of one level could negatively impact another level.  For example, poorly defined work activities, such as the lack of maintenance planning and scheduling, can seriously hinder an individual's performance and attitude.  The old adage, “Throw a good person into a bad system, the system wins every time” applies here.

It is critical to develop a process to conceive and communicate the maintenance philosophy including the refined mission, goals, direction, focus, purpose, etc.  Employees (or contracted services) need to understand the expectations of the enterprise as well as their role to support the mission of the enterprise.  They need to understand the big picture and what is expected of them to achieve it.

An often-used strategy involves allocating maintenance resources closer to the actual work area such as "zone" or "field" coverage.  This approach maximizes familiarity with the equipment, the operations personnel in that area, and encourages "ownership."  Proper oversight by supervision needs to be conducted to ensure those resources are “gainfully” applied and are productive. 

We should also examine the benefits of decentralization of maintenance to partial or full control by operations personnel.  This places maintenance control directly under operational management versus traditional centralized control under an Equipment Manager.  There are pros and cons to this, but it can work well with the proper plan and execution.  Maximizing productivity and labor utilization is important, and various reporting relationships should always be examined to find the most optimal one for the organization. 

In Part Two, I will discuss inventory control.  We will also explore Computerized Maintenance Management Systems, preventive and predictive maintenance, planning and scheduling, workflow, financial control, operational involvement, staffing and development, and continuous improvement. 

Article prepared by:
Preston Ingalls, President
TBR Strategies LLC

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Equipment Accounting: A Checklist for Best-in-Class Contractors

Heavy & Highway contractors today are in various states of automation when it comes to accounting for their equipment resources.  Nearly all of today’s integrated construction accounting systems have an Equipment application. Some, especially those designed for Heavy & Highway contractors and others with lots of equipment, have a rather sophisticated equipment accounting capability including work order production, interfaces with purchasing and inventory, and hierarchical cost tracking.  However, this author’s experience suggests that these equipment applications go largely underutilized for equipment accounting and are used simply for job charging of equipment and basic cost tracking.  So how should an equipment intensive contractor be accounting for equipment costs?  This article answers this question beginning from the rather basic and proceeding through more advanced initiatives all with a focus on using systems and automation tools that are available in the market.

Do you have a separate P&L for the equipment division?

Most equipment intensive contractors do have a separate P&L for their equipment department. It is not sufficient really to simply have a few accounts in the general ledger set aside for equipment costs. You have to have both a revenue account; perhaps more than one, and also a series of accounts available for equipment related expenses.  To call it a P&L is a bit of a misnomer because it is really meant to be a break-even center.  Whatever it is called, management should be able to pull an income statement on the department for the month, quarter and year at any time.

Do you track all costs for a piece of equipment to that piece of equipment?

Many costs for a piece of equipment are obvious. Repairs, depreciation, and FOG are all easily assignable to a piece of equipment.  However, other costs are sometimes more illusive and harder to assign to a piece of equipment.  Insurance costs and shop overhead are but two costs that need to be assigned to pieces of equipment.  If any significant costs miss assignment, they become part of overhead, which can inaccurately make its way into other markups or burdens.

Do you job charge repairs for abuse or misuse?

Abuse and misuse are not planned for (though you could argue could be expected) and the costs are therefore not built into the equipment rate.  Your policy should be the same as any rental car company. The rate you pay reflects normal maintenance and wear and tear.  If you damage the vehicle, you pay for it. This keeps rates low and assigns responsibility where it belongs.  Of course, a major repair for abuse would show up as a cost overrun on the job since the estimators were not anticipating this either.  Make sure your system has the ability to charge a work order for repair or maintenance to a job and cost code. Not all do.

Do you have an idle rate and a productive rate for equipment?

Many Heavy & Highway contractors have a single rate for charging equipment to the job.  It is based utilization.  However, many times equipment is on a job, idle, as the crews are busy with an activity that does not require the equipment.  The shop foreman does not want to pay to bring the equipment back in, especially if it is needed on that job again fairly soon. In order to more accurately charge for equipment and track utilization, some contractors have an idle rate, which is meant to cover all ownership costs, and a productive rate, which is meant to cover ownership and operating costs.  Again, better equipment applications have the ability to maintain multiple rates and even track revenues and costs accordingly.

Are you getting accurate reporting of utilization in the field?

The perennial problem for most equipment-intensive contractors:  Meters seem to be unreliable. Equipment is moved without being recorded in the office.  Operators do not always return their weekly time sheets with equipment usage recorded accurately.  Much of the equipment system’s value begins with accurate utilization reporting from the field.  With advances in telemetrics, equipment will soon be able to “send in” its own operating time though that will only be helpful if the main system knows on which job the equipment is operating.

Are you getting fuel usage captured by piece of equipment?

Fuel consumption tracking by piece of equipment is sometimes difficult to track. Advances in some of the fuel tracking tools provide for this including an interface to the accounting system.  There are three advantages to tracking fuel to equipment. When you have fuel charged to equipment along with hours or miles, you can get a better read on consumption rates and compare them within a class of equipment. Also, consumption can be a more reliable trigger for preventive maintenance tasks when utilization does not come in as reliably.  Finally, it can make job charging of the equipment and fuel more accurate.

Are you allocating shop overhead to your equipment?

If equipment repair and maintenance costs are going to be accurate, all costs should be allocated to pieces of equipment. Costs like shop supplies, foremen labor, clerical labor, tools, and utilities cannot practically be assigned specifically to a piece of equipment. However, these costs can typically be charged to equipment using an overhead markup capability within the work order system.  For example, you could apply 5% of repair labor to cover these costs.  It would be ideal if you had these costs classified within the P&L in an area that are easily grouped so you can see the recovery rate is sufficient. Not all systems have overhead recovery capabilities within the equipment application. For those that do, it is either within the equipment application or within the work order module.

Is your equipment system capable of classifying equipment within class and subclass to facilitate better filters on reports and inquiries?

Equipment managers typically want to compare repair costs, utilization rates, fuel consumption, and repair history for all pieces of equipment in a class or subclass.  The subclass is important if comparing all pieces in a single class is too broad.  Once the equipment master file is assigned to a class and subclass, nothing else needs to be done to facilitate this reporting provided the reports and inquiry screens allow for filtering and sorting on that field.

Can you track costs at the component and type level within a piece of equipment?

Some of the more sophisticated equipment applications allow for breaking equipment costs down by cost type (e.g. labor, burden, parts, outside repairs) and by component (e.g. bucket, engine, tires, transmission).  Having historical cost information segregated by these categories and components allows the equipment managers to make more insightful decisions.  This requires more effort during the coding of time cards, work orders, and invoices but is generally worth it if the better granularity is used.

Do your equipment rates reflect a fully absorbed cost?

Your equipment rates should reflect two things: your expected utilization for that piece of equipment or pieces within that class AND the total cost of that piece of equipment.  This requires that all costs, direct and indirect, be assigned to the piece of equipment.

Do your equipment repair, cost, and utilization reports provide the kind of information needed to make good decisions?

This is another fundamental that is sometimes ignored when setting up equipment applications.  Management must think carefully about the kind of information they want, how often they want it and how they want it presented.  These decisions significantly impact the way in which the equipment application is set up and the way in which procedures are established.  Examples of the kind of information commonly required are productivity, cost by type and category, and fuel consumption.  This information is typically reported or sorted by type of equipment, class of equipment, and/or for user defined periods of time.

Is your estimating system using equipment rates and productivity assumptions consistent with your equipment department?

Your estimating department should be using equipment rates and assumptions consistent with the rates and methods used by the equipment division, not third-party market rental rates.  If your equipment rates are lower than market (hopefully, they are) because you buy equipment more effectively or repair and maintain it more efficiently, this can lead to competitive advantage in bidding.  Also, if the P&L for the equipment department reflects a gain or loss at the end of a quarter or year, it could reflect under or over utilization or variances on expected spending.

Article prepared by:
Christian Burger, President
Burger Consulting Group
crburger@burgerconsulting.com

Safety Management Is Not a Program, It’s a Process 

Construction Safety Management deals with actions that managers at all levels can take to create an organizational setting in which workers will be educated, trained and motivated to perform safe, productive work. Once top managers understand the economic benefits of a good safety record, they are motivated to become involved in driving the safety process. 

Studies of the safest construction firms have found that employees feel that they are part of a strong “culture” in which safety is given a priority. 

From our interaction and work with the construction industry, it was found that construction companies are concerned with the safety of their employees, yet are not sure how to address the problems.  The attention many times is on the accident or the act leading up to the injury; this is important, yet we find that the companies need a management concept that is proactive to minimize or eliminate the risks. 

All contractors need to be cognizant of and implement activities that are intended to minimize the potential for loss, to control the costs of those losses that do occur, and to communicate and learn from the experiences of others throughout the construction industry.  These activities are grouped into what is commonly referred to as a Safety Program.  Safety Programs accomplish little unless they are transformed into a Safety Management Process.  To be effective, a Safety Management Process must have the same level of management involvement and commitment, as do the objectives of quality, cost, scheduling and profit. 

Twelve (12) key elements of a successful Safety Management Process have been identified below.  These elements include:

Article prepared by:
Sherwood Kelly
Willis – Construction Practice

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Zurich Provides Highway Safety Seminar to Its Texas Clients 

Increasing numbers of highway construction zone accidents led Zurich North America to provide a free seminar to its Texas-based highway contractor clients, to discuss prevention and management of work zone accidents.  Over 60 representatives from 40 companies attended the “Staying Safe in the Zone” forum, which was held at the Austin Airport Hilton on September 21.   

Stan Bratton, Construction Regional Vice-President for Zurich, conceived the idea for the seminar after observing the increase in work zone accident litigation against his clients.  Mr. Bratton and Lisa Keel, Zurich Construction Claims Consultant, then created a seminar framework designed to educate Zurich insured’s on ways to prevent work zone accidents and to limit the exposure for those accidents.  Bratton and Keel also enlisted a Dallas-based law firm specializing in heavy highway and general construction litigation, Miller & McCarthy, to co-sponsor the event and choose the forum’s speakers.  The seminar was held in a “Q&A” format, which encouraged audience participation and led the speakers to focus on issues that mattered most to the contractor representatives. 

Leading off the seminar was Akin Gump attorney Tom Bond, who spoke about Texas’ new tort reform law that relieves contractors from liability for construction zone accidents.  Codified as section 97.002 to the Texas Civil Practice & Remedies Code, this new law will insulate the contractor from liability in work zone accidents if “the contractor is in compliance with contract documents material to the condition or defect that was the proximate cause of the injury.”  Although the law is too new to have an effect in the courts, the immediate effect has been a renewed focus on strict compliance with DOT plans and on creating a more positive relationship with DOT inspectors in the field. 

Eager to assist highway contractors in benefiting from the new laws, Texas DOT engineer Greg Brinkmeyer and Assistant Attorney General Ron Garner gave a presentation to the group.  Both Brinkmeyer and Garner presented the audience with several “what if” scenarios to illustrate the different roles of the state and the contractor in highway projects, and what steps the contractor must take to comply with state plans.   New Texas DOT specifications were also discussed, which allow the contractor to “self-inspect” its signage and make any necessary changes within the plans, in the absence of DOT personnel on-site.   Brinkmeyer cautioned the group to train their foremen and superintendents to use the Manual on Uniform Traffic Control Devices, to both ensure safety of the motoring public and to protect the contractor from liability in case of an accident. 

Another topic of interest was the prevention of pavement edge drop-off accidents.  Pavement edge drop-offs are commonly blamed for “run-off-the-road” accidents, and Don Ivey with the Texas Transportation Institute was on-hand to provide insight on edge drop-off dynamics.   Ivey encouraged the group to keep their pavement edges to two inches or less, as the research indicates that higher edge drops can be dangerous, especially if they are “vertical face” edges.   

The Safety Edge 

Ivey also provided the audience with information on “The Safety Edge”, which can be created by use of a special “shoe” fitted to the paving machine.  When used properly, the “shoe” produces a 45-degree edge, which allows drivers to easily re-mount the pavement after driving off the road.  The Federal Highway Administration has encouraged the use of this special “shoe,” which serves to prevent roadway accidents and provide contractors a terrific defense in “run-off-the-road” accident litigation. 

Lewis Rhodes, of Safer Rhodes, Inc., warned the attendees not to engage in any engineering plan design when executing roadway projects, even if asked to by the contracting government agency.  Because a competitive bid-winning contractor is legally barred from providing engineering services in Texas, a company could be in danger of violating the Texas Engineering Practices Act and exposing itself to liability for its engineering design.   

Rhodes advised the group that a contractor can negotiate a supplemental agreement with a governmental agency to provide design work for a roadway project, which would effectively remove the work from the “competitive bid winner” engineering bar.  However, few insurance policies cover design work performed by a road contractor, and an additional rider would have to be purchased from the insurer.  Even if the contractor were to execute the supplemental agreement and purchase additional insurance, Rhodes warned the audience that in the long-run, the additional exposure and potential liability could be far more expensive than the additional profit earned, as road contractors are rarely equipped with the personnel or expertise to arrive at a fool-proof roadway design or safety plan. 

In the event of an accident, project foremen and superintendents should have the tools necessary to handle a scene investigation, lectured Bill Nalle of Accident Reconstruction Engineers.  Nalle encouraged the audience to have its foremen keep an “accident investigation kit” in their truck, with a camera, extra film, a can of spray paint, tire gauge, and tape measure.  After each accident, the foreman should take photographs at every angle, at 25-foot stations, along the portions of the roadway where the accident sequence occurred.  The spray paint and tape measure can be used to mark the 25-foot stations from a fixed, permanent object on or near the roadway.  The foreman should also take photographs of the edge conditions, all construction signage leading up to and at the accident site, and any sight obstructions.  Photographs should also be taken of the post-accident position of the vehicles, vehicle tires, and interior of the vehicles.  The tire gauge should be used to measure the pressure of all vehicle tires, especially in cases involving hydroplaning.  

MAP Program 

Brian Cooney and Peter Hansen of Louisiana-based Barriere Construction Co. concluded the seminar with a presentation about their award-winning Motorist Assistance Program (MAP).  This program was developed to eliminate all contractor “at-fault” accidents, ensure that all signage was in place 24-hours a day, respond to all accidents within the work zone, and thoroughly document and investigate all third-party accidents.  This was accomplished by providing a Motorist Assistance Patrol Vehicle, manned by off-duty policemen and firemen for 24-7 monitoring of the work zone.  These MAP drivers monitored employee safety and motorist safety throughout the project, and maintained communication with the Louisiana State Police to report unsafe driving or call for emergency services.   

Although Barriere Construction Co. paid the cost of the MAP (about $100,000 to $200,000 per project), the results were phenomenal.  Although five major accidents occurred during the pendency of Barriere’s MAP, Barriere was found not to be a contributing factor to any accident, and no claim dollars were paid.  Of the hundreds of small, third party incidents that occurred on the three interstate projects, Barriere has been sued only once.  Barriere’s Motor Assistance Program was recognized by the Louisiana Governor, who presented Barriere with an award for its emergency preparedness and efforts to protect the citizens of Louisiana.

Copies of the seminar syllabus and handout materials are available on request.  Please contact Christian Ellis at cellis@millermccarthylaw.com to receive your copy.

Article prepared by:
Christian Ellis, Esq.
Miller & McCarthy, P.C.
Dallas, Texas
www.millermccarthylaw.com

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Heavy & Highway Hot Topics – Let Us Know What You Think!

• Depreciation bonus on equipment purchases

• Increases in pricing of fuel, steel, & concrete

• Technology helping the Heavy & Highway market get into gear

• Asphalt plants, scale systems, hardware costs, running asphalt or batch plants 

We are interested in the topics that interest you! Results of your feedback will be published in the next issue of the newsletter. Also, please find a survey that you could complete to voice your opinions. If you didn’t catch our inaugural issue, check it out by visiting the following link: http://www.cfma.org/Heavy/body-m.htm 

We also ask that you share this newsletter with other members of our industry so they will know there is a focus on Heavy & Highway within CFMA and because of this, will join CFMA.  

If you have any questions or comments – or you just want to let us know how you like this e-publication – please feel free to e-mail Karen Schneider at HQ.

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The opinions expressed by the authors featured in Talking Heavy are theirs alone and do not reflect an endorsement by CFMA. The individual authors are responsible for the validity of any numbers and mathematical operations used in any examples and for obtaining permission to use any works cited in their respective articles.