Purchase or lease of equipment

A contractor can obtain construction equipment by purchase, lease, or hire (rent).

Purchase

• The contractor owns the machine; it is suitable where utilisation is high and continuous over a long period.
• Merits: full control, lower cost per hour at high use, resale value, and tax benefit on depreciation.
• Demerits: heavy initial investment, depreciation, repair and maintenance cost, idle cost when there is no work, and risk of obsolescence.

Lease

• A long-term contract where the lessor owns the machine and the contractor pays regular rent; at the end it may be returned or bought (finance lease, operating lease).
• Merits: no large capital outlay, the latest technology, and fixed monthly payments; maintenance may be included.
• Demerits: total payments exceed the purchase price in the long run; the contractor does not own the machine; there are lease conditions.

Hire (rental)

Short-term use by the day, hour or month; suited to occasional or short-duration work.

Decision

Compare the owning cost per hour (depreciation, interest, insurance, tax, storage) plus operating cost (fuel, repair, operator) with the lease or hire cost at the expected utilisation. Buy if the use is high and long, lease or hire if the use is low or the job is short. Other factors include the availability of capital, local dealer support, and the contractor's future work.