A project manager pricing a change order or a delay claim needs an hourly rate for every machine on the equipment line. For an excavator the company owns, someone has to turn the purchase price and the fuel and repair records into a dollar figure per hour that the owner’s estimator will accept.
The U.S. Army Corps of Engineers publishes a method for that in Engineer Pamphlet (EP) 1110-1-8, the Construction Equipment Ownership and Operating Expense Schedule. The current text is dated August 12, 2021. USACE uses its rates in independent government estimates, and contractors must use them on negotiated Corps procurements when their own cost records cannot support a rate. Each element maps to a cost the equipment ledger already tracks, so the method works for internal rates too.
What the rate includes
The pamphlet adds an ownership cost and an operating cost, both per hour on a 40-hour workweek.
Ownership has two elements. Depreciation is straight line over the machine’s economic life in hours: total equipment value (discounted list price plus sales tax and freight), less salvage value and the cost of the tires, divided by life hours. The second element is facilities capital cost of money (FCCM), the return a contractor gives up by tying cash up in the machine. It equals equipment value times an average value factor times a discounted cost-of-money rate, divided by working hours per year.
Operating cost has five elements: fuel; filters, oil and grease (FOG), which includes the labor to service the machine; repairs, including maintenance and major overhauls; tire wear; and tire repair.
The rate leaves out operator labor, mobilization and demobilization, field and home office overhead, contingency and profit. License fees, property taxes, storage and insurance are also outside it. The pamphlet calls those allowable costs that belong in the contractor’s overhead rate. Operator wages go in separately at a burdened labor rate, which the labor burden post builds from payroll.
Where the factors come from
USACE posts the factors on the EP 1110-1-8 web page. Each equipment category has an economic life in hours, a salvage percentage, a fuel factor in gallons per horsepower-hour, a FOG factor and a repair cost factor. Each of 12 regions has its own working hours per year, fuel prices, sales tax and freight rates.
The cost-of-money rate is Treasury’s Prompt Payment interest rate. The pamphlet divides it by 1.25 so it does not double count the markup it assumes for overhead and profit. Treasury set the rate for July 1 through December 31, 2026 at 4.75%, which discounts to 3.8%.
A worked example
The figures below are an example with round numbers. A contractor owns a 200-horsepower hydraulic excavator with a total equipment value of $400,000, an economic life of 10,000 hours, 30% salvage value and 1,400 working hours a year. The fuel factor is 0.03, off-road diesel costs $4.00 a gallon, the FOG factor is 0.10, the repair factor is 0.80 and the regional labor adjustment factor is 1.00. The machine runs on tracks, so it has no tire cost. The cost of money is the discounted Treasury rate of 3.8%.
| Element | Formula | Example inputs | Per hour ($) |
|---|---|---|---|
| Depreciation | Equipment value x (1 - salvage) / life hours | $400,000 x 0.70 / 10,000 | 28.00 |
| Cost of money (FCCM) | Equipment value x average value factor x discounted rate / working hours per year | $400,000 x 0.699 x 3.8% / 1,400 | 7.59 |
| Ownership subtotal | 35.59 | ||
| Fuel | Horsepower x fuel factor x price per gallon | 200 x 0.03 x $4.00 | 24.00 |
| Filters, oil and grease | FOG factor x fuel cost per hour x labor adjustment factor | 0.10 x $24.00 x 1.00 | 2.40 |
| Repairs | Equipment value x repair factor / life hours | $400,000 x 0.80 / 10,000 | 32.00 |
| Operating subtotal | 58.40 | ||
| Total hourly rate | 93.99 |
Ownership comes to $35.59 an hour and operating cost to $58.40, for a total of $93.99. The average value factor of 0.699 comes from the pamphlet’s formula:
- Depreciation period N equals life hours divided by working hours per year: 10,000 / 1,400 = 7.14 years.
- The average value factor equals ((N - 1) x (1 + salvage) + 2) / (2 x N), which gives 9.99 / 14.29 = 0.699.
Repairs are the largest element at $32.00, and the same holds in the pamphlet’s own worked example for Region 2, priced for 2022. For a 350-ton all-terrain hydraulic truck crane, repairs came to $141.97 of a $336.88 hourly rate, and fuel to $43.86.
Adjustments the pamphlet allows
Chapter 3 lists eight rate adjustments, including these three:
- Fuel. When the jobsite fuel price differs from the regional table price by more than 10%, the fuel element is multiplied by the ratio of the new price to the table price, and FOG by the same ratio. The Corps requires the fuel supply contracts and invoices.
- Weeks over 40 hours. FCCM is paid on at most 40 hours a week, so on a longer week the 40 hours of FCCM are spread across the actual hours.
- Standby. The standby rate is half the hourly depreciation plus the full FCCM. Paid standby is capped at 40 hours a week per machine, operating hours in that week count against the cap, and no standby is paid for time the machine would have sat idle anyway.
| Case | Ownership ($/hr) | Operating ($/hr) | Total ($/hr) |
|---|---|---|---|
| Base rate, 40 hours a week | 35.59 | 58.40 | 93.99 |
| Diesel at $5.00 instead of $4.00 | 35.59 | 65.00 | 100.59 |
| 60 hours a week | 33.06 | 58.40 | 91.46 |
| Standby | 21.59 | 0.00 | 21.59 |
At $5.00 diesel, fuel rises to $30.00 and FOG to $3.00, and the total rate rises $6.60 to $100.59. A 25% increase in the fuel price raises the whole rate 7.0%. The September input prices post covers the diesel increase in the BLS producer price data.
How to use this number
On a change order or delay claim with a public owner, compute the rate the owner’s estimator will compute. Check the contract’s changes clause for the schedule the owner uses for contractor-owned equipment. Corps contracts use this one, and a fuel adjustment needs the invoices behind it. For internal rates, divide a year of each cost in the equipment ledger by the machine’s metered hours and compare element by element. A repair cost per hour well above the pamphlet’s figure can mean the machine is past its economic life, which chapter 3 handles with a separate over-age adjustment.
Utilization changes the ownership side. The pamphlet spreads the annual cost of money over the region’s working hours. In the example, that annual cost is $10,624.80, which is $400,000 x 0.699 x 3.8%. A machine that logs 700 hours a year carries the same capital cost over half the hours, or $15.18 an hour instead of $7.59.
Caveats
The predetermined rates on the EP web page start from list prices for equipment manufactured three years before the table’s publication. The pamphlet assumes a machine bought new and in sound condition, and it gives no detailed method for equipment bought used. It does not apply to rented or leased equipment.
To use a table rate, a contractor’s machine must be within 10% of the table machine’s size, capacity, horsepower and value. Otherwise the rate is computed with the chapter 2 method or with CHECKRATE, an Excel workbook from USACE.
The cost-of-money rate changes each January 1 and July 1. The Region 2 example used 1.30% in its FCCM line. At today’s discounted 3.8%, FCCM on the same crane would be about 2.9 times as high.
How to start on your jobs
Pick the owned machine with the most hours last year. Pull its purchase invoice, fuel and repair costs and hour-meter readings, and build the rate in a spreadsheet with one row per element, filling gaps in your records with your region’s factors from the EP web page. Then compare the result with the rate your estimating system uses for that machine.