TOTAL COST PURCHASING APPLIED TO STATE HEAVY EQUIPMENT PROCUREMENT

A STUDY ON HOW TO PURCHASE DOZERS, LOADERS, AND GRADERS AT THE LEAST OVERALL COST TO THE VIRGINIA DEPARTMENT OF HIGHWAYS IS DESCRIBED AND THE RESULTS OF THE DEPARTMENT'S IMPLEMENTATION OF THE RECOMMENDATIONS ARE GIVEN. THE PURPOSES OF THE RESEARCH ARE TO DETERMINE (1) THE OBJECTIVES OF THE DEPARTMENT'S HEAVY EQUIPMENT PURCHASING PROGRAM AND TO EVALUATE THE EFFECTIVENESS OF EXISTING EQUIPMENT PURCHASING PROCEDURES IN ACHIEVING THESE OBJECTIVES, AND THE NEED FOR IMPROVEMENT AND TO STATE WHERE THESE NEEDS EXIST AND HOW THEY MIGHT BE FULFILLED. THE DEPARTMENT'S EQUIPMENT PROCUREMENT OBJECTIVES ARE TO SATISFY EQUIPMENT NEEDS AT THE LEAST COST CONSISTENT WITH DESIRED PERFORMANCE; AND THE METHOD USED IS TO BUY EQUIPMENT MEETING THE SPECIFICATIONS OF THE EQUIPMENT ENGINEER AT THE LOWEST BID PRICE BUT RATHER IN THE LEAST OVERALL COST PER EQUIPMENT OPERATING HOUR. THE METHOD TO ENSURE LOWEST COST EQUIPMENT PROCUREMENT IS TO EVALUAGE SUPPLIERS ON THE BASIS OF ALTERNATE BIDS, THAT IS, TO PERMIT THEM TO BID ON INITIAL PRICE ONLY AND PROJECT THIS BID TO A TOTAL COST PER HOUR FIGURE BASED ON THE DEPARTMENT'S PAST EXPERIENCE, AND TO ALLOW THEM TO GUARANTEE TOTAL HOURLY COSTS IF THEY CHOSE TO DO SO. RESULTS OF IMPLEMENTATION OF RECOMMENDATIONS WERE THAT, FOR MOTOR GRADERS, THE INITIAL PRICE METHOD PROVED TO BE SUBSTANTIALLY CHEAPER IN TOTAL COST PER HOUR TERMS THAN THE GUARANTEED COST PER HOUR METHOD. THE LOWEST GUARANTEED TOTAL COST BID SUBMITTED TO THE DEPARTMENT WAS $0.30 PER HOUR GREATER THAN THE PROJECTED COSTS OF THE INITIAL PRICE BID. BASED ON 12,700 HOURS' USAGE OF 15 GRADERS (THE NUMBER PURCHASED), VIRGINIA SAVED OVER $50,000 BY NOT AWARDING THE BID ON THE BASIS OF THE LOWEST GUARANTEED TOTAL COST. MOREOVER, HAD INTEREST NOT BEEN USED IN THE PURCHASE EVALUATION, THE GUARANTEED TOTAL COST METHOD WOULD HAVE BEEN CONSIDERED CHEAPER AND WOULD HAVE RESULTED IN A FICTITIOUSLY LOW STATEMENT OF COSTS AND AN IMPROPER MANAGEMENT DECISION. /AUTHOR/

Media Info

  • Media Type: Print
  • Features: Figures; Tables;
  • Pagination: p. 23-40
  • Monograph Title: Manpower, maintenance and studded tires
  • Serial:

Subject/Index Terms

Filing Info

  • Accession Number: 00219420
  • Record Type: Publication
  • Files: TRIS, TRB
  • Created Date: May 10 1971 12:00AM