Contractor’s Equipment: Rent, Buy, Borrow or Refurbish?

  • Contractor's Equipment: Rent, Buy, Borrow or Refurbish?

Contractor’s Equipment: Rent, Buy, Borrow or Refurbish?

For contractors, equipment can be the lifeblood of a business, and keeping your construction equipment running well can be critical to a project’s success. When you need equipment, you review your anticipated work volumes and your fleet management to determine equipment needs. Then, it comes down to this: should I rent, lease, buy, borrow or refurbish? The choice can have a long-lasting impact on your business, especially for more expensive pieces of equipment.

Here’s a look at the benefits and risks to these options for filling your equipment needs, and some tips to help make sure you’re properly covered.

Equipment Rental or Leasing

  • If you rent or lease equipment, you pay for the equipment rental only when you need it. Leasing can have tax advantages for you, and can be appealing for those who are hesitant to take on extra debt.
  • Renting is usually a monthly arrangement, while leasing is better for longer jobs. You should consider renting or leasing equipment that you will use occasionally.
  • Some pieces of equipment require more frequent repair – sometimes major repair – due to day-to-day use. By renting/leasing, you leave these costs with the rental/leasing agent, as they are typically borne by the rental/leasing agent.
  • If renting or leasing equipment doesn’t seem like a good fit for your business model, consider borrowing equipment from another contractor on the job site, or that isn’t using the equipment at that time.

Insurance Considerations

Contractor’s equipment insurance policies can have different rules for rented, borrowed, and leased equipment as compared to the rules that may apply to equipment that is purchased. For example, the policy might not provide coverage for or may limit the value of rented, borrowed or leased equipment or it might exclude certain activities, such as waterborne construction.

Likewise, if the rental agent provides equipment rental insurance, you must pay attention to what’s covered and what’s not. This insurance might only cover damage from certain hazards, like fire. It may also exclude coverage if you lend the nonowned piece of equipment to someone else. Review the terms and condition carefully to ensure you don’t find yourself in a position without coverage.

Lastly, if you borrow equipment from another contractor, review your coverage carefully with your agent. You’ll want to be certain there aren’t any gaps in coverage for this scenario.

Buying Construction Equipment

  • The more you use a piece of equipment, the more it makes sense to buy it. If the equipment will be used for many years, buying it can create long-term value and end up costing less overall than renting or leasing.
  • Another advantage of owning construction equipment is that your employees will become accustomed to using it. Every time an employee uses a new piece of equipment, there is a learning period. If you buy a piece of equipment and have your employees consistently use it, you can build their expertise, potentially avoiding accidents.
  • Finally, the long-term costs of buying are more predictable. You will know what your monthly payment is for the piece of equipment and become familiar with its operating costs.

Insurance Considerations

If you decide to buy construction equipment, you should make sure it’s covered under the right insurance. For example, if you buy a new concrete pump truck, is there coverage under your contractor insurance policy or the vehicle policy?

Some activities could also be excluded, like overloading a crane. You should review with your insurance agent how you plan on using the equipment to see if it’s all covered.

Contractor’s equipment policies typically have a reporting requirement for newly acquired equipment. This policy condition requires you to notify your insurer whenever you buy equipment that exceeds the policy limits. Ask your insurance agent whether your policy has such a condition so that you can ensure you are notifying your carrier within the specified timeframe.

Finally, you should insure the new piece of equipment to its correct value. This is simple for brand-new equipment, as it’s the purchase price. But correctly valuating used equipment can be more difficult. You should work with your agent to determine the correct valuation.

Using Refurbished Equipment

  • Refurbishing an older, unique, or specialized piece of equipment that can’t easily be replaced is another option to consider. Additionally, if you are comfortable using a certain piece of equipment, you may prefer to continue using it. Refurbishing gives you this option.
  • When considering whether to refurbish, you should consider the risks of maintaining an older piece of equipment. No matter how carefully you maintain everything, you still face the increased chance of equipment breaking down, and causing you to miss a project deadline. Also, replacement parts for older pieces of equipment may no longer be available or may be difficult to obtain.

Insurance Considerations

With refurbished equipment, the main insurance concern is determining the correct valuation. If the insurance company values the equipment based solely on its age, it could underestimate its worth. To avoid undervaluation, request that your policy list an agreed value for refurbished equipment.

Review your coverage and plan for your equipment with your insurance agent to ensure your new investment and business will be protected.




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