Construction

This document was superseded by the 8/22/86 memo Equipment Rental Rates
Also see https://www.fhwa.dot.gov/legsregs/directives/fapg/0635asup.htm

U.S. Department of Transportation Federal Highway Administration

TECHNICAL ADVISORY

Par.

1. Purpose
2. Preamble
3. Development of Rates
4. Type of Costs
5. Ineligible Costs
6. General

1. PURPOSE. to discuss items included in equipment rental rates for state-owned equipment that qualify for federal reimbursement.
2. PREAMBLE. As an aid to more effectively administer the payment procedures described in FHPM 1-4-5, "Reimbursement for Employment of Public Employees of Federal-Aid Projects" dated August 2, 1974, the following paragraphs describe items included in the States' equipment rental rate which are eligible for reimbursement.
3. DEVELOPMENT OF RATES. Equipment rental rates are utilized by a State highway agency (SHA) as a uniform method to charge users of equipment for proportionate shares of costs of operations. Such rental rates should be developed to recover actual costs of ownership (depreciation) and operation only. Federal-aid participation is limited to actual costs properly allocable to and incurred for the benefit of a project. Methods used to develop these rates may be through the use of clearing accounts, separate rates for each piece of equipment or by class of equipment, separate rates for direct and indirect costs, or a combination of either method. Thus the method used will vary between SHAs.
4. TYPE OF COSTS
   1. Direct costs are those which are incurred for the benefit of and associated with a specific piece of equipment or class of equipment. Examples of direct costs are depreciation, fuel oil, grease, tires and tubes, repair labor costs, repair parts and similar costs.
   2. Indirect costs are incurred for the operations as a whole or are otherwise not associated with individual pieces of equipment. Examples of indirect costs may include cleaning supplies, shop repairs and maintenance, insurance premiums, utilities, small tools, and similar costs. Indirect costs are allocated to the benefited equipment or other rental base through the use of an equitable and reasonable proration method such as a percentage of equipment usage, percentage of direct costs charge, or any other method which will make an adequate cost distribution.
   3. A summary listing of generally accepted participating costs follows; however, it should be understood the listing is not all inclusive.

      Direct Costs	Indirect Costs	May be Direct, Indirect or Administrative Non-participating
      Fuels Oil Grease Repair Parts Mechanics' Labor and Fringe Benefits Depreciation - Equipment Lubricants	Cleaning Supplies Small Tools and other Expendable Supplies Shop Repairs and Maintenance Insurance Premiums Utilities Unassigned Shop Labor Shop Foreman Salaries and Fringe Benefits Depreciation - Shop Equipment, Buildings, Plant Parts Room Expense: Labor and Fringe Benefits, Supplies and Upkeep	Other Labor Costs - Unassigned Clerical Costs Office Supplies Miscellaneous Office Expenses Travel and Per Diem

   4. The type of organization of a SHA may affect the eligibility of certain costs for participation. For example, if the equipment division or unit is an integral part of another operating division or department, employees may also be performing functions for other than the equipment operation. In such instances only costs incurred for the equipment operation would be chargeable and eligible for participation. However, if the equipment division or department is a separate and distinct unit, costs are more easily accounted for and distributed since most costs are incurred for benefit of the equipment operation function.
   5. General supervision and administrative costs are generally not eligible for participation and can be included in rental rate development or otherwise charged to equipment operations only to the extent described in paragraph 4d. Therefore, it is evident that where a separate and distinct equipment unit exists, a greater proportion of these costs may be allocable when compared with an operation which is a part of another department or division.
5. INELIGIBLE COSTS
   1. General administrative, supervisory, and overhead costs incurred for the benefit of the overall general operation, and responsibility of the SHA such as a superintendent or other department head normally acting in a management or administrative capacity. (Salaries and fringe benefits.)
   2. Support services for (a) above such as secretarial and clerical salaries and fringe benefits, related office expenses, travel and per diem, etc.
   3. Interest and other financial costs, including interest on loans or other borrowed funds to finance operations, purchase equipment, or parts and any legal or other professional fees incurred in connection with such loans or borrowed funds.
   4. Contingencies, reserves or similar type factors which have been set up to provide for unforeseen events.
   5. Fines or other penalties resulting from violations of, or failure to comply with Federal, State or local law and regulations.
6. GENERAL
   1. Depreciation costs are computed over the estimated useful life of the asset based on original costs after deducting any estimated salvage value. The inclusion of factors in computing depreciation for inflation, increased costs of replacement, or for comparable reasons is not allowable.
   2. Questionable or unusual costs should be discussed and their eligibility determined by the Federal Highway Administration Division Administrators.

H. A. Lindberg
Associate Administrator for
Engineering and Traffic Operations