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Thursday, Oct 6, 2022

Equipment Sold at Losses Could Lead to Higher Construction Costs


At an auction held in December in Perris, $48 million in aging diesel-powered equipment was sold off by state contractors needing to upgrade their fleets.

But because the off-road equipment has been rendered obsolete in California because it belches too much smog, they were sold at much less than value.

“They went for fire sale prices,” said San Diego-based grading contractor Mike Shaw, president of Perry & Shaw Inc.

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And those depreciations, said contracting industry consultant Dan Fauchier of San Diego-based Engineering & General Contractors Association, lessen the net worth of a contractor, and in turn the bonding ability for such contractors bidding on big-ticket public works projects.

Shaw said old equipment bought at the auction, including 90 large scrapers, went out of the country or out of state.

“A lot of large equipment can’t be replaced,” he said. “A big scraper takes two and a half months to be made.”

That means, for big public works projects for which the sold scrapers had been used, smaller equipment will be used to do the same work. That will cost more, and the cost will be reflected in bids expected to be 25 percent to 30 percent higher before strict smog controls on diesel equipment was mandated.

Another inflationary factor will be the cost of buying clean air compliant engines and equipment, which will also be passed along in higher public works bids, Fauchier added.

Shaw figures having to price bids in order to recover excessively high costs is troublesome. “We will be less competitive over time, and I have a real concern with that.”

That cost pass-along by the engineering and construction industry is expected to generate an inflationary ripple on housing and construction costs and to public transportation projects to build roads, highways and streets.

“With all these (state) transportation bonds,” added Shaw, “they’re not going to be able to build as much.”

He figures the consuming public should be warned that building and transportation dollars aren’t going to go as far in the future because of the costs of complying with clean air standards mandated by the California Air Resources Board. So far, he said of CARB, “They haven’t done that.”

Mark Larson is a freelance writer for the San Diego Business Journal.


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