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What to Charge a Local Authority

10th March 1950, Page 54
10th March 1950
Page 54
Page 57
Page 54, 10th March 1950 — What to Charge a Local Authority
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Which of the following most accurately describes the problem?

for the purpose has been quoted at £1,175. The cost of the body will be about £90, and painting and lettering another £55, making £1,320 in all. That is the initial amount from which we must commence to calculate two of our items of operating cost, namely, depreciation and interest. I see from the specification of the vehicle that it is equipped with 35 by 7+ tyres, single on the front, twins on the rear. The cost of a ctiver of that size to-day is £18 Os. 6d. and of a tube £1 12s. 6d., thus the cost of a set is £117 18s., say £118.

The first step in assessing depreciation is to deduct the cost of the tyres from the initial outlay on the vehicle. If I do that I get £1,202. Next I must estimate the residual value, the price that the operator may expect to obtain for the vehicle if he sells it after a period of use, say, six years.

In making the assumption that he will obtain only £202 for it, I am not overlooking the fact that to-day's prices for second-hand vehicles are much higher than that. It is certainly to be hoped that in six years from now, when the vehicle we are discussing is to be sold, conditions will have altered and we shall be approaching normal.

I am sometimes asked: "Why do you take the cost of a set of tyres from the original amount invested in the vehicle ?" The reason is that wear on tyres is provided for as a separate item in this schedule of costs so that if we did not take the cost of a set from that of the vehicle we should be charging for this wear and tear twice over.

Wear and Tear

Another point that sometimes arises is that I do not include the cost of the spare tyre in making this deduction as it is invariably the case that a vehicle as delivered carries seven tyres. I do not do this because in my schedule of operation costs under the heading " Tyres " I include only for the wear and tear of six. I assess the cost per mile as being the time taken to wear out six tyres and not seven. Deducting this residual value of £202 from the £1,202, which we have as a result of subtracting •the cost of the tyres, we have £1,000 as the amount on which depreciation is calculated. If we assume a life of six years, then that is £167 per annum, approximately E3 7s. per week.

Whilst we are still considering the amount paid for the vehicle in the first place, we might as well assess the amount to be debited on account of interest on first cost. It is usual in these days to take 3 per cent. per annum as the basis for that calculation, and 3 per cent. of £1,320 is £39 12s., which is 16s. per week.

I make the assumption that the unladen weight for the A36 week insurance to cover the employer against the risks of action for damages under common law. That brings the total to £5 12s. per week.

Next we come to the controversial item of establishment costs. Most of the operators I have in mind run three or four vehicles. There will be of necessity a clerk to deal with office matters, and the owner of the business should most certainly pay himself a wage as manager. I would put with those two items the need to run a car, so that the operator can reach where his men are working and pay visits to the local surveyors and engineers. Together with another dozen smaller items of expense I am of the opinion that the amount of establishment costs per vehicle cannot be less than £2 10s. per week.

Fixed Expenses

The above are all the items of fixed expenses per week. Setting them down in orthodox order they are: tax, I4s.; wages, £5 12s.; garage rent, 5s.; insurance, 16s.; interest, 16s.; depreciation, £3 7s.: and establishment costs £2 10s. The total is £14 per week.

Now I propose to discuss the running costs per mile. First the consumption of fuel oil, for which an average return is 18 m.p.g., and if fuel oil be Is. 11d, per gallon, that is equivalent to 1.29d. per mile. For engine oil I am going to take a round figure of 0.2d. per mile, that being the average amount currently expended in respect of that item.

The tyre life will probably be below the average as vehicles engsged on this class of work are often called upon to leave the hard road and go into quarries, railway goods yards and on unmade roads. A figure of 21,500 miles per set is probably high, but I do know cases where that is exceeded. A good deal depends upon the amount of care The tyres receive. I have already pointed out that the cost of a set of tyres is £118, and if we divide that amount by 21.500 miles we get 1.32d.

Maintenance will cost rather more than 2d. per mile. but 1 will take a round figure. Those are all our running costs. We have fuel, 1.28d., lubricants, 0.2d., tyres, 1.32d. and maintenance, 2d. Total, 4.8d. per mile. We now have our basic figures for costs in respect of time and mileage.

The next point to consider is the amount of profit. In considering the percentage ratio, an operator should bear in mind that the work is apt to be irregular and that he has sometimes exceptionally difficult conditions to endure, such as waiting turn to take up loads of material either in railway goods yards or in the delivery chutes at quarries and the like. Gaps in time as between one job of work and the next are the most serious consideration and to cover himself against such losses the operator should reckon on not less than 25 per cent. addition to his cost figures when calculating what his charges ought to be.

Now, £14 per week is nearly 6s. 4d. per hour If I add 25 per cent, to that cost 1 get 8s. as the rate to charge per hour in connection with any job .which the operator may be called upon to do. If I add 25 per cent, to the running costs, 4.8d. per mile, I get exactly 6d. as the mileage charge.

As a rtile, fenders put out by local authorities call for a rate per hour, and it is left to the operator to judge for himself what is likely to be an average number of miles per hour he will run in connection with the work to which the proposed contract relates.

Minimum Charges

I have found that a good way to assess the mileage per hour is to take it to be the same as the radius of operation, which is usually somewhere between four and 10 miles. In this easel Will take six miles per hour. Six times 6d. is 3s., so that the rate which the operator should quote is 8s., plus 3s., that is Ils. per hour. That in my opinion is the minimum: A charge of I Is. 6d. or even 12s. per hour would not in many cases be unreasonable or excessive. The extra To summarize the foregoing, the minimum charges should be about 1 Is. 9d. in the London area, Ds. 6d. in a grade I area, and in e grade II area, 1 Is.

The question may arise as to what would be the corresponding figures for those operators who choose a six-ton petrol-engined machine instead of the oiler. •The chassis price of a petrol-engined vehicle, of the same type and make as the one indicated in the example above. is £1,020. If I add £90 for bodywork and £55 for painting and lettering 1 get a total of £1,165. Deducting £118 for tyres leaves me £1,047.

The next question is how much we can deduct for residual value. I have assumed that the price for used petrol-engined vehicles is generally. lower than for oil-engined machines, and in this case I propose to take £147 as the approximate figure. That leaves me with £900 as the net amount on which I must calculate depreciatian. Taking six years as the period, I get £150 per annum dr £3 per week for that time, thus showing a saving of 7s. per week as compared with the oilengined machine.

For interest 1 have three per cent: on £1,165 instead of £1,320. That is £35 per annum or 14s. per week as compared with 16s. in respect of the oil-engined vehicle. This is therefore a further saving of 2s. per week. These are the only amount can be taken to cover eventualities and contingencies.

If the form of contract allows it, the operator should guard against excessive mileage by asking 6d. to 8d. per mile for any excess over an average figure of six miles per hour.

There may be interested readers of this article who are situated in London or grade I areas. For their benefit I will give some indication of the differences in cost which will be brought about by those circumstances.

So far as London is concerned, the basic wage rate is IS Ils. as compared with £5 2s. in the grade II area, which adds 9s. per week to the fixed charges. Garage rents are much higher and the operator will probably have to pay 10s. instead of 5s. per week: that is a further 5s. The rate for insurance will probably be £50, instead of 140, which is equivalent to another 4s. per week. The total so far is 18s.

Establishment costs in London will undoubtedly be much higher, certainly at least another 10s. per week, which brings my total to 28s. Add 25 per cent, to that for profit, that is a further 7s., and I get a total of 35s. per week to be added to the fixed charges as set out above in respect of a vehicle operating in a grade II area. That is about 9d. per hour, and brings-our minimum charge of Ils., which applies' in a grade II area, to 1 ls. 9d. as applicable to a vehicle in the London area,

In a grade 1 area, as compared with grade 11,/ the extras are 4s. per week for wages, 3s. extra for insurance, a similar amount extra for rent. and 5s. additional to establishment costs; that is 15s. Add 3s. 9d. to that for profit and we get 18s. •9d. as being the total addition to the figures for a grade II area. This is nearly 6d. per hour, -so that the minimum charge per hour for a grade II area should be Ils. 6d.

The running costs are not materially affected. The only item which might prove more expensive is that of maintenance, and the difference is so small as compared with the accuracy of maintenance figures that it can be ignored. items of fixed charges wi-Uch are affected and the total is 9s. per week, which is approximately 21d. per. hour. If I add 25 per. cent. to that, on account of the profit margin, the operator will be able to charge 3d. less per hour that he would with the oiler.

Higher Maintenance Cost So far as running costs are concerned, it would be better if I took account of all of them. For petrol I think I am being generous in assuming 10 m.p.g., and with fuetat 2s. 2d. per gallon, that is 2s. 6d. per mile Engine oil will cost a little less than in the case of the oiler, say. 0.18d. Tyres will be the same at 1.32d.; but maintenance is usually about 10 per cent, more, giving 2.2d. instead of 2d. The total is 6.3d. per mile as compared with 4.8d. per mile for the oiler, a difference of 1.5d. per mile. Add 25 per cent, to thatand I get 1.88d. per mile difference.

We took six miles per hour as being a fair basis for a time charge, so we must debit the petrol-engined vehicle with six times 1.88d. or 111d. per hour. That is .to say the operator must charge 111d. per hour more on account of running cost but can charge 3d. per hour less on account of fixed charges. The net result is that the charge for a petrol-engined vehicle must be 80. more in every case than those mentioned above.

What is to be done in fixing upon a rate is something which I must leave to the discretion of the operator. If he can obtain a rate which he ought to get for a petrobengined lorry but has the sound sense to appreciate that he will save if he buys an oil-engined vehicle, I think he is entitled to make the higher charge and to reap the benefit of the difference on account of his own perspicacity.

Alternatively, of course, if competition be keen, he can quite reasonably redud' his charge to make it compatible with the cost of operating his vehicle and thus gain a competitive advantage over his rival who is running a petrolengined machine. Whichever course he follows is dictated to some extent by circumstances.-S.T.R.


Organisations: Local Authority
Locations: London

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