Is auctioning the answer to cash flow problems?

Attending an auction is becoming a popular way of construction equipment because of the wide range of products available at a single sale.

Read our top auction tips here

With the construction industry stifling under a thick air of uncertainty, the question of whether to buy or rent the plant needed to carry out jobs underway has become vitally important to cash flow. Construction Week asks: are auctions the answer?

In the past few months the Middle East’s construction sector has changed dramatically. At this time last year resources were so scarce that firms were employing staff in advance of tenders being signed in order to prove their ability to complete the work.

Now many firms are working from job to job, employing only those staff essential at the time and keeping standing assets to a minimum; finances are being tightened and a firm’s every cost is being scrutinised.

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One of a construction firm’s biggest initial outlays for a project is that for the plant and machinery needed for the build process. Without the suitable equipment being available to the construction team as and when needed, critical time delays can be incurred.

And while some firms may have fleets of machinery at the ready, for others the question is how to acquire this plant to meet their needs cost-effectively. “The golden rule is to own 70 % of your plant requirements that are needed for six months or more; rent 30% maximum of a project’s plant requirements; and preserve internal cash flow by using company-owned machinery,” states Keith Lupton, general manager World Wide Auctioneers (WWA).

Hiring or buying may be the two options that first spring to mind to gaining the necessary plant, however a third choice does exist – auctions. But how do these operate and what are the potential benefits of taking part?

The auction market
Two of the biggest advantages of using an auction to procure plant are the wide range of products available in a single sale and the relatively low cost of these items.

“Auction prices are, if not lower, at least avoiding the middle-man’s cut. It is a cash-quick settlement business and provides immediate availability to fill an immediate need,” states Lupton. “If you have a project that will last two to three years, why buy new equipment that has a guarantee for ten years, but will have its biggest depreciation value [over this initial period]? Why not buy second-hand?” reasons Tom Cornell, managing director Europe, Iron Planet.

Being able to acquire all the equipment needed for a project from a single supplier is a strong benefit and adds to potential time savings.

“Bidders can view a diverse range of equipment brands at one convenient location…and equipment purchased at an auction is available immediately,” stresses Steve Barritt, Ritchie Bros Auctioneers (ME) regional manager Middle East, Red Sea, Turkey and South Africa.

The fast downturn in the global economic market has meant there is currently an extremely large amount of equipment available at such auctions. As well as second-hand machinery being offered by sources such as plant hire firms and contractors, new plant is also available.