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Memo - Carl Mount - 2 - December 26, 1989 The essential consideration with respect to equipment ownership, regardless of the values and adjustment methods used in a particular cost data source, is that the equipment owner must recover sufficient funds over the economic lie of the machine to pay for the net acquisition cost and interest expense or cost of facilities capital. A basic computation of net acquisition cost plus interest expense divided by economic life hours reveals that Peabody's proposed ownership cost values simply do not recover sufficient funds to pay for the equipment. Even if a contractor were to elect to bid a state contracted reclamation job on a multiple shift basis, it is doubtful that the contractor could measurably reduce equipment costs below the usual single shift rates as the equipment used on the job would still have about the same number of service hours and years on the machine at the time of trade-in as if the machinery had been used solely on a single shift basis over it's entire economic life. An exception to this would be a situation such as a large scale, long term mining operation where the equipment is used on a multiple shift basis for all or a significant portion of it's economic life. In this case, personnel from Dataquest have pointed out that the salvage value may be higher fora machine that is only 4 years old at 12,000 service hours (the end of it's economic life) than for a machine used primarily in single shift applications that would be 8 years old at 12,000 service hours. The relatively higher salvage value resulting from trade-in of a later model year machine would serve to reduce the net acquisition cost which in turn would require recovery of fewer dollars per machine service hour to maintain equipment solvency. However, as also pointed out by Dataquest, machines used extensively in multiple shift work applications may experience relatively higher operating costs per service hour due to increased wear resulting from the inability to perform proper preventative maintenance. Multiple Shift Work - Other Cost Considerations ._~ The Division has for the past several years been accepting equipment costs adjusted for multiple shift usage only for the few very large mining operations in the state, and then only accordance with the following conditions and criteria: 1) The size of the job must be significantly larger than the range of job sizes experienced by the Division in contracting actual reclamation jobs over the years. Job sizes falling with the range of the Division's direct contracting experience are estimated on a single shift basis; 2) Only the simple bulk earthmoving tasks are estimated on a multiple shift basis. Precision earthwork tasks such as final grading, stream channel reconstruction, and some types of topsoil replacement tasks are estimated on a single shift basis, as well as structural demolition and revegetation work; 3) Hourly productivity on multiple shift work is adjusted downward as specified in the Cat Handbook for work done at night. Aside from the adverse effect of reduced visibility on hourly production, contractors performing the work will be unfamiliar with and inexperienced in night time construction work which will also serve to reduce productivity below daytime levels;