Regulations Squeeze Owners (p.3)

September 28, 2010

Caught in the squeeze

Steve Pokrajac isn't exactly banging his fist on the desk in defiance.

But the San Jacinto, Calif.-based contractor is more than willing to express his views on "the squeeze" he feels is being unfairly placed on small- to mid-sized contractors in his state.

"It's going to be disastrous to lose the middle to small contractors," says Pokrajac. "We live so close to the bone that it's really hard every time you make new rules for us. We're not lawyers, and we're not politicians. We're just hard-working guys, and it takes almost 100 percent of our time just to devote to our jobs to make sure they're safe, efficient, the quality of work's there, and we can turn enough money that'll pay our bills. And with anything else you add to us, it's all just going to collapse.

"That's why I kind of feel betrayed by the manufacturers that sell us equipment. They're the ones that have persuaded the rules to be as they are, so that all of the burden comes back on the contractor. C'mon, and this is the key here: Is it easier to get a handful of manufacturers on board, have them work through the rules and regulations, and get us compliant? Or do we have to educate and give tons of rules and regulations for all these thousands of contractors to weed through? Which is easier to implement?

"They made these machines and they sold them to us and, with that, is a chain of custody and an obligation to make it right."

The environment may be the focus of equipment-emissions requirements, but it's far from being alone in being damaged, says Pokrajac.

"The whole economy benefits by contractors working close to the bone and keeping things economical. The system works. But when you change the rules, and you say all of a sudden, 'now, all of your assets — all the things you've worked for all your life — are going to be devalued dramatically because a sweeping new law comes into effect,' then you have to totally rethink whether you even want to stay in this business or not.

"I can tell you for a fact that buying new equipment is not cost-effective. We can't compete with the guys who are running the older stuff and keeping it running, because the market never has supported new equipment. The government can buy new equipment, but we certainly can't, because the cost of moving dirt basically hasn't changed in the last 50 years relatively. Even look at the price of buying a hamburger compared to what it cost 50 years ago, as opposed to what we're moving dirt for today."

Taking in the Ritchie Bros. auction in Perris, Calif., fellow heavy-equipment contractor Tony Crisalli cringes all too knowingly.

"You can get a 30-year-old scraper and a brand-new one," he says, "and the rental rate's exactly the same.

"You just can't turn over a scraper I bought here for 25, 30, 50 or $100,000, and then buy a million-dollar one that makes the same amount of money. It doesn't make economic sense," says Crisalli, of Riverside, Calif. "It's a bad pun, but when the smoke clears, we're going to have only a few guys left."

Pokrajac compares their situation to that of the "mom-and-pop" retail stores that are growing scarcer by the day: "They played by the rules, and the rules changed. Well, the rules are changing with us, and the result will be, as Tony said, you're going to have a handful of guys who can do it, and then what's the price going to be?

"And that's not what this country is all about: It's all about competition and it's all about free enterprise, but that's what makes things better. It improves the economy and the quality of things, and you have choices," says Pokrjac. "Look, we are the salt of the earth and we work hard for our money, and most of us still go broke. But there is benefit to the economy of all this, because we do provide service and products of good quality at a very economical price. We're very efficient and hard-working, and we have to be."

Wait and see?

It's just California, right? So it is that much of the rest of the nation shrugs.

Well, urges the ARA's McClelland, understand what the Clean Air Act says.

"If California puts these rules into place and EPA gives them a waiver to enforce these rules, then other states can adopt California's rules," he says, "but they have to adopt California's rules including California's enforcement. So, they can't say, 'well, you know, we like California's concept on off-roads, but we're going to do off-roads this way instead of the way they did it.' They wouldn't be allowed to do that."

Admittedly, McClelland doesn't know what the chances of that are. California's established Portable Equipment Registration Program, which covers non-self-propelled diesel and non-diesel equipment of more than 50 horsepower, has not been picked up by other jurisdictions. Then again, it's relatively minor compared to California's off-road diesel equipment legislation, covering roughly 20,000 smaller pieces compared to "we hear a couple of hundred thousand" in the state alone.

The rental industry in general, and ARA in particular, have been credited by other sector associations as being more out in front on these issues. This came out of concern that the existence of a certain-Tiered piece of equipment on a specific date could deem an entire fleet as "outlaw," says McClelland.

"That's the reason why we proposed to them the idea of fleets being able to meet the emissions targets by averaging their fleet so that they could have a mix of years. It would be very difficult for any fleet to meet some of those targets on, if you will, a machine-by-machine basis.

"Our interpretation of the rule right now is that if you have a fleet that is younger than 66 months on average, then you're probably going to meet the averaging requirements. So, you can have 11 model years in your fleet. That gives a lot of leeway."

As it is, rental fleets tend to be young, in some cases averaging less than 30 months, he says.

This can be positioned in relation to the onerous effects of entire fleet replacement as estimated by the construction industry at large.

"The Air Resources Board's retort to that was: 'Well, you don't necessarily have to replace the entire fleet. There are other things you can do and one of those is, in fact, rental,'" says McClelland. "Are there potentially enhanced opportunities for the rental market in California vis-à-vis the in-house construction fleet? I think the answer is yes, but I have no way of estimating really what that is going to be, because I don't know what the in-house contractor fleets are going to do and what their strategy for compliance will be."

At the Association of Equipment Manufacturers (AEM), the assumption is that their OEM and supplier members are dealing with this as they deem appropriate.

"Our phones haven't been ringing off the hook, and our e-mail box has not been jammed full with queries related to this," says Darrin Drollinger, AEM vice president of statistics, safety and technical services. "Precisely how an equipment manufacturing collective will be able to respond is probably still in question.

"For the companies that have been thinking about this and have people on their payroll that do nothing but this, they'll pick and choose how much and in what areas they want to help those companies that haven't done a thing. We have to balance that in the association world all the time."

For an OEM, achieving EPA requirements is not so much the problem, says Eric Wilde, Komatsu America vice president of product marketing.

"The challenge is where we have local municipalities or agencies that stipulate something else, and those aren't necessarily being consistent with each other," he says. "From an OEM's perspective, that's a big challenge, because we'd like to dedicate our resources to come up with a standardized solution. Like our diesel oxidation catalyst project: When we first started working on it, we thought that it was going to be received and approved by all legislation . . . and it wasn't. It's not considered best-alternative technology by New York standards."

The idea of acting locally to be responsible globally is difficult to navigate for OEMs whose markets are increasingly larger as the world itself draws closer, says Wilde.

This is where the OEM's local representatives come in, says the president and chief executive officer of the Associated Equipment Distributors (AED).

"Equipment owners do have a dilemma," says Toby Mack, "and the most probable, not to mention responsible, solution is to consult with the nearby AED factory-authorized dealership for engine repowering or retrofitting — even if the machine's going to be retired from the contractor's fleet."

Likewise for a rental organization like RSC, the solution is to "partner with leading equipment manufacturers who design and engineer equipment to be compliant with applicable federal regulations, so we are able to provide customers with access to the latest product offerings," says John McVeigh, vice president of product management. "Obviously, equipment manufacturers must work to design and supply applicable product in advance of the designated implementation dates."

A new start

Back in Perris, Calif., Arnie Richter's faith allows him to reconcile the disappointment of having to sell off the assets of his contracting business.

Having a heritage of construction means having a heritage of working, and so it is a new endeavor and not retirement that awaits him.

As his equipment rolls off the auction ramp, Richter discusses his plans for a partnership in a Texas company that offers propane injection for on-highway diesel engines. And, he notes, the injection procedure not only boosts engine horsepower and saves on fuel costs. It burns a little cleaner, too.

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