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Chapter 6.9

Use “Best Practices” Standards to Maintain Equipment


Summary

Texas Department of Transportation (TxDOT) has a large fleet of vehicles and equipment and uses both employees and private repair shops to repair and maintain them. TxDOT mechanics perform repair and maintenance work during regular business hours. Private companies do fleet maintenance after hours to reduce the number of vehicles needed. TxDOT should perform more maintenance after hours and cut fleet costs.


Background

The TxDOT vehicle fleet, with a purchase price exceeding $256 million, represents a major investment by the State of Texas.[1] To keep this large fleet operating properly, each TxDOT district has an equipment manager to oversee both in-house and outsourced vehicle maintenance. Equipment managers, who usually report to management at a level well below District Engineer, must coordinate vehicle upkeep with project requirements.[2]

Lack of appropriate preventive maintenance can result in large and expensive problems, which seldom happen when or where it is convenient. “Preventive maintenance” (PM) refers to performing the tasks indicated by the equipment manufacturer according to a prescribed schedule. Strict adherence to this schedule ensures that equipment operates at maximum efficiency with minimal breakdowns for the longest period possible, with the highest value for the equipment at time of disposal (salvage value). The combination of operating costs, routine use, operating life and salvage value is referred to as the equipment “life-cycle costs,” which fleet professionals seek to minimize.[3] A key performance measure of the adequacy of a fleet’s preventive maintenance is the ratio of scheduled maintenance to unscheduled repair. A typical performance target is a 60 to 70 percent preventive maintenance-to-repair ratio, with best practice commercial fleets focusing over 80 percent of all maintenance hours on preventive maintenance compared to repairs.[4]

Equipment that is working properly must be withdrawn from service so that preventive maintenance can be performed. To compensate, fleets must either have redundant equipment available or perform preventive maintenance outside normal hours of operation. Commercial construction fleets generally perform preventive maintenance during evenings and nights to reduce total equipment needed and increase fleet usage.[5] Proper scheduling can alleviate the problems associated with maintaining vehicles during these “off duty” hours, (such as limited availability of parts and support infrastructure).

Determining whether to use in-house mechanics or outside contractors to perform after-hours preventive maintenance depends on many factors, including the amount of equipment at a location, the local labor market for mechanics, the number and capabilities of local vendors, and the relative cost of in-house versus vendor-provided service. Efficiently staffing and managing in-house personnel for evenings, nights and/or weekend work can be difficult if an organization has not previously operated in this manner. Many private sector employers must pay additional wages to encourage employees to work less desirable schedules.[6] Typical incentives for working evenings include a 10 to 15 percent premium over day wages,[7] and a premium of up to 25 percent for working nights and weekends.[8]

The nationwide shortage of skilled mechanics in the construction and transportation industries can make staffing these schedules a challenge despite available incentives. [9]

After-hours outsourcing options include:[10]

  • vendors that shuttle equipment from the client to the vendor’s facilities to perform after-hours work;
  • vendor employees that report daily to the client’s site and work concurrently with client employees; and,
  • mobile fleet services that travel to client locations, bringing the tools and parts needed to perform the required services.


Impact of Transportation Code, Section 201.704

Transportation Code, Section 201.704, mandates that “TxDOT contract not less than 25 percent of all dollars expended for vehicle maintenance and repairs if there are sufficient repair facilities providing quality repairs, and at less than 90 percent of the total costs to TxDOT to provide the same service.”[11] In May 1996, a cross-functional team of TxDOT managers issued a report on District Equipment Shops indicated that “shops are not being used as efficiently as possible because too much of the work is being contracted due to a lack of mechanics.”[12]

The following table compares fleet size and staffing in fiscal 1994 and fiscal 1998:[13]


Fiscal
1994
Fiscal
1998
Percent
Change
Total Pieces of Equipment
17,589
17,094
-2.8%
Total Number of Equipment Shop Mechanics
340
283
-16.8%
Total Number of Maintenance Employees
6,576
6,664
1.3%
Total Number of Construction Employees
4,848
4,222
-12.9%
Equipment Maintenance Contracting Percent
29.50%
35.70%
21.0%
Average Maintenance Cost per Unit
$1,397
$1,471
5.3%

Source: Texas Department of Transportation.

The number of TxDOT mechanics has declined disproportionately to reductions in equipment, and in relation to changes in the number of maintenance and construction employees. Related to the decline in mechanic staffing is an increase in contracted equipment maintenance. This inverse relationship reflects the impact of TxDOT implementing Transportation Code, Section 201.704, and related staffing decisions made by the districts.

Most supervisors said that the best way to save the state money would be to add more mechanics to the district shops. Three assertions provided the basis of this position:

  • downtime for TxDOT repairs is 70 percent of the downtime for private sector repairs;
  • private shop rates are over $10 higher than district shops rates; and
  • parts are about 15 percent cheaper if purchased directly by TxDOT.[14]

Minimizing downtime, the amount of time equipment is not available, is a major factor in maximizing equipment use.[15] The May 1996 TxDOT report indicated that minimizing downtime is the primary objective used by shop managers in determining the use of in-house or outsourced repairs. These estimates are subjective and rely on individual manager experience.[16] To the extent that the manager’s estimate is accurate, best practices fleet management suggests fleet managers should choose the maintenance option that returns the equipment to service most quickly.[17]

The shop rate and parts cost arguments are less persuasive because of their treatment of fixed assets (e.g. property, building and equipment) as sunk costs ignored in labor rate calculations. Best practice guidelines recommend including these costs in calculating the cost of in-house services. TxDOT analysts largely ignore these and related in-house costs. Consequently, comparisons between TxDOT-provided services and services provided by a private vendor will rarely indicate any outcome except to continue providing services in-house.

Best practice fleet management recommends that in-house cost calculations include:

  • hourly burdened labor rate (including salary and benefits-sick, vacation and pensions) of personnel directly performing equipment work and managing the parts inventory;
  • hourly burdened labor rate (including salary and benefits) of staff performing management/supervision of the equipment shop and parts inventory;
  • the portion of total facility costs (rent, utilities, etc.) devoted to the equipment shops and parts inventory;
  • the portion of total equipment and tools replacement costs, including any costs of maintaining the equipment and tools, devoted to the maintenance shop and parts inventory function;
  • the cost of parts used in providing the equipment maintenance service; and,
  • any other overhead costs, including the organization’s indirect cost allocations associated with operating the equipment shop and parts inventory.[18]

In calculating the costs of outsourced maintenance, best practice suggests including the following costs:

  • vendor labor rate;
  • vendor parts costs, including markup;
  • labor and transportation costs to shuttle equipment between the vendor and fleet agency facility;
  • pickup and delivery time;
  • expected downtime;
  • vendor warranty/guarantees;
  • access to facilities;
  • billing arrangement; and,
  • other appropriate costs.[19]


TxDOT Preventive Maintenance Issues

A recent report on statewide fleet management noted that the TxDOT Austin district devoted only 25 to 30 percent of available shop time to preventive maintenance (PM).[20] This mirrors comments from TxDOT personnel gathered in visits to other facilities. The report suggested a TxDOT PM target ratio of 40 to 60 percent.[21] While well below the best practice target of over 80 percent, achieving this performance level will require a significant change in TxDOT’s maintenance focus and strategy.[22] Measuring this performance is difficult, as TxDOT’s existing fleet management system cannot track this or several other important performance measures.[23] The State Vehicle Fleet Management Plan, developed by the Office of Vehicle Fleet Management of the General Services Commission (GSC), under the direction of the State Council on Competitive Government, states that GSC will select a new and uniform electronic fleet reporting system for state agencies and institutions of higher education to adopt and implement. The new system will enable state agencies like TxDOT to track a number of important performance measures including PM-related ones.[24]

In the meantime, there are several steps that the agency can take to lower costs.


Recommendations

A. TxDOT should hold district engineers accountable for compliance with equipment preventive maintenance schedules.

The district engineer (DE) controls resource allocation at the level where equipment is maintained. Only by making this a priority for the DE will shop personnel get the attention and resources needed to ensure these tasks are performed. The hidden costs of failing to perform timely preventive maintenance such as downtime, decreased reliability and low salvage value are being ignored.

Support for focusing district engineers’ attention on equipment maintenance is provided by the success of focusing on inventory control. From 1995 to 1999, after DEs were individually tasked with reducing district inventory levels, TxDOT material inventory level dropped 32 percent.[25] Improved maintenance practices could reduce downtime and total equipment requirements, and improve equipment reliability and salvage value.

B. TxDOT should perform preventive maintenance on vehicles when they are not being used for operations in order to reduce the size of the fleet.

Mobile fleet services and other onsite outsourcing options can provide assistance with labor issues associated with this program. As new TxDOT mechanics are hired, establishing the new after-hours schedule as their regular schedule will transition TxDOT maintenance staffing. The lower skill level requirements of most PM work compared to repair work, and the high turnover rate of PM efforts also complement this arrangement.[26]

C. TxDOT should evaluate the cost effectiveness of using outside contractors to perform after-hours maintenance and do so where it is the most efficient option.

Government should do no job if there is a business in the Yellow Pages that can do that job better and at a lower cost.

D. TxDOT should recalculate district shop and vendor labor rate calculations to reflect best practice standards.

A realistic analysis requires an accurate assessment of costs.


Fiscal Impact

A major fleet service provider suggests that use of after-hours maintenance programs can support reducing fleet levels by 5-10 percent.[27] A corresponding reduction in equipment at TxDOT would be between 855 and 1,710 units (based on 1998 fleet level of 17,094 units)[28] with cash flow savings in average annual maintenance costs of $868 a unit[29] (between $742,140 and $1,484,280 annually). The estimate below is based on a more conservative 5 percent figure. However, some of these savings would be offset by anticipated expenditures on shop facilities (better lighting and increased utility costs) and possible wage differentials for working non-standard hours. The estimated savings below represent the amount of the State Highway Fund revenue that could be redirected to other Texas Department of Transportation programs or budget items.

Fiscal Year
Savings to the State Highway Fund
Cost of
“Shift Pay” Differential
Cost of
Facility Improvements
Net Savings/(Cost) to the Highway Fund Available to Redirect
2002
$742,000
($426,000)
($868,000)
($552,000)
2003
$742,000
($426,000)
$0
$316,000
2004
$742,000
($426,000)
$0
$316,000
2005
$742,000
($426,000)
$0
$316,000
2006
$742,000
($426,000)
$0
$316,000

Not included in fiscal impact estimates are anticipated increases in equipment salvage values (from better preventive maintenance practices) and improved roadway workforce productivity from fewer breakdowns and better equipment availability.


Endnotes

[1 ]Summary of purchase values from HB 3125 database furnished by Don Lewis, fleet manager, Texas Department of Transportation, Austin, Texas, February 25, 2000.

[2 ]Interview with Jose Chavez, equipment manager, Texas Department of Transportation – Bryan District, Bryan, Texas, February 24, 2000.

[3 ]Best Fleet Management Practices and Performance Measures Manual, Spectrum Consultants, Inc., California Fleet News Publishing (Santa Rosa, California, 1995-1996), p. 19.

[4 ]Best Fleet Management Practices and Performance Measures Manual, Spectrum Consultants, Inc., California Fleet News Publishing (Santa Rosa, California, 1995-1996), p. 42; telephone interview with Keith Dobson, president and CEO, Vehicare, Inc., Richmond, Virginia, August 14, 2000.

[5 ]Telephone interview with Tony Pratt, fleet services manager, Overnite Transportation Company, Kansas City, Kansas, August 14, 2000; “Utility Fleet Management,” Transport Topics Publishing Group, May 2000, p. 22.

[6 ]Telephone interview with John Murray, district manager, Penske Truck Leasing, Greensboro, North Carolina, August 14, 2000.

[7 ]Day shift is typically from 8:00 a.m. until 5:00 p.m. However, shops that are open 24-hours a day often refer to a 6:00 a.m. until 3:00 p.m. work schedule as day shift.

[8 ]Telephone interview with John Murray, district manager, Penske Truck Leasing, Greensboro, North Carolina, August 14, 2000.

[9] Fleet Management and Selection Systems for Highway Maintenance Equipment, National Cooperative Highway Research Program Synthesis 283, Transportation Research Board (Washington, DC, 2000), published in 2000, p. 5.

[10 ]Telephone interview with Keith Dobson, president and CEO, Vehicare, Inc., Richmond, Virginia, August 14, 2000.

[11] Texas Department of Transportation, Report of the Continuous Improvement Team on District Equipment Shops (Austin, Texas, May 1996), p. 5.

[12] Texas Department of Transportation, Report of the Continuous Improvement Team on District Equipment Shops (Austin, Texas, May 1996), p. 5

[13] Texas Department of Transportation, General Services Division, Major Equipment Fleet (Austin, Texas, January 1999).

[14] Texas Department of Transportation, Report of the Continuous Improvement Team on District Equipment Shops (Austin, Texas, May 1996), p. 6.

[15] Best Fleet Management Practices and Performance Measures Manual, Spectrum Consultants, Inc., California Fleet News Publishing (Santa Rosa, California, 1995-1996), p. 43.

[16] Texas Department of Transportation, Report of the Continuous Improvement Team on District Equipment Shops (May 1996), p. 6.

[17] Best Fleet Management Practices and Performance Measures Manual, Spectrum Consultants, Inc., California Fleet News Publishing (Santa Rosa, California, 1995-1996), p. 43.

[18] Best Fleet Management Practices and Performance Measures Manual, Spectrum Consultants, Inc., California Fleet News Publishing (Santa Rosa, California, 1995-1996), p. 25.

[19] Best Fleet Management Practices and Performance Measures Manual, Spectrum Consultants, Inc., California Fleet News Publishing (Santa Rosa, California, 1995-1996), p. 26.

[20] Report on Statewide Fleet Management, by Stephen W. Burnett, Transportation Consultants, Inc., (Atlanta, Georgia, March 8, 2000), p. 26. (Consultant’s report.)

[21] Best Fleet Management Practices and Performance Measures Manual by Stephen W. Burnett, Transportation Consultants, Inc., March 8, 2000, p. 40. (Consultant’s report.)

[22] Telephone interview with Keith Dobson, president and CEO, Vehicare, Inc., Richmond, Virginia, August 14, 2000.

[23] Report on Statewide Fleet Management, by Stephen W. Burnett, Transportation Consultants, Inc., (Atlanta, Georgia, March 8, 2000), p. 26.

[24] State of Texas, General Services Commission, Office of Vehicle Fleet Maintenance, State Vehicle Fleet Management Plan (Austin, Texas, October 25, 2000), p. 12.

[25] Information provided by Larry Bloom, MSMS branch chief, Texas Department of Transportation, Austin, Texas, February 17, 2000.

[26] Turnover refers to how many maintenance tasks can be completed within a fixed amount of time. Since parts and resource needs are more predictable, preventive maintenance jobs have higher turnover than repair tasks.

[27] Telephone interview with John Murray, district manager, Penske Truck Leasing, Greensboro, North Carolina, May 2, 2000.

[28] Texas Department of Transportation, General Services Division, Major Equipment Fleet (Austin, Texas, January 1999).

[29] Calculation based on information provided via E-mail by Glenn Hagler, equipment purchasing manager, Texas Department of Transportation, October 10, 2000.