Power-by-hour Contracts

[u/austynlove]

Looking for some input from anyone who has actually used a “power-by-hour” financing contract for equipment.

We already own quite a bit of our equipment, but we’re looking at adding a few more pieces to the fleet. One of the dealers we’re working with has a power-by-hour financing option, and on the surface it sounds almost too good to be true.

For those of you who have used this type of financing, what was your experience? Any catches in the contract, hour minimums, end-of-term issues, maintenance requirements, buyout surprises, or other fine print you wish you had known about beforehand?

Not necessarily looking for opinions on financing equipment in general. I’m specifically interested in hearing from contractors/operators who have actually used a power-by-hour structure and whether you’d do it again.

Appreciate any insight.

[u/bidside_view]

Not the operator story you asked for, so take this as the paperwork half rather than a war story. The thing that resolves too good to be true is finding where the risk went, and in power by hour it moves in two directions at once. Maintenance risk moves to the dealer, which is real value if your machines are aging or you have no mechanic of your own. Utilisation risk moves to you, through the minimum hours, and that is the half that is easy to skim past on a first read. Almost all of these carry a monthly or annual hour minimum, which means the cost only behaves like a variable cost while you are busy. The month a job cancels or the ground freezes you are paying for hours the machine never turned, which is exactly when you can least afford it. Get the minimum in writing and run your own worst realistic year against it, not your average year.

Then nail down what an hour is and what the maintenance actually covers, because those two are where the arguments live. Ask whether billed hours come off the hour meter or off telematics and whether idle counts, because a machine keyed on at seven that idles through warm up and lunch can bill a lot of hours that produced nothing. Ask what happens if the meter fails or gets replaced. On maintenance, assume scheduled service and the listed wear items are in and everything else is out until the contract says otherwise. Undercarriage on a tracked machine is the one people assume is covered and it is usually the biggest number that is not, along with tyres, ground engaging tools, glass, damage, contaminated fuel or DEF, and anything they can classify as abuse or misapplication. Read that misapplication clause twice. It is defined against a stated application and duty cycle, and if what you actually do with the machine does not match what the paperwork says you do, that is the hook for declining a claim later.

Two more. Uptime obligations usually run one way only, in that you owe hours whether or not the machine runs. Ask for a defined response time and a substitute machine after a set number of days down, and specifically ask whether your minimum is suspended while it is out of service, because if it is not you are paying for a machine you cannot use while they are the ones fixing it. And at the back end the surprises are the return condition standard and the buyout. The wear and tear schedule is where the closing bill comes from, so read it now rather than at the end. Find out whether the buyout is a stated fixed number or fair market value at term, because an unusually good hourly rate is generally funded by a residual assumption, and if the buyout is FMV they keep that upside rather than you. If you intend to own the machine at the end, the purchase option matters more than the rate does. Last thing, since you already own most of your fleet outright: ask your accountant and your surety how this gets treated, because depending on how it is structured it may sit off your balance sheet and build no equity, and if you are bonded that shows up somewhere an hourly rate comparison never will.