CAPITAL

EQUIPMENT
INTRODUCTION
Capital refers to the financial assets needed for a business to produce goods and
services it offers to its customers .Capital enhances the power to perform
economically useful work .
The different types of capital include;
External economic capital . This takes into account the impact an
organisation has on the financial and non financial capital of other entities.
(for example a new factory may reduce or increase real estate values nearby)
Internal economic capital .This includes financial capital (funds available
,including debt and equity finance),and non financial capital (for example the
value of your brand)
Human resources. This includes knowledge ,skill ,experience ,health
,attitudes and motivation of individuals.
Natural capital . This is includes all natural resources we rely on, as well as
ecosystem services such as climate regulation.
Social and relationship capital .This consists of teams, network and groups of
individual working together and includes their shared intellectual capital.
Constructed capital .This consists of material objects ,system or ecosystem
created or cultivated by human.
Features of capital
Man-made factor-capital is not gift of nature, it is made by man in capital goods
industry.
Productive factor-capital helps in increasing level of productivity and speed of
production.
Durable –capital is not perishable. It has long life subject to depreciation.
Easy mobility-movement of capital from one place to another is easily possible.
Form of wealth-capital of features of wealth but wealth doesn’t necessarily
become capital.
Derived demand-as a factor of production, capital has derived demand to
produce finished goods which have a direct demand e.g. demand for raw cotton
is derived from demand for cotton cloth.
Social cost-resources have alternative uses. Either they can be put to production
of capital goods or consumer goods. Social cost is where society has sacrificed
enjoyment of consumer goods by using resources to produce capital goods only.
CAPITAL INVESTMENT IN THE CONSTRUCTION
INDUSTRY

Capital investment is spending that has long term value to a business/ firm. This
is often contrasted with expenses that only have soft term value to the business.
Banks, financial institutions and investors are all sources of capital investment.
Capital investment can vary, and the purpose of the capital may differ from one
firm to the other. For example, a restaurant may need capital investment to
update the kitchen with new equipment. On the other hand, a construction firm
may need capital investment to adopt to the new designing and billing software
in order to effectively handle their ever increasing number of construction
projects.
Sources of capital investment in the construction
industry

On a general scale, capital investment may be sourced from the above 4 key
sources:
Personal assets
Family and friends
Banks and SBA lenders
Professional Investors
Personal assets- These are the business owner’s personal savings, home equity and
investments. For instance, if a construction firm owner deems that ksh. 3,000,000
in capital investment is needed to establish his firm and get the required plant and
equipment, he might use his own personal assets in order to retain 100%
ownership of the firm. To do this in a proper manner, the owner loans the business
the capital investment and pays himself back afterwards.
Family and friends- This as a source of capital investment, it is probably one of the
riskiest places to seek capital investment. This is because this source is made up of
non-business associates. In addition, they are the same people you will have in life
even if the business fails. Family gatherings and holidays can become tense, if your
business is not performing and your family investors want to see results.
Professional investors- They generally hold the title of a venture capitalists or an
angel investor. Venture capitalists usually work with large financial institutions
and raise large amounts of money. On the other end Angel investors always tend
to focus on younger businesses in the first most vulnerable years. These investors
scrutinize the deals and may take on a managerial role instead of only a silent
investor’s role, to ensure the firm grows to the capacity it needs, to turn a profit
for the investors.
Banks and SBA- The two have small business programs for capital investment. A
construction firm may qualify for a SBA loan that includes the real property
purchase, along with capital for plant equipment.
 
PLANT HIRE
“Construction plant” is defined as self-propelled machines designed to do work
such as excavators (in all their configurations), compaction rollers, and specialist
apparatus – like trenchers or telehandlers. It includes machines able to access
the public highway, such as concrete delivery lorries and mobile cranes.
“Equipment” is loosely defined as all other types of mechanized construction
work apparatus such as static cranes, concrete pokers, hand-held tools and
specialist equipment such as floor polishers.
Plant and equipment are hired as and when required rather than bought and
owned by contractors.
Leasing - renting it over a period in return for fixed rental payments.
Hire purchase arrangements - an initial deposit is paid towards the cost of the
asset and the balance is then paid in instalments over a period of time. At the
end of the hire purchase period, you would make a final payment and gain
ownership of the asset.
You should think about leasing or renting equipment that has high maintenance
costs, can quickly become outdated, or is only used occasionally.
Advantages of leasing or renting equipment

You don't have to pay the full cost of the asset up front, so you don't use up your cash or
have to borrow money
You have access to a higher standard of equipment, which might be too expensive for you
to buy outright
You pay for the asset over the fixed period of time that you use it, which helps you
budget for the future
As interest rates on monthly rental costs are usually fixed, it is easier to forecast cashflow
You can spread the cost over a longer period of time and match payments to your income
The business can usually deduct the full cost of lease rentals from taxable income
If you have not bought the asset outright, you won't have to worry about any overdraft or other
loan taken out to finance the purchase being withdrawn at short notice, forcing early repayment
If you use an operating lease or contract hire, you may not have to worry about maintenance
The leasing company carries the risks if the equipment breaks down
The leasing company can usually get better deals on price than a small business could and will
have superior product knowledge
On 'long funding leases' - finance leases over seven years and sometimes over five years; and
some long operating leases - you can claim capital allowances on the cost of the assets
If you need to upgrade or replace the equipment, you can simply make a small adjustment to
your regular payment rather than invest a lump sum upfront
Disadvantages of leasing or renting equipment

You can't claim capital allowances on the leased assets if the lease period is for less than five years
(and in some cases less than seven years)
You may have to put down a deposit or make some payments in advance
It can work out to be more expensive than if you buy the assets outright
Your business can be locked into inflexible medium or long-term agreements, which may be difficult
to terminate
Leasing agreements can be more complex to manage than buying outright and may add to your
administration
Your company normally has to be VAT-registered to take out a leasing agreement
When you lease an asset, you don't own it, although you may be allowed to buy it at the end of the
agreement
SUBSTITUTION OF LABOUR BY
CAPITAL
Both labor and capital are factors of production in the construction industry. The
real power of capital to re-design or re-constitute the labour process increased
with the continuous introduction of new machinery. The sub Sumption of labour
is also reinforced by the inferior position of labour in relation to capital in the
labour market.
The marginal rate of technical substitution (MRTS) is an economic theory that
illustrates the rate at which one factor must decrease so that the same level of
productivity can be maintained when another factor is increased.
In this case, the marginal rate of technical substitution of Labor (L) for Capital (K)
is the rate at which units of labor are substituted for more units of capital
without changing output level, in order to increase productivity of construction
activities. Therefore, more resources are spent on mechanization of construction
processes instead of wages for the labor that would have been employed.
INDUSTRIALIZED METHODS

Industrial construction mainly focuses on integrating emerging manufacturing

technologies into offsite construction and factory component assembly practices
to improve production and efficiency. Its main business is providing mass
customization and mass production simultaneously, which is only possible in a
highly flexible manufacturing system.
We will now have a closer look at the innovative construction methods called
the Industrialized Building System (IBS). IBS dates back to as early as the 1960s.
The main idea behind it is to reduce our dependency on labour works and in
extension the overall cost of construction. This is propriated by the fact that the
main challenge facing the construction industry is the inadequacy of skilled
labour and the cost of construction.
In Kenya, rents are skyrocketing and the number of truly affordable housing is
deteriorating. Statistics from the World Bank paint a grim picture of the situation
with 6 out of 10 households living in slums. There is a deficit of nearly 2 million
countywide as annual production remains at a paltry 50,000 units which is way
below the targeted provision of 250,000 units. Worse still, scarcity and excess
demand has resulted in a swift price escalation that has subsequently displaced
low income households from affordable housing market. Considering that over
500,000 people move to cities every year, there is need to adopt all imaginable
ways of mitigating housing problems in Kenya.
In 2017, Nairobi had an estimated population of 4.2 million people. About 73%
of the people living in Nairobi live below the poverty line and nearly 60% of the
houses are considered inadequate and are in slums. The government of Kenya
has adopted the housing problem as one of its agendas in its development
blueprint, The Big Four Agenda. It aims at providing affordable housing to the
citizens. It is time for action and it has to be fast. One of the most effective ways
to achieve this is to use the low cost construction technology (IBS).
 
DEFINITION AND TYPES OF IBS.

IBS is defined as a construction system which components are manufactured in a

factory, on or off site, positioned and assembled into structure with minimum
additional site work. The excess demand of housing as compared to the supply
in most parts of East Africa calls for the use of IBS as opposed to the
conventional construction method.
Click icon to add
Housingpicture
materials in Nairobi in 2014

stone and block walled houses wood and corrugated iron sheet walling
other materials(EPS,prefabs,etc)
Basically IBS has been classified into five groups:
Precast Concrete System
Steel Formwork System
Steel Framing System
Prefabricated Timber System
Block Work System
 
1. Interlocking Stabilized Soil Blocks
2. Steel framing system
3. Precast concrete wall
These systems are used due to the several advantages in the aspects of;
cost effectiveness
less relied on labour
quality control
environmental friendly
weather resistant
CASE STUDY OF THE USE OF EXPANDED
POLYSTYRENE (EPS) TECHNOLOGY IN KENYA.

EPS is a thermoplastic material manufactured from styrene monomer. As a material, it is formed

by the union of many beads of polystyrene. Research has shown that the unit weight of EPS
embedded structure is up to 35% less than the conventional concrete structure and the pre-
assembled units reduces the overall cost of structure significantly thus making the structure
sustainable and economical. Its sustainability is enhanced by its recyclability.
In one new development, around 50 polystyrene houses have been built in Kajiado County.
Romanus Otieno, an urban planning lecturer at the University of Nairobi, told reuters that a
standard two-bedroom polystyrene house costs about $6,700( Ksh. 670,000) , while one made of
bricks can cost twice as much due to low transportation costs. He added that the homes are
quicker to build, which could help to reduce housing deficits faster. However, he added that the
cost of polystyrene must come down from the $21(2,100) per square metre if it is to take off in
Kenya.
Demands on industrialized
construction
Characteristics of industrial production Demands on industrialized construction

Centralized production Pre-fabrication of the components at the factory

Mass production Development of variable basic types

Specialization Focus on specific market segments

Production based in standardized solutions and manufacture of Standardization of components but still maintaining flexibility of design
variations
Cont…
This refutes the claim that industrial production is not possible in the construction industry on
the grounds of its typical situation that cannot be compared with the prevailing conditions in the
other industries.
Industrialization of construction is a generic process with
Standardization
Systematization
Flexibilization
Rationalization
 
Industrialization has different paradigms which require the collaboration with designers and
different companies of different trades.
State of practice in construction production

On-site production
The development and continuing reduction in size of high performance and
robust DV system, declining prices for electronic and hydraulic components and
the development of service robots in space are providing impetus to continue
efforts aimed at automating building site processes.
Pre-fabrication/ off-site production
 
The off-site fabrication of elements enables not only the fabrication of simple
structural elements but also fully integrated elements and modules.
 
REFERENCES
Ibbs, C.W. and Terveer, K.R. (1984), “Integrated construction preventative
maintenance system”, Journal of Construction Engineering and Management,
www.globalconstructionreview.com
Hannah Nyambara Ngugi, James Wambua Kaluli, Zachary Abiero-Gariy. Use of
Expanded Polystyrene Technology and Materials Recycling for Building
Construction in Kenya. American Journal of Engineering and Technology
Management. Vol. 2, No. 5, 2017, pp. 64-71
www.constructionkenya.com
ascelibrary.org  
www.smallbusiness.chron.com