Fuel’s Outsized Share of Construction Fleet Expenses

Did you know that fuel typically accounts for just over 70 percent of construction vehicle variable costs? That stubborn domination exposes every driver in construction teams to potential budget overruns whenever the pump price twitches. Discover more about fleet operating costs, and how a blend of smarter driving, tighter controls, and a modern vehicle reimbursement program may help to shrink fuel’s share without shrinking your business.

Introduction

Fuel accounts for just over 70 percent of the variable operating expenses of construction vehicles, and that ratio has stayed fairly consistent while overall costs rise. Because managers cannot hedge fuel the way they hedge steel or insurance, each unexpected spike reverberates through bid margins, cash flow, and even project schedules. 

Increasing Fuel Costs

Several economic currents reinforce one another to keep fuel at roughly 70 percent of variable costs in the construction sector. Whenever gasoline or diesel prices rise, the cost of oil, tires, and minor repairs can also be connected. With that in mind, fuel’s proportional dominance survives even absolute cost jumps across all categories. 

For example, consider the March 2022 inflation peak of 8.5 percent that lifted different operating inputs simultaneously, reducing the incremental savings fleets had eked out through preventive maintenance and route optimization. The IRS then confirmed what fleet managers already felt at the pump through raises to the IRS standard mileage rate—from 65.5 ¢ per mile in 2023 to 67 ¢ per mile in 2024 to 70 ¢ per mile in 2025—signaling that nationwide operating costs were not retreating. Even Fixed and Variable Rate (FAVR) reimbursement programs, while they can often trim overall expenses by providing taxable, fair reimbursements, spread those savings evenly across categories, so fuel keeps wearing the crown.

A Recent Look Back

Looking back illuminates why construction fleets have struggled to push fuel’s share below the 70 percent threshold. Average U.S. new vehicle fuel economy has plateaued, so fleets received no efficiency dividend when pump prices rocketed in 2021–2022. At the same time, used vehicle scarcity drove auction prices up nearly 25 percent year-over-year in 2022, forcing many contractors to hold onto older, thirstier trucks. The IRS added a rare mid-year mileage rate increase—the fourth in 27 years—underscoring the volatility that made accurate job costing nearly impossible. The net effect was simple: fuel dollars per vehicle rose with CPI-adjusted pump prices, while fuel’s percentage of the variable-cost pie hardly budged.

Considering a Vehicle Reimbursement Program

For teams currently using a fleet of company-owned vehicles, it may be worthwhile exploring a vehicle reimbursement program. For example, a Fixed and Variable Rate (FAVR) vehicle reimbursement program works by shifting cost risk from the employer to the driver by paying a mileage-based rate instead of providing company-owned vehicles. Construction firms that replaced owned fleets with FAVR cut total program spend by up to 30 percent. 

An IRS-compliant FAVR program typically provides more accurate reimbursements that reflect genuine employee driver expenses, helping employers to make sure they’re only reimbursing employees for actual fuel costs. Powerful mobile mileage tracking apps can help ensure accurate trip tracking and provide teams with more visibility on business mileage. What’s more, FAVR program reimbursements are eligible to be considered as tax-free, which can be beneficial to employees who can avoid income tax on the amount, and employers who can reduce payroll tax burden. This can help reduce overall vehicle program expenses, which could potentially help to compensate for any increase in fuel prices. 

Looking Ahead with Technology

The technology runway is long and promising, and potential benefits for fuel costs could be gained down the line. Electric vehicles (EVs) help by eliminating gas expenses, and battery costs are typically significantly less than gasoline. For fleets that still rely on combustion vehicles, real-time telematics and granular fuel-use analytics are already squeezing out incremental 0.1 mpg improvements—tiny on paper, but game-changing across hundreds of vehicles.

Takeaways

Just because gas prices are volatile doesn’t mean they’re not worth looking into for construction teams. Start with a forensic audit of your variable cost breakdown to verify fuel’s actual percentage, then consider piloting a mileage capture app with a small driver cohort and use the data to build the business case for a company-wide roll-out. Evaluate a vehicle reimbursement program—such as a FAVR structure—to lock in IRS-compliant, predictable reimbursements.

If you’re curious to learn more about how FAVR could support your team, reach out to Cardata to learn more about how FAVR supports companies in the construction sector by providing accurate, tax-free reimbursements when compliant.

Disclaimer: Nothing in this blog post is legal, accounting, or insurance advice. Consult your lawyer, accountant, or insurance agent, and do not rely on the information contained herein for any business or personal financial or legal decision-making. While we strive to be as reliable as possible, we are neither lawyers nor accountants nor agents. For several citations of IRS publications on which we base our blog content ideas, please always consult this article: https://www.cardata.co/blog/irs-rules-for-mileage-reimbursements. For Cardata’s terms of service, go here: https://www.cardata.co/terms.