City Council Meeting: December 5, 2006
Agenda Item: 1-A
To: Mayor and City Council
From: Craig Perkins, Environmental and Public Works
Management
Subject: Supplemental
Information on Purchase of Refuse Trucks
Introduction
At
the November 28 Council Meeting, staff was directed to review the cost/benefit
of purchasing trucks at this time considering the potential franchising of
commercial collections. This report
provides supplemental information on the purchase of four new CNG powered
front-loading refuse trucks to replace three existing City CNG refuse trucks
and one diesel powered rental refuse truck. Staff recommends the purchase of
all four trucks at a total cost of $884,497.76 as the most cost-effective and
operationally sound approach for the Refuse Fund.
Discussion
Staff
recommends replacing four Solid Waste trucks at a cost of $221,124.44 per
truck. Three of the vehicles being replaced are seven years old and the other
vehicle replaces one the vehicles destroyed in the August, 2005 fire. The City
currently rents one vehicle at a cost of $6,750 per month. The front-loading
refuse trucks are the only vehicles in the City’s fleet that can service the
rectangular metal bins that are used in the commercial sector, in a number of larger
multi-family buildings and for some of the City’s recycling programs. Two of
the new vehicles will be used to service multi-family bins and recycling bins
and the other two trucks will be used to service the commercial waste that is
collected by the City. The new trucks will be delivered to the City by
September 2007.
The
City is currently drafting a Request for Proposals (RFP) for commercial
operations. This RFP presents various options to handle the collection of
commercial solid waste and recyclables. Options include City-only, private-only,
and one or two private companies and city competition. Additional options
include franchising of the Downtown and
If
the City Council decides to franchise the collection of all commercial waste to
a private refuse company, the City would no longer collect any of its existing
commercial accounts. In this scenario, it is estimated that the period of time
that would be needed to complete public review, Council actions, contract
negotiation and execution, purchase and delivery of new equipment and
containers by the private company (the RFP will require the use of new
CNG-powered trucks by the selected company/companies), and transition of all
commercial accounts to the private company/companies would not be completed
until September 1, 2008. Therefore, if the City purchased all four front-loader
trucks, took delivery in September 2007 and ceased all its commercial waste
collection activities by September 2008, it would have derived only one year of
full use from two of the new vehicles. Under this scenario and based on
consultations with outside refuse truck vendors, it is estimated that the City
could sell the trucks after September 2008 at an approximate 25% discount over
the original purchase price. However, the City would have derived one full
year’s value from the use of the vehicles which, based on a seven year
replacement cycle, represents 14.3% of the original vehicle cost (100% divided
by 7 = 14.3%). This results in a potential resale loss of 10.7% (25% - 14.3%)
amounting to $22,590 per vehicle or $45,180 total for both vehicles. Alternatively,
the City could include the purchase of the two vehicles as a requirement in the
agreement negotiated with the franchise refuse company/companies at a price not
less than 85.7% (100% - 14.3%) of the original purchase price, which would
ensure that the Refuse Fund incurred no financial loss whatsoever. The City’s
current solid waste consultants, GBB, have advised staff that such purchases of
surplus equipment from municipalities are a standard component of many
franchise agreements.
Alternatives
One
alternative option for Council to consider would be to only replace two of the
vehicles and delay replacement of the other two vehicles used for commercial
collections until a Council decision on citywide commercial franchising is made
in May 2007. If this option is selected and the City Council ultimately decided
to continue City collection of commercial waste, it is estimated that the new
vehicle purchase price will have increased by $15,479 per vehicle by the time a
new order could be placed in August 2007 (this figure assumes a 10% price
increase after January 1, 2007 that has been communicated to the City by the
vehicle vendor less interest earnings from the delay in use of vehicle
replacement funds until May 2007 for a net 7% cost increase). In addition, the
City would incur approximately $23,000 per vehicle in increased repair costs
for the period between September 2007 and delivery of the vehicles in May 2008.
The total potential cost to the Refuse Fund from the delayed purchase of the
two trucks under this alternative option would therefore be approximately
$76,958. There would also be the added risk of significant additional repair
costs from an engine or transmission failure as well as the additional vehicle
downtime associated with the prolonged use of increasingly unreliable vehicles.
If
only two refuse trucks are purchased and the City Council decides to
discontinue City collection of commercial waste the financial impact on the
Solid Waste Fund would be limited to the continued operation of the two
vehicles that are beyond their replacement schedule for an additional year
(September 2006 to September 2007) at an estimated increased repair and
maintenance cost of $30,500 per vehicle or a total cost of $61,000 for both
vehicles. There would also be the added risk of significant additional repair costs
from an engine or transmission failure as well as the additional vehicle
downtime associated with the prolonged use of increasingly unreliable vehicles.
Conclusion
In
summary, the analysis presented above demonstrates that the most advantageous
approach from the standpoint of both financial benefits to the
Prepared by:
Craig Perkins, Director
of Environmental and Public Works Management
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Approved: |
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Forwarded
to Council: |
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Director -
Environmental and Public Works Management Department |
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P. City Manager |