ADMINISTRATIVE REPORT

Date: February 21, 2001
Author/Local: Carol Wyatt/7254

RTS No. 01939

CC File No. 1805

Council: March 13, 2001

TO:	Vancouver City Council
FROM:	General Manager of Corporate Services in consultation with the General Manager of Engineering Services
SUBJECT:	Supply of Diesel and Gasoline Fuels

RECOMMENDATION

THAT Council, not withstanding Council policy to tender all contracts over $100,000, approve the renewal of the contract with Chevron Canada Limited, for the supply of diesel and gasoline fuels for an additional 2-year period from June 01, 2001 with optional two 1-year extensions, at an estimated annual cost of $3,200,000, including all applicable taxes.

COUNCIL POLICY

The policy of Council is to:

- issue a tender or Request For Proposal for contracts in excess of $100,000;
-award contracts for the purchase of equipment, supplies and services that will give the highest value based on quality, service and price.

On March 04, 1980, City Council authorized co-operative purchasing "when benefits to the City are indicated."

Contracts with a value over $300,000 are referred to Council.

PURPOSE

The purpose of this report is to request Council approval for the City to continue purchasing diesel and gasoline fuel on the British Columbia Petroleum Products Buying Group (BCPPBG) contract which was re-negotiated with Chevron Canada Limited for a 2-year term plus two 1-year extensions.

BACKGROUND

The City has been a participant in the BCPPBG since February 18, 1997, when City Council authorized the Manager of Purchasing Services, as a member of the co-operative negotiating team, to negotiate and accept on behalf of the City of Vancouver, a contract for the supply of gasoline and diesel fuels. The City has been under contract with Chevron Canada Limited through the BCPPBG since June 1, 1997.

The contract has been very favourable for the City throughout the term of the contract particularly over the past year. While there have been drastic increases in fuel prices for consumers, the City has avoided approximately $215,000 in additional fuel cost during 2000. In addition to more favourable pricing due to the combined volume, prices have been based on changes in crude oil prices rather than rack pricing (i.e., market pricing). As a result, when market conditions caused an increase in fuel prices, the City has been protected.

BCPPBG uses a consultant who has extensive knowledge in fuel/petroleum products and costing information for both public and private sector organizations throughout Western Canada. In anticipation of the termination of the current contract with Chevron, the consultant has provided the buying group members with a detailed report on current market conditions and fuel pricing.

DISCUSSION

The BCPPBG is able to negotiate favourable terms for its members due to its combined buying power and it is unlikely that any one individual member could achieve the same pricing. At the beginning of contract 97-01, the combined co-operative fuel purchase volume was estimated at 20 million litres with 31 communities participating in the BCPPBG. The City of Vancouver's annual portion was approximately 6 million litres. The BCPPBG now has 44 members with an annual volume of approximately 28 million litres of fuel.

The current contract document allows the BCPPBG to negotiate changes to the scope and term of the contract. Consequently, after in-depth review of current market conditions and analysis of current pricing, the negotiation team headed by the consultant, negotiated with Chevron Canada Limited to reach an agreement for a further 4-year period (2-year term plus two 1-year options). The terms of the agreement are contingent on renewal of all member contracts.

The proposed pricing includes an increase of $0.007 per litre or an annual increase of $42,000. All other terms and conditions remain the same including price changes being based on the change in the price of crude month over month.

Pegging the contract price to the change in the price of crude is considered advantageous over pricing strategies offered by other major oil companies. Typically, other companies peg pricing to rack price which is derived from market demand and/or other supply influences.
When compared with a discounted rack price change mechanism, the BCPPBG price based on crude oil is projected to result in a savings of approximately $270,000 (8.4%) per year or a total savings of $1.1 million over the four years.

FINANCIAL IMPLICATION

Funds will be provided for in the Capital and Operating Budgets.

CONCLUSION

Based on the consultant's analysis of current contract prices being offered by the major oil companies to other customers; the BCPPBG's preferential price change mechanism; the forecasted potential savings for the City; and the past performance of Chevron in meeting the City's requirements, we are recommending that this contract be renewed with Chevron Canada Limited for an additional 2-year period with an optional two 1-year extensions. The consultant has indicated, based on his insight into the current market, that it is highly unlikely that the BCPPBG will obtain better pricing if the group went out to bid.

We therefore recommend that this contract be renewed with Chevron Canada Limited for an additional 2-year period until May 31, 2003 with an optional two 1-year extensions, notwithstanding the policy of Council to tender all contracts over $100,000 with funds provided from the Capital and Operating Budgets.

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(c) 1998 City of Vancouver