Agenda Index City of Vancouver

ADMINISTRATIVE REPORT

TO:

Standing Committee on City Services and Budgets

FROM:

General Manager of Engineering Services

SUBJECT:

Relocation and Construction of a New Ready Mix and Precast Concrete Facility to be Located at 900 East Kent Avenue Yard

 

RECOMMENDATION

COUNCIL POLICY

On February 4, 1994, subject to Council discretion any recommendations for enhanced programs are to be accompanied by recommendations for matching cost savings or related revenue increases.

PURPOSE

The purpose of this report is to discuss the conclusions of a business case that reviewed the City's options for the existing ready mix and precast concrete plant which is located in the soon to be closed, Cambie works yard. This report also recommends Council approve the expenditure of $1,705,000 to purchase the land and build a small-batch ready mix and precast concrete facility at the 900 East Kent Avenue Yard.

BACKGROUND

The existing concrete plant is located in the Cambie works yard and employs five full time staff who supply City crews with precast concrete products and small batches of ready mix concrete. The plant is an important part of the Sewers branch and has also become a service supplier to Streets, Water and Park Board operations. While specialised tasks have been undertaken from time to time, the primary function of the plant remains the prompt servicing of concrete needs for all City works crews. Plant operating expenses are recovered through user fees charged to the Branches for the various products required.

In the next few years the Cambie works yard will be closed. A new works yard is presently being built in the False Creek flats and many of the current functions at Cambie Yard will be relocated to the new yard or to other existing yards. Prior to recommending new facilities be built, it was important to ensure, through a business case analysis, that it would be advantageous for the City to continue providing services internally.

DISCUSSION

In 1999, the City contracted the services of KPMG Consultants to conduct a study examining the viability of the existing concrete plant. The study included a comprehensive review of the services provided at the plant, and a comparison of similar products available from the private sector. The KPMG report concluded that it was more economical for the City to produce small loads of ready mix concrete than it was to have small loads provided by private suppliers. As well, it was concluded that precast products currently being produced at the plant were comparable to the private sector. It should be noted that the City conducts regular inventory reviews and manufactures only those items which can be competitively produced. Large quantities of concrete and particular precast products deemed not economically viable to be produced by the City are sourced from the private sector.

Subsequent to the consultant's conclusions and in light of the Cambie Street Yard closure, the City's existing and future requirements for small batches of ready mix concrete and precast concrete products were evaluated (a dry concrete mix was included as a future product in order to satisfy the Streets Branch's annual requirement).

The City then examined two options to construct a new City run facility at the Kent Avenue Yard. The first option being a ready mix concrete facility and secondly, a ready mix and precast concrete facility. Both options were compared to the private sector in terms of costs and whether future requirements could be met efficiently.

While both options were favourable in that they provide savings to the City, the study concluded that the second option, a small-batch ready mix and precast concrete plant, would result in greater savings to the City amounting to approximately $96,000 per year over purchasing the same products and services from the private sector. The first option, a ready mix concrete facility alone, would provide lesser savings to the City amounting to approximately $22,000 per year.

Operational efficiencies are also expected resulting from constructing a new small batch ready mix and precast concrete facility at 900 East Kent Avenue. They are as follows:

· Close proximity of the concrete plant to the existing aggregate supply enables shared use of loading equipment and aggregate storage bins as well as quick access to raw materials required for the various concrete mixes.

· Products often required in conjunction with ready mix concrete, such as precast concrete products and associated castings, can be purchased and picked up from the same location minimizing delivery times.

· Ready mix concrete can be loaded directly into the buckets required for efficient placement in the field.

· Small quantities can be purchased at regular rates whereas product and delivery surcharges apply for quantities purchased from private suppliers below the minimum amounts.

· The plant services only City operations resulting in less congestion at the facility and fewer delays.

· Product required after normal hours of operation is provided at regular rates.

As previously mentioned, large quantities of ready mix concrete will continue to be sourced from the private sector and delivered to the site via concrete delivery trucks.

The complete business case is included in the appendix of this report and has been reviewed by the Finance Department, who concur with the study.

FINANCIAL IMPLICATIONS

The City recently contracted the services of Omicron Consulting Group to provide a detailed cost estimate to develop the site. The cost of the land at the 900 East Kent Avenue Yard was based on the requirement of 24,830 ft2 for the ready mix and precast concrete plant. The total capital cost to purchase the land, construct a new building and to fully develop the site would be $1,705,000. Proposed financing to be provided through a loan from the Capital Financing Fund, at an interest rate of 6.0% and an amortization period of twenty years. The annual payback for the land would amount to $34,340 and $112,162 for the permanent facilities, resulting in a total of $146,502. These payback obligations will be funded by plant operating revenues generated through user fees.

The business case also looked at the annual costs associated with full operation of the new facility. These included yearly capital costs for the land and construction, plant and building operation and maintenance, administration, interest on inventory, forgone property taxes and materials. The total annual operating cost for the ready mix and precast concrete plant is $973,000.
The business case determined the total yearly cost for the private sector to service the City's future precast and ready mix requirements would be $1,069,000. Therefore, the annual cost savings to the City for building and operating a combined ready mix and precast concrete facility would be $96,000 per year. Other cost advantages associated with a City run operation, such as shorter waiting periods for crews picking up materials, are not included in this amount.

The new facility will attract additional annual operating costs of $140,000. This will result in increases to current user fees in order to offset additional operating expenses. While the 3 main user groups, Streets, Sewer and Water Branches, will incur additional costs for ready mix and precast concrete products, substantial cost savings will be gained from this product being produced by the City as opposed to sourcing from the private sector as outlined in the previous paragraph. Operating budgets however will not be effected as the plant supplies products for capital projects.

The anticipated saving associated with operating a City run plant is based on current demands for precast and ready mix concrete products. Quantities produced in past years have remained reasonably stable as the plant primarily facilitates infrastructure rehabilitation programs which are well established and have been ongoing for some time. However, demands for concrete products may vary in the future should changes occur to current construction practises or the rehabilitation programs presently in place. With this in mind, the business case considered impacts to the City in the event of future fluctuations in product demand.

Operating costs to produce different quantities of concrete product at a City run facility were compared to purchasing comparable amounts from the private sector. It was determined that an overall reduction in demand of 16% would result in a cost neutral situation. It would therefore be beneficial to the City to purchase product from the private sector should production decline beyond 16% of the current volumes. Conversely, savings would result from operating a City run plant should future production remain greater than 84% of the quantities currently produced with additional savings incurred should product demand increase in the future. Although fluctuations in future product demand has been considered, it should be noted that annual requirements have remained consistent over the past years with the likelihood of this trend continuing well into the future as the concrete plant facilitates the ongoing requirements of the various long term infrastructure replacement programs.

PERSONNEL IMPLICATIONS

The current plant requires an allotment of 5 staff to operate. The new ready mix batch plant and precast facility will include new, more automated equipment and therefore an allotment of 4 staff would be required. The employee occupying the position that is no longer required would be reappointed to a vacancy within the Branch created by upcoming retirements resulting in no employee layoffs.

A copy of this report was forwarded to the Union for their review.

CONCLUSION

The business case supports the City purchasing the necessary land and building a new small-batch ready mix and precast concrete plant. Annual savings for the City, compared to the cost of purchasing the service and materials from the private sector, would be $96,000. Additionally, the new plant would ensure the crews are serviced in a timely and cost efficient manner.

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