ADMINISTRATIVE REPORT

TO:

Standing Committee on City Services and Budgets

FROM:

General Manager of Engineering Services

SUBJECT:

Extension - Contract No. 2002-09 Rubble Hauling and Crushing -
900 East Kent Avenue Works Yard

 

RECOMMENDATION


COUNCIL POLICY

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

PURPOSE

The purpose of this report is to obtain Council approval to extend, for one year, Contract No.2002-09 for the hauling of excavation material from the 900 E. Kent Avenue Works Yard to fill sites, and for the crushing and transport of asphalt and concrete slab rubble to the Vancouver Landfill in Delta.

BACKGROUND

Engineering Services has, for the past several years, been improving efficiency in the handling of excavated material from its many construction sites throughout Vancouver. Annually, Engineering Services hauls more than 380,000 tonnes of excavated material to the Vancouver and Richmond landfills. Our review of how to best haul the material to the landfill sites compared the practice of hauling directly from the work sites to the Vancouver landfill with the option of hauling to a transfer facility in Vancouver and from there to the landfill using larger vehicles.

Engineering Services conducted comparison trials in 1999 and 2000 using both City forces and contracted forces hauling to the Delta Landfill from a City-owned transfer site at 900 East Kent Avenue. The trials demonstrated that significantly higher costs were incurred by using City forces than by using contracted forces to haul the material from the transfer site to the Vancouver Landfill. Based on this finding, a tender was issued for rubble hauling to the Vancouver Landfill for a 12-month period to confirm the contractor's rates over a full year's operation.

On May 17, 2001 Council approved the award of the contract to Columbia Bitulithic Ltd. This allowed for further review of the hauling of material through a transfer facility and the checking of the business case. The business case was confirmed and the recommendation to proceed with a permanent transfer facility for excavated material and was approved by Council on June 13, 2002.

The nature of the material transfer operation and the volume of both materials and dollars involved require that sufficient and appropriate controls are in place to protect the assets and interests of the City. An Internal Audit was conducted on the operation in 2002 and it did not reveal any significant deficiencies in internal controls in the operation.

The benefits of using a contracted material transfer facility compared to delivering the material directly from the job site to landfills are:

Financial
· costs savings of approximately $195,000 annually

Operational
· greater potential for making use of a variety of destination sites for excavated material
· improved work site efficiency with the variability of highway trucking travel times removed.
 
Environmental
· reduced traffic congestion and pollution
· greater potential for reusing and recycling material

This contract was retendered in 2002 and awarded by Council on July 30, 2002 for a 12-month period to the low bidder Mainland Demo Contracting Ltd. The contract allowed for two one year extensions subject to the agreement of the Contractor and the City.

DISCUSSION

For a two-year extension of its contract, Mainland Demo Contracting Ltd. has requested a price increase of 2.6% annually. The price increase proposed and the work by the Contractor to date are satisfactory. However, only a one year extension is recommended, to allow evaluation of this Contractor over a full 12-month period including the busier summer months and to allow for completion of the permanent facility at the site. It is estimated that the one year extension will cost $1,121,000.

Comparison to City Forces Hauling Costs

The majority of the work involves the hauling of excavated material from the 900 E. Kent Avenue site to fill sites in Greater Vancouver, primarily the Vancouver Landfill in Delta. Trials were conducted in 1999 and 2000 comparing the hauling of material by both City forces and contracted forces. The City forces 2000 trial cost was $6.57/tonne, however it needs to be adjusted by the following factors to make an equitable comparison to Mainland's extension price:

· The City forces trial was completed in 2000. Labour cost and equipment increases should be added to that amount to compare it to the rate proposed for 2003 by Mainland Demo Contracting Ltd. The labour cost increase is 5%. The equipment cost increase is significant at 50%. The previous trial had the advantage of using a much older truck fleet purchased when many factors contributed to low costs. Purchase costs of the equipment is now significantly higher and fuel and insurance costs have also increased.
· The City forces rate should be reduced by 1% to account for the City's inability to replace vehicles out for repair during the trial, as was available to the Contractor.
· The City forces rate should be reduced by 15% to adjust for higher than normal loading costs. This adjustment compensates for the fact that the City had only four transfer vehicles available for the trial, while the contractor has access to a much larger fleet, making its loading more economic due to the scale of operation and the more efficient use of the loader.

The adjusted City forces rate is therefore increased 13.2 % from $6.57/tonne to $7.44/tonne to compare it to the proposed 2003 Mainland Demo rate of $4.07/tonne (including GST).

The adjusted difference is significant and the operation of the Material Transfer Facility would not be financially viable as established in the business case, which was approved by Council in2002. The increased hauling cost would take the operation from a positive business case saving $195,000 annually to a negative business case losing $449,000 annually; a difference of $644,000. In addition, the Operations Branches base the decision to use the Facility on the cost advantage to use it compared to trucking directly to the landfill. The significant rate increase would result in less material being taken to the Facility. This would result in further losses as there would be a reduction in revenue, yet fixed overhead costs must be paid. If the operation was no longer viable and became less used, there would be financial losses as well the loss of significant environmental benefits.

Could the City forces cost be reduced to be more competitive with the contracted rate? The purpose of the original trial was to work with City forces to obtain the most competitive rate possible. Throughout the six week trial Union representatives and City staff were asked to suggest operational changes that could make the City forces trial more efficient. The flexibility of longer hours or weekend work when traffic on the highways was reduced was suggested to the Union and staff but would not be accepted without overtime, which would negate the savings. Unfortunately, lower costs could not be obtained for the City trial in spite of the cooperative effort.

Contractors in the direct hauling business have some inherent advantages over a City operation. For example the Contractor uses large transfer vehicles which provide a benefit of which the City is not able to take advantage. These vehicles have tandem trucks with large trailers that can carry 35 tonnes of material. Similar units in normal City operations carry only 25 tonnes of material using smaller trailers that are more manoeuvrable. The amount of material to be hauled varies greatly through the year and the contractor can move excess equipment to other work outside the City operation. If larger transfer vehicles for City forces were purchased (approximately $200,000 per vehicle) to meet peak needs, there would be excess vehicles during the slower months. The trucks could be used, but due to the size of the trailers they cannot be used for other City work and would remain idle.

Also contributing to the contractor's competitive advantage is the fact that the hauling from the City site can be used by the contractor as fill in work along with the other contracts it may have outside of the City work. This provides an incentive for lower bids when the work is tendered, as it can make the contractor's overall operation more efficient.

It is therefore recommended that the hauling of material from the Material transfer Facility at 900 E Kent continue to be undertaken by contract.

Towards a Competitive City Business Case

Despite the discouraging results of the first City trial and the recent increases in labour and equipment costs, Engineering would like to pursue options with CUPE 1004 to improve the City`s business case for doing this work in-house. This will require increasing workforce flexibility, lowering labour costs by avoiding hauling material at overtime rates, reducing equipment costs and being responsive to seasonal peaks. In the past, the City has performed work in-house that has typically been done outside where there is a business case eg. the Asphalt plant. Staff has already had discussions with Union representatives and would like to continue those discussions, leading to a report back to City Council prior to the expiry of the contract extension.

FINANCIAL IMPLICATIONS

The total estimated annual cost of this contract extension is $ 1,121,000, which is an estimated cost increase of $28,400 or 2.6% . Considering inflation, the unit rates bid are consistent with those estimated in the business case approved by Council on June 13, 2002 and we expect the projected saving of $195,000 annually to continue.

The excavated material originates from Waterworks, Sewers and Streets capital and maintenance work. The contract costs are funded from a variety of sources such as the Streets and Sewers Operating Budget, the Streets, Waterworks and Sewers Basic Capital Budget, Water Utility Fees and Sewer Utility Fees by way of internal dump charges. In addition, the Vancouver Landfill Operating Budget purchases the crushed material delivered there and uses it for road construction.

ENVIRONMENTAL IMPLICATIONS

This contract will allow Engineering Services to continue with the operation of a central rubble facility, with reduced pollution and reduced fuel consumption from the more efficient hauling of rubble material. Further environmental benefits arise from the ability to recycle some of the rubble material.

CONCLUSION

Mainland Demo Contracting has been performing the work satisfactorily and the cost increase of 2.6% is acceptable. It is recommended that the City enter into a one year extension of the existing contract with Mainland Demo contracting for rubble hauling and crushing at the 900 E. Kent Avenue Works Yard. It is also recommended that the General Manager of Engineering Services continue to meet with the Union to discuss options for improving the City's business case for doing this work in-house.

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© 2002 City of Vancouver