ADMINISTRATIVE REPORT Date: June 3, 1997 IRTS #: CC 96165 C.C. File No. 5801 TO: Standing Committee on City Services and Budgets FROM: General Manager of Engineering Services SUBJECT: Budget Approval and Financing Plan for the New Asphalt Plant, Aggregate Handling Facility, and Materials Testing Laboratory RECOMMENDATION A. THAT Council approve an expenditure of up to $250,000 from the Property Endowment Fund (PEF) for costs associated with the purchase of the 900 East Kent Avenue Site (900 Kent). Once the final costs are known, they will be added to the purchase price and pro-rated to the PEF and Engineering Services. B. THAT Council approve the purchase by Engineering Services of approximately six acres of the western parcel, Block P, of 900 Kent at a cost of $4.1 million, with funding to be provided by the sales of Sterling Shipyard and Commissioner Street Yard ($2.1 million) and of Stainsbury Yard ($2.0 million) to the PEF. C. THAT Council, based on the Preliminary Design and Class 'B' Estimate, approve a project budget of $13,306,000 for the construction and commissioning of an Aggregate Handling and Asphalt Plant operation, at 900 Kent. D. THAT Council, based on a Class D Estimate, approve a budget of $1,190,000 for a Materials Testing Laboratory, to be constructed at 900 Kent. E. THAT Council authorize the General Manager of Engineering Services to instruct Westmar Consultants Inc., (the Consultant), to proceed with Phases II and III of the Consultant Services Contract - Final Design, General Engineering, Inspection and Record Services, valued at $834,000. F. THAT Council approve funding of $152,000 for a temporary Civil Engineer II to manage the design, construction and commissioning of the project. G. THAT Council approve financing for the Asphalt/Aggregate Plant, including Consultant Services, Material Testing Lab and Project Manager, as follows: Capital Financing Fund Loan $11,282,000 Truck Plant Account 4,000,000 Streets Capital Budget 150,000 Waterworks (Fire Protection) Budget 50,000 H. THAT Council authorize the General Manager of Engineering Services to call for proposals for a public/private partnership for a waste concrete and asphalt crushing/recycling pilot project. COUNCIL POLICY In 1979, Council provided for the relocation of the water-based aggregate operation and asphalt plant in Cambie Yard, by securing the former Sterling Shipyard property on Burrard Inlet. On January 16, 1996, Council approved the relocation of the Aggregate Handling and Asphalt Plant, with the addition of a Concrete/Asphalt Recycling Operation, to an undetermined site on the Fraser River. Estimated land costs of the new site were to be obtained primarily from the sale of the Sterling and Commissioner Yards. On February 27, 1996, Council approved the award of a three phase Consultant Services Contract and authorized the consultant to proceed with Phase I - Preliminary Design and Class B Estimate. On August 1, 1996, Council approved the acquisition of the property at 900 Kent as the site for the primary use as an Aggregate Handling and Asphalt Plant Operation. PURPOSE This report seeks Council approval for the acquisition by Engineering Services of a portion of 900 Kent in exchange for the estimated proceeds on the sale of existing Engineering Services Assets, and development thereon of an asphalt/aggregate facility at a cost of $13,306,000. In addition, funding is recommended for: the Consultant to proceed with final design, general engineering and inspection services, at a cost of $834,000; a Materials Testing Laboratory, at a cost of $1,190,000; and a Project Manager. This report further requests Council s approval of a financing plan and proposes the sale of Engineering land assets necessary to acquire the land at 900 Kent. SUMMARY The existing asphalt and aggregate operations have served the City well for many years, providing the necessary products at a lower cost than private sources. With the deterioration of the existing asphalt plant and short term site tenure at the Cambie Yard, it is necessary that the City s asphalt and aggregate operation be replaced and relocated. Although saving about $13 million, net present value, over 25 years, compared to private asphalt/aggregate supply, the new yard will result in higher costs for asphalt and aggregate currently supplied to City works. This increase is mainly due to the costs of capital financing a new plant and site. The materials testing lab will be replaced and will continue to offer the City savings over private testing and inspection services. Although Council previously approved a recycling component to the project, the General Manager of Engineering Services believes the economics of this operation are not yet clear and intends to publicly request proposals for a crushing/recycling pilot project, and report back with the results. The Consultant will continue engineering design work, which should allow the new facilities to be completed and in operation in 1998. BACKGROUND The City's Cambie Yard facility has long provided aggregate handling and asphalt supply that has efficiently and effectively supported the City's operations; however, the deteriorating asphalt plant now requires replacement and development pressures in False Creek require the City to find a new site. A new yard proposed on the Fraser River at 900 Kent can accommodate the water-based activities from the Cambie Yard. At 900 Kent, operations would include handling of 450,000 tonnes of aggregate delivered by barge and manufacture of approximately 100,000 tonnes per year of asphalt. Council previously approved the relocation of the asphalt/aggregate facility based on a business case that showed a City operation offered best value when compared to private supply. The City owned and operated facility continues to be the most economical option relative to private supply based on the review of a formal proposal from Columbia Bitulithic Ltd.(Columbia), to provide asphalt, aggregate and crushing/recycling. This proposal is discussed later in the report. DISCUSSION Preliminary Design Council previously approved a project budget based on a conceptual design for a generic site. This design included a crushing/recycling operation. The Consultant has now completed the Preliminary Design and has identified the Class B Estimate for the design, construction and commissioning of an asphalt/aggregate operation, and a crushing/recycling facility. These estimates compare as follows: - Conceptual Design (Class D Estimate) $13.3 million - Preliminary Design (Class B Estimate) $15.5 million (Although the current recommendation does not include crushing/recycling, to be consistent with the previous report, both the above estimates do). The cost to add a Materials Testing Laboratory is estimated at $1,190,000 and was not included in either estimate. Engineering is concerned that the estimated costs have increased by about 17%, although this is not uncommon as one proceeds from conceptual design and Class D Estimate, to a site specific, detailed preliminary design and Class B Estimate. The increased costs were noted in the following areas: seismic ground improvements, state of the art wastewater recycling system, site filling to meet the 200 year flood level elevation and foreshore protection and dredging. It should be noted for the asphalt/aggregate business case, that the increased capital cost is more than offset by the lower land cost at 900 Kent and the lower financing costs for the required capital. In the spring of 1996, the Consultant prepared a preliminary design and Class B Estimate for a new Asphalt/Aggregate/Construction Material Recycling facility at the PEF owned site near the south foot of Main Street on the Fraser River. However, this site was replaced by a superior site, when, on August 1, 1996, Council approved the acquisition of 900 Kent. This latest acquisition required that a second preliminary design and class B estimate be prepared for the new site. As much of the design is site specific, an additional design cost of about $220,000 was incurred. 900 East Kent Avenue Site 900 Kent consists of two parcels, approximately 11.3 acres in western Lot P, and about 5.15 acres in Lot O. Engineering proposes to purchase six acres of the site for use as an asphalt/aggregate facility with proceeds from the sale of other Engineering land assets. The remainder of Lot P and Lot O will be held in the PEF for future City use, development or disposition. The City has purchased the 16.45 acre, 900 Kent site at a purchase price of $10,400,000 plus applicable GST. The soil remediation and groundwater concerns have been resolved with the British Columbia Ministry of Environment, Lands and Parks (BCMOELP), issuing a Certificate of Compliance on February 25, 1997. However, an expenditure of up to $250,000 is required to resolve associated concerns with the purchase. This expenditure would fund a survey of the entire site; work done by an environmental consultant to ensure that environmental concerns were addressed; site investigation to confirm that the site is appropriate for the City s intended uses and $50,000 adjustment on closing related to a tax issue. Other costs could include the removal of abandoned equipment and the removal of small amounts of hazardous waste remaining on the site in various sumps and containers. It is recommended that these costs be added to the purchase price and pro-rated to the PEF and Engineering Services. Advantages of this new site include: 1. Lower cost; Kent; approx $700,000/acre Main; $750,000 to $900,000/acre 2. Larger site, including greater riverfront - allows for a better functional layout, with expansion potential or addition of associated uses; 3. An existing warehouse can be retained; 4. An existing barge loading facility (Lot O) may be upgraded and possibly used to remove construction waste; 5. Rail access to the site for possible street car maintenance or a future solid waste removal operation; and, 6. Future potential - such uses as abandoned auto lot; sorting/ocean disposal operation; or household material recycling facility. Asphalt Plant and Aggregate Operation Further to the previous economic analysis justifying the continuation of a City owned and operated asphalt plant and aggregate operation, staff received a proposal from Columbia to provide asphalt and crushing/recycling to meet the City s requirements. An updated economic analysis shows that Columbia s proposed asphalt supply is more costly than a City operation. The analysis is available in a report Evaluation of Economics of Columbia Bitulithic Partnership Proposal (both the proposal and this report are on file with the General Manager of Engineering Services). The current analysis continues to show that when comparing all costs including land, interest, capital construction, operating, taxes, etc. that the City option is superior. Although the capital cost estimate has increased since the last review, the land cost has gone down and the financing rate on borrowing has dropped to be comparable with market rates, resulting in a City run facility becoming even more attractive. Numerous reviews of the City s annual purchase of aggregate through a public tender process clearly indicate best value to the City. The current volumes of about 450,000 tonnes per year used for City operations will continue into the future, given the requirements for infrastructure construction and maintenance. The installation of new aggregate handling equipment at 900 Kent will improve the efficiency of this operation. There are indirect costs and other concerns associated with a private aggregate and asphalt supply that favour a City operated facility. These are: a) There is limited competition in the asphalt business today. A City plant retains an element of competition in the market that reduces the potential for higher prices from a single source supply and provides a bench mark for municipalities to measure asphalt costs against; b) Labour disruption at the private site would require the City to pay more for alternate sources of supply; c) A long term joint venture limits the City s ability to explore new opportunities in relation to changes in technology, material or regulation without negotiation to the agreement; d) There would be significant additional truck traffic through a facility serving both private and City needs that would delay City forces from getting supply on demand and result in increased costs; e) The City would lose the flexibility or pay a premium to experiment with latest research in asphalt technology, such as using rubber asphalt made from tires; and f) There are potential extra costs for weekend work or work conducted outside normal working hours. The new asphalt/aggregate operation is projected to save the City approximately $13 million, net present value, over 25 years. The new asphalt plant alone will save the City about 8.2 million, (about $5.00 per tonne of asphalt produced), compared to private supply of asphalt. Crushing/Recycling As previously reported, there are major benefits to an asphalt/concrete recycling operation, as it not only can save money, it is an environmentally sound business that reuses materials, reduces space demand at the landfill and reduces truck traffic in the region. A report on crushing/recycling, (on file with the General Manager of Engineering Services), indicates that the unit costs, if the City were to operate a crushing operation, would be similar to those proposed by Columbia. This report also indicates that the unit costs are sensitive to the amount of waste asphalt and concrete being recycled. Without being able to accurately establish the volume of recyclable material produced by City crews and with limited experience in this area, staff believe a pilot project in the form of a partnering type arrangement may be appropriate. Therefore, the General Manager of Engineering Services recommends a call for proposals for a pilot project, likely for a two year period, involving a public/private partnership, that will recycle an estimated 220,000 tonnes per year of broken concrete and asphalt from City construction projects. At 900 Kent, there also exists the potential to sort construction excavation materials and barge, possibly using the existing ramp, clean non-structural fill materials for reuse elsewhere in the region and this will be examined during the pilot project. Materials Testing Laboratory In conjunction with the relocation of the asphalt/aggregate facility, Council is requested to approve a $1,190,000 expenditure to relocate the materials testing lab from Cambie Yard to 900 Kent. As with the asphalt plant, the new lab would replace our existing facility at Cambie Yard, which is now well beyond its design life and requires upgrading. The laboratory provides timely inspection and material testing services to client branches, including: - quality control of City asphalt production - quality assurance of aggregate purchases - backfill compaction testing - ready mix concrete testing - soils investigation - pavement inspection - materials research - construction product evaluation It is estimated that a new City owned and operated materials testing lab will be more efficient and accurate and result in a yearly savings of $130,000 per year over having this work being done privately. A business analysis comparison with outside laboratories has identified this savings and the analysis is on file with the General Manager of Engineering Services. The analysis shows that the speed of response, proximity to operations, and no GST or profit requirement allow the City to be extremely competitive and offer excellent service to City operations. By increasing our current testing rates to market rates, the lab operation can repay the initial capital costs in 5.6 years. Staffing/Consultant Resources To date, this project has been managed internally on a part time basis by various City staff. To manage the implementation of the project, a temporary full time CE II is required for a two year period, at a cost of $152,000. This cost includes $4,000 for office furniture and computer resources in order to establish a project office. Staff are satisfied with the preliminary design work completed to date by Westmar Consultants Inc. and recommend Council approve them to proceed with Phases II & III at a cost of $834,000. Under Phase II, the Consultant will complete final design and Class A Estimates, including the design, supply, installation and procurement packages for the asphalt plant, conveyor system, barge berth, materials testing lab, and site services. General engineering and inspection services during construction, including record services, will be provided under Phase III. Tenders for demolition of the existing site buildings will be advertised next month with site demolition beginning in August. Ground improvements and marine works would begin in September and the new yard should be operational in 1998. Environmental Benefits This new facility will provide substantial environmental benefits. State of the art environmental control and protection technologies have been incorporated in the design of the new asphalt plant and aggregate handling facility to minimize the asphalt plant air emissions and wastewater discharges. In addition to the pollution control systems, best management practices have been used in the design to minimize the creation of pollution. The design calls for a $710,000 expenditure for a closed loop wastewater recycling operation, using this recycled water for truck washing, dust control and production area cleaning. This exceeds existing standards by meeting the best management practices and will make the City a leader in applying these latest environmental guidelines. The Consultant anticipates these practices will become BCMOELP requirements in the near future and will affect the costs of existing materials handling operations along the river. The location of the new site should result in reduced truck traffic. Trucks returning from the landfill will be able to stop at this new site to be loaded with aggregate or asphalt. Furthermore, if the new site or a nearby location can be developed to accept waste, truck traffic would be able to travel loaded both to and from their job sites. The decrease in truck traffic results in significant environmental benefits, including reduced fuel consumption and reduced noise. These positive environmental impacts will be considered when evaluating the crushing/recycling proposals. Financial Implications The General Manager of Engineering Services recommends that the proceeds from the sale of the Sterling Shipyard, Commissioner Yard and Stainsbury Yard, be used to purchase approximately six acres of 900 Kent. Cost of site: (6 acres @ approx. $700,000/acre) $4.1 million Funded from disposition of: Sterling Shipyard and Commissioner Yard $2.1 million Stainsbury Yard 2.0 million The Manger of Real Estate Services has reviewed this transaction and believes it to represent fair market value for the assets. The current economic analysis of the asphalt plant and aggregate operation includes interest, land and taxes and amortization of capital costs over 25 years. The analysis continues to show major savings to the City by retaining the asphalt/aggregate operations. The Finance Department has reviewed the revised business analysis and supports the conclusions as identified in this report. The asphalt/aggregate operation will retain three existing full time staff and will result in a savings of approximately $13 million, net present value, over 25 years. Summary of Expenditures and Funding Proposed Expenditures - Asphalt/Aggregate Facility $13,306,000 - Material Testing Lab 1,190,000 - Engineering Consultant Services 834,000 - Project Manager 152,000 Total $15,482,000 Proposed Funding - Capital Financing Fund $11,282,000 - Truck Plant Reserve 4,000,000 - Streets Capital Budget (Lab) 150,000 - Waterworks Account (Ramp) 50,000 Total $15,482,000 CONCLUSION The General Manager of Engineering Services and the Director of Finance believe that the proposed relocation and redevelopment of a City owned asphalt/aggregate operation and materials testing lab offers the best value to the City based on the current operations and market conditions. * * * * *