ADMINISTRATIVE REPORT

Date: June 22, 1998

Author/Local:Dobrovolny/8-7791

CC File No. 1611

TO:	Vancouver City Council
FROM:	General Manager of Engineering Services
SUBJECT:	Five Year Loan from Reserve Account to Fund Improvements to Equipment Services for Better City Government Initiatives

RECOMMENDATION

THAT Council approve the loan of $950,000 from the Capital Financing Fund (Solid Waste Capital Reserve) to fund improvements to the Equipment Services Branch of Engineering over a five (5) year payback period with re-payment to be supplied from a surcharge of $0.50 per hour on the Engineering Garage composite labour rate and a $100,000 reduction of annual NNR Budget funding.

GENERAL MANAGER'S COMMENTS

The General Manager of Engineering Services RECOMMENDS approval of the foregoing.

COUNCIL POLICY

The policy of Council is to review all funding requests from a reserve account.

DISCUSSION

The Equipment Services Branch of the Engineering Services Department, provides vehicle, equipment and shop services to support all departments of the City of Vancouver. Services include the purchase, outfitting, maintenance and repair of cars, trucks, tools and equipment. The shops provide complete metal fabricating, machining, and carpentry trades to design and manufacture a wide variety of products. The City’s fleet comprises approximately 4,000 units ranging from small equipment and tools up to large earth moving equipment.

Four Better City Government review initiatives have been identified for the EquipmentServices area. The four review areas are Outfitting, Maintenance, Stores and Procurement. The purpose of these reviews is to focus on providing improved customer service to our clients. The Outfitting Review was completed in 1996, and in 1997, the Maintenance Review was completed. Among other recommendations the Maintenance Task Force recommended implementation of a variety of capital improvements to improve the organization’s effectiveness. After reviewing these recommendations we believe it is appropriate to implement a number of improvements costing a total of $950,000 in 1998. Approximately half of these improvements would normally be included in future NNR Budget requests over the next five years. By moving these requests forward, future NNR Budget requests can be reduced by about half.

The Maintenance Task Force has made over 70 recommendations and many were implemented immediately. The recommendations ranged from small issues like internal paper-flow and communications to larger issues like replacement of older equipment with new high productivity equipment. The general vision of the Maintenance Task Force was to improve the Garage’s time lines and effectiveness in order to improve our customers’ equipment availability which directly impacts their efficiency and budgets. We have made several improvements already including: the outfitting of three service call vans to provide faster service for field repairs; the re-assignment of duties to make one Superintendent responsible for scheduling all work through the garage during both day and afternoon shift; and the installation of two new hoists which help to alleviate the shortage of hoists in the garage. For 1998, twenty-nine items have been identified for a total one-year expenditure of $950,000.

The major items of this request include the improvement of a quick service centre covered by a well-lit and weather resistant canopy, renovation of the internal office space of the Manitoba Garage building, changes in the physical work flow within the Manitoba Garage, purchase of the updated diagnostic equipment to avoid multiple day downtime and expense of equipment that otherwise must be sent to dealer shops, a pickup service truck and other items. These items are required this year to continue to improve the Garage’s level of service to our customers, and to maintain a competitive business environment.

Equipment Services Improvements

Cambie Garage $ 71,000

Manitoba Garage $120,000

Burns Bog Garage $ 56,000

Shops Equipment $290,000

Building Upgrades $413,000

Total $950,000

Funding

Equipment Services charges a "composite labour rate" to recover the cost of providing the services offered. The "composite labour rate" is a break-even hourly charge rate which includes mechanic technician salary and benefits, administration overhead, fixed overheads and new or upgraded shop facilities. The 1997 Composite Labour Rate was $48.23. The 1998 rate was increased to $49.29 to account for reduced production hours due to difficulty in hiring mechanics to replace recent staff turnover. The 1998 rate is substantially less than the labour rate of competing major garage facilities for vehicle and equipment repairs which typically range from $70-$90/hr. Ultimately this favourable Composite Labour Rate is reflected in the low equipment rental rates that the City pays internally compared to outside rental rates.

Ongoing items of a similar nature for Equipment Services have in recent years cost upwards of $200,000 per year, and have been included in the composite labour rate primarily as New and Non-Recurring budget items. The consequence of funding $950,000 by applying a one-time single year charge would be an increase in the composite labour rate of more than 10% in 1998. This would cause a dramatic jump in all City Department budgets to cover this increase in billed charges. We would rather distribute this single year expenditure over several years, as a private business would, by acquiring a loan and re-paying the loan over a suitable business horizon. On consideration of our users’ budgets and our ability to acquire outside work from beyond the City Departments, we recommend a five (5) year repayment period. Funding is available from the Capital Financing Fund (Solid Waste Capital Reserve). The funding of this loan requires Council approval.

CONCLUSION

To achieve these Maintenance Task Force recommendations in a timely manner, we propose to implement the various improvements in 1998. A loan from the Capital Financing Fund (Solid Waste Capital Reserve) of $950,000 with capital plus interest repayment from a $0.50 per hour surcharge on the "composite labour rate" over five (5) years will achieve this goal. Annual repayment, including interest, would be $105,000 from the increased rate plus a $100,000 reduction of future NNR Budget requests over five years.

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(c) 1998 City of Vancouver