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AGENDA BILL Agenda Item No. 7(A) Date: October 15, 2013 To: El Cerrito City Council From: Garth Schultz, Operations and Environmental Services Division Manager Subject: East Bay Sanitary Company, Inc. Franchise Agreement Amendment ACTION REQUESTED Adopt a resolution approving the proposed Sixth Amendment to the Franchise Agreement (Agreement) between the City of El Cerrito (City) and East Bay Sanitary Company, Inc. (Company) for Fleet Management and Maintenance Services (Fleet Services), effective October 16, 2013 through December 31, 2014. BACKGROUND The City of El Cerrito has owned and operated its own curbside recycling collection program since 1979. Though the curbside recycling program has undergone regular changes and improvements since inception, the fundamentals of the program remain much as they were thirty years ago; City employees drive large trucks around El Cerrito to collect recyclables from residents and businesses. An important aspect of running any recycling collection operation is the maintenance of trucks and other equipment. Over time, as recycling participation in El Cerrito increased dramatically – and newer recycling collection technologies became available – the City replaced older (simpler) recycling collection vehicles with newer, higher capacity, more efficient (and complex) vehicles. The City’s current fleet of recycling collection vehicles were purchased in 2008 and 2010, and are sophisticated machines that utilize computers, emission control devices, and lots of hydraulic equipment to perform recycling collection operations. Historically, the City used a combination of in-house labor and independent contractors to perform maintenance services to collection vehicles. While this model served the City well when applied to older vehicles, it has not performed as well with the newer fleet. The City’s recycling collection vehicles now run 40 hours per week, 52 weeks a year. At this level of use, even with the highest level of attention and care, breakdowns are inevitable. In recent years, staff has found that breakdowns have become more prevalent, resulting in additional labor costs and service delays. In 2012 it became clear to staff that, in order to continue to provide the high level of service expected by El Cerrito’s recyclers, the City’s fleet maintenance program needed overhauling. ---PAGE BREAK--- Agenda Item No. 7(A) Page 2 That same year, the City conducted a Rate and Operations Review of the Company that included an in-depth look at the Company’s maintenance practices. It was determined that the Company’s fleet maintenance performance was professional, well-run, and had the capacity to expand to include additional vehicles if desired. The Review resulted in a Fifth Amendment to the Franchise Agreement (approved by the City Council on November 20, 2012, Resolution No. 2012-86) that included new terms providing for preventative maintenance of the City’s recycling collection vehicle fleet. Additionally, the Fifth Amendment stipulated that the Company and City would meet in good faith to discuss and develop a proposal for full service vehicle maintenance program for the recycling fleet. The proposed Sixth Amendment to the Franchise Agreement is the result of negotiations with the Company as proscribed by the Fifth Amendment. DISCUSSION In developing its proposal to conduct Fleet Services, the Company conducted an in- depth evaluation of the City’s recycling fleet and submitted a cost estimate to conduct a full service fleet management and maintenance program. The evaluation highlighted several areas for improvement to maintenance of the City’s recycling fleet, and provided the background for the cost estimate. Staff and R3 Consulting Group, Inc. (R3) reviewed the Company’s proposal and assessed its cost-effectiveness relative to other options available to the City. The table below shows how the hourly rate for Fleet Services provided by the Company compare to the hourly rate charged to the City by the fleet maintenance providers that have performed work for the City in the past two years. Maintenance Alternative Hourly Rate East Bay Sanitary $54 Mobile Fleet Care $115 Arata Equipment Co. $135 Western Truck Center $139 The City also requested that the City of Berkeley and Richmond Sanitary Service (both of which also operate solid waste collection fleet maintenance operations) consider proposals to provide fleet services for El Cerrito. The City of Berkeley declined to consider the option and Richmond Sanitary Service stated that their costs are similar to the costs charged by independent contractors (e.g. $115 - $139 per hour). Given this information, the Company’s proposal is clearly competitive on an hourly cost basis. More importantly, the Fleet Services provided by the Company will include more than the basic fleet maintenance services normally offered. These “fleet management” services include a higher level of professional involvement in the City’s recycling collection fleet, including: • Planning for and scheduling all maintenance needs ---PAGE BREAK--- Agenda Item No. 7(A) Page 3 • Ensuring safety and environmental compliance, including training • Record keeping and reporting • Performance of maintenance work to the highest professional standards • Conducting services to maintain the full benefit of warranties • Conducting services to maximize the cost-effective useful life of the vehicles The Company has proposed to dedicate the equivalent of one full-time mechanic to performing the Fleet Services stipulated in the Sixth Amendment, for a total annual cost of $107,900, and a total cost of $130,379 from October 16, 2013 through December 31, 2014. Parts and supplies are not included in the total contract amount, and will be charged to the City directly, at cost ($10,000 in parts and supplies for recycling collection vehicles is budgeted in FY14). Though this contract amount is higher than the historical average spent on fleet services, staff and R3 have determined that the benefits outweigh the additional costs, because: • Previous fleet maintenance services have been sub-par, and have not met the City’s needs (including safety and environmental compliance matters as well as maximizing the useful life of the vehicles) • Fleet Services provided by the Company will reduce the need for staff time devoted to these matters, allowing for greater efficiencies in other areas (such as providing service to the public) and providing for better management of fleet needs (because the Company has personnel trained to perform these functions) • The Company’s proposal includes the ability to perform Fleet Services on other City vehicles, as determined by the Company and the City, with no increase in contract amount (resulting in decreased costs in other City funds) • Services provided by the Company will result in less down time due to breakdowns, which will reduce the City’s need for overtime costs needed to complete routes while also providing a better service to the community Finally, the Company has performed Fleet Services on a short term test basis since July 2013. During that time the Company has demonstrated that it is fully capable of providing all Fleet Services specified in the Sixth Amendment. Since July, the recycling collection fleet has experienced substantially fewer breakdowns, and has received professionally performed preventative maintenance work it sorely needs. Staff is very satisfied with the performance of the work provided to date, and is eager for the benefits that a Fleet Services agreement such as the proposed will provide. STRATEGIC PLAN CONSIDERATIONS Approval of the proposed Amendment fits in with Goal A (Deliver exemplary government services) of the City’s Strategic Plan, adopted March 2013. Specifically, approval of the proposed Amendment will result in a more direct relationship between the City and the Company with respect to fleet maintenance matters, which is consistent ---PAGE BREAK--- Agenda Item No. 7(A) Page 4 with the “Develop and strengthen relationships with public and private partners” strategy listed in Goal A. ENVIRONMENTAL CONSIDERATIONS Approval of the Sixth Amendment will decrease the need for City staff to drive collection vehicles as far as Pleasanton to receive needed services. Additionally, Fleet Services provided under the terms of the proposed Amendment will ensure that the City’s collection fleet will have fewer breakdowns, run more efficiently, and last as long as possible. While difficult to quantify, all of these will result in marginally fewer greenhouse gas and other polluting emissions attributable to the procurement, operation, and maintenance of the vehicle fleet. FINANCIAL CONSIDERATIONS Historically, annual vehicle maintenance costs paid out of the Integrated Waste Management (IWM) fund have ranged from $35,000 to $105,000, depending on the age of the fleet and type of vehicles used. Since 2009, when new vehicles were put into operation, the average annual amount was approximately $50,000. These costs have included basic preventative maintenance, parts, tires, and repairs. Importantly, these costs did not include the full fleet management services that will be provided to the City as a result of the proposed Amendment. Prior to adoption of the FY14 Budget, City staff had been in discussions with the Company regarding the Fleet Services discussed here. At that time, it was assumed that the annual cost of providing service ($107,900) would be collected by the Company on its collection rates, subject to Council approval. Doing so would have reduced the need for vehicle maintenance costs paid from the Integrated Waste Management (IWM) fund, which is why only $32,500 was requested in the present fiscal year. However, since the FY14 Budget was adopted, it has become clear that direct payment from the City’s IWM fund is the more appropriate payment arrangement, because the Company will change the way it structures its maintenance operations (via the formation of a separate company) which means that direct rate funding for these Services is not feasible. As such, approval of the proposed Sixth Amendment will require a $75,400 increase in the FY14 budget allocation for vehicle maintenance services in the IWM fund and no need for related increases to the Company’s collection rates. Staff is preparing an annual adjustment to the IWM Fee for Council consideration in November that will include an update the IWM 10-year Financial Plan. If the Council approves the Sixth Amendment, the 2014 annual adjustment to the IWM Fee will reflect the need for additional maintenance funds in FY14 and in the future. This will likely result in a greater-than-anticipated 2014 increase to the IWM Fee, but that will be offset by the lack of need to increase the Company’s collection rates for fleet services as previously assumed. When taking into account all solid waste rate impacts expected for 2014 (including the recently approved Post-collection Agreement, planned annual adjustments to the Company’s collection rates and City’s IWM Fee, potential increases to Richmond’s ---PAGE BREAK--- Agenda Item No. 7(A) Franchise Fee on the Golden Bear Transfer Station, and the proposed Sixth Amendment) staff is predicting that the total 2014 solid waste rates will be between 0% and 1% greater than the current 2013 rates. LEGAL CONSIDERATIONS The City Attorney has reviewed the proposed Sixth Amendment and found that legal considerations have been addressed. Scott Hanin, City Manager Attachments: 1. Accompanying Resolution 2. Proposed Sixth Amendment to Franchise Agreement Page 5 ---PAGE BREAK--- Agenda Item No. 7(A) Attachment 1 RESOLUTION 2013–XX A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF EL CERRITO APPROVING THE SIXTH AMENDMENT TO THE FRANCHISE AGREEMENT BETWEEN THE CITY OF EL CERRITO AND EAST BAY SANITARY COMPANY, INC. FOR FLEET MANAGEMENT SERVICES WHEREAS, the City of El Cerrito (City) and East Bay Sanitary Company, Inc. (Company) have entered into that certain Franchise Agreement originally dated September 2, 1997 and most recently amended and extended on December 19, 2012 (Franchise Agreement); and WHEREAS, the Company currently provides for limited vehicle maintenance services to the City’s recycling collection fleet per the terms of the Franchise Agreement; and WHEREAS, in performing those services the Company conducted a evaluation of the recycling collection fleet for the City; and WHEREAS, the Company’s evaluation detailed recommendations for improvements to the City’s recycling collection fleet maintenance program; and WHEREAS, the December 19, 2012 Fifth Amendment to the Franchise Agreement stated that the “Company and City agree to meet in good faith to discuss and develop a proposal for a full service vehicle maintenance program for the City’s recycling collection fleet (and/or other City fleets that will provide for greater safety, efficiency, and cost effectiveness with respect to the maintenance and performance” of the City’s fleets; and WHEREAS, the City and Company have met in good faith and developed a proposal per the terms of the Fifth Amendment; and WHEREAS, per the terms of that proposal, the Company will form a separate corporation to be named “East Bay Truck Maintenance, Inc.,” that will function as the City’s independent fleet manager and maintenance operator for the City’s vehicles covered by this Sixth Amendment and will manage, schedule, and provide for all preventative maintenance, and all other required vehicle maintenance and repair services, and all associated record keeping and reporting requirements; and WHEREAS, the City agrees that upon formation of a separate company “East Bay Truck Maintenance, Inc.,” the City will enter into a separate maintenance agreement with the newly formed East Bay Truck Maintenance, Inc., the terms of which will supersede, and in effect terminate, this Sixth Amendment to Franchise Agreement; and WHEREAS, the Company shall maintain the City’s vehicles covered by this Sixth Amendment to the highest professional standards in accordance with all manufacturers’ servicing recommendations necessary to maintain the full benefit of all associated manufacturers’ warranties and in compliance with all applicable laws and regulations. ---PAGE BREAK--- Page 2 NOW THEREFORE BE IT RESOLVED, by the City Council of the City of El Cerrito, that it hereby approves the Sixth Amendment to the Franchise Agreement between the City of El Cerrito and East Bay Sanitary Company, Inc., herein incorporated by reference and attached as Exhibit A to this resolution. BE IT FURTHER RESOLVED, that this Resolution shall become effective immediately upon passage and adoption. I CERTIFY that at a regular meeting on October 15, 2013 the City Council of the City of El Cerrito passed this Resolution by the following vote: AYES: COUNCILMEMBERS: NOES: COUNCILMEMBERS: ABSENT: COUNCILMEMBERS: IN WITNESS of this action, I sign this document and affix the corporate seal of the City of El Cerrito on October X, 2013. Cheryl Morse, City Clerk APPROVED: Gregory B. Lyman, Mayor ---PAGE BREAK--- Agenda Item No. 7(A) Attachment 2 Page 1 of 6 SIXTH AMENDMENT TO FRANCHISE AGREEMENT BETWEEN CITY OF EL CERRITO AND EAST BAY SANITARY COMPANY, INC. This Sixth Amendment to the Franchise Agreement is entered into as of the 16 day of October 2013 by and between the CITY OF EL CERRITO, a municipal corporation (City) and EAST BAY SANITARY COMPANY, INC. a California corporation (Company). Preamble WHEREAS, City and Company have entered into that certain Franchise Agreement originally dated September 2, 1997 and most recently amended and extended on December 19, 2012 (the “Franchise Agreement”); and WHERAS, the Company currently provides for limited vehicle maintenance services to the City’s recycling collection fleet per the terms of the Franchise Agreement; and WHEREAS, in performing those services the Company conducted a Fleet Evaluation for the City, detailing additional maintenance needs for the City’s recycling collection fleet; and WHEREAS, the Company’s Fleet Evaluation detailed recommendations for improvements to the City’s recycling collection fleet maintenance program; and WHEREAS, the December 19, 2012 Fifth Amendment to the Franchise Agreement stated that the “Company and City agree to meet in good faith to discuss and develop a proposal for a full service vehicle maintenance program for the City’s recycling collection fleet (and/or other City fleets that will provide for greater safety, efficiency, and cost effectiveness with respect to the maintenance and performance” of the City’s fleets; and WHEREAS, the City and Company have met in good faith and developed a proposal per the terms of the Fifth Amendment; and WHEREAS, per the terms of that proposal, the Company will form a separate corporation to be named “East Bay Truck Maintenance, Inc.,” that will function as the City’s independent fleet manager and maintenance operator for the City’s vehicles covered by this Sixth Amendment and will manage, schedule, and provide for all preventative maintenance, and all other required vehicle maintenance and repair services, and all associated record keeping and reporting requirements; and WHEREAS, the City agrees that upon formation of separate company “East Bay Truck Maintenance, Inc.”, the City will enter into a separate maintenance agreement with the newly formed East Bay Truck Maintenance, Inc., the terms of which will supersede, and in effect terminate, this Sixth Amendment to Franchise Agreement; and ---PAGE BREAK--- Agenda Item No. 7(A) Attachment 2 Page 2 of 6 WHERAS, the Company shall maintain the City’s vehicles covered by this Sixth Amendment to the highest professional standards in accordance with all manufacturers’ servicing recommendations necessary to maintain the full benefit of all associated manufacturers’ warranties and in compliance with all applicable laws and regulations; THEREFORE, IN CONSIDERATION OF THE COVENANTS AND CONDITIONS CONTAINED HEREIN, THE CITY AND COMPANY DO HEREBY AGREE AS FOLLOWS: 1. The foregoing recitals are hereby incorporated into this Agreement. 2. Section 11 (Company Provided Services) Subsection I (Maintenance of the City’s Recycling Collection Fleet) is hereby replaced in its entirety with the below: I. Fleet Maintenance and Management Services for the City’s Recycling Collection Fleet and other City Vehicles Fleet Maintenance and Management Services (LDs 12 and 13). Effective October 16, 2013, the Company shall perform complete fleet maintenance and management services (Services) for all recycling collection vehicles operated by the City. For the purposes of this Section 11.I, “Services” means all fleet maintenance and management services described herein, including: managing, tracking, scheduling coordinating, performing and following up on all regular preventative maintenance work, repairs, and other concerns involving recycling collection vehicles (including the recommendations issued in the Company’s Fleet Evaluation), and; managing, tracking, scheduling coordinating, performing and following up on all regular preventative maintenance work, repairs, and other concerns as requested for other City vehicles. Included Services (LDs 12 and 13). The primary intent of this Section 11.I is to provide Services to recycling vehicles. Services to other vehicles are of secondary priority, and will be performed upon completion of required services to recycling vehicles. To the extent those Services can be provided without the Company incurring any additional labor expense, they shall be provided at no additional labor cost to the City. Additionally: Services performed by the Company shall be equivalent to services that the Company provides for its own vehicle fleet with respect to quality, timing, and work performed. The Company shall devote the equivalent of one full time mechanic to the performance of Services provided to the City. In performing Services, the Company will be responsible for compliance with all safety, environmental and other applicable regulations, including all required recordkeeping and reporting related to such compliance. Services shall occur at the Company’s maintenance facility, or at other designated locations such as the Recycling + Environmental Resource Center, Corporation Yard, other City facility, or in the field as needed. ---PAGE BREAK--- Agenda Item No. 7(A) Attachment 2 Page 3 of 6 The Company shall seek City approval for all discretionary repairs totaling $5,000 or more in parts and supplies, and for any work the Company requested be performed by a third party vendor. Services covered by the terms of this Agreement shall include: i. All those required to maintain compliance with all applicable laws and regulations. ii. All those required to maintain the full benefit of all vehicle and equipment warranties. iii. All those required to ensure the maximum useful life of all vehicles, when taking into account vehicle replacement schedules and available maintenance budgets. iv. All those generally considered best management practices for vehicle maintenance, including but not necessarily limited to those listed in and below. Brake Checks and BIT (Biennial Inspection of Terminals) (LD The Company shall perform brake checks and BIT inspections including the following or as needed: Inspection and adjustment of all brake slack adjusters on front and rear axles for all collection vehicles. Check air compressor system, brake pads, and all other components of braking system and repair as needed. Full BIT inspection of all collection vehicles. Maintain a log of all brake checks, adjustments, and BIT inspections to the City with the log to be provided to the City upon request. Every attempt will be made to schedule services such that vehicles requiring service will be returned to the City within 48 hours of receiving vehicles. Every attempt will be made to conduct all services within 48 hours of receiving vehicles for servicing with the understanding that other priorities or circumstances may take precedence and that this is not an absolute guarantee. Preventative Maintenance Services (LD The Company shall perform preventative maintenance services including the following quarterly or as needed: Complete vehicle inspection. Oil change and oil crankcase filter replacement. Fuel filter replacement. Coolant filter replacement. Hydraulic filter replacement. Air filter replacement. Provide complete report of all services to the City. Every attempt will be made to schedule services such that vehicles requiring service will be returned to the City within 48 hours of receiving vehicles. ---PAGE BREAK--- Agenda Item No. 7(A) Attachment 2 Page 4 of 6 Every attempt will be made to conduct all services within 48 hours of receiving vehicles for servicing with the understanding that other priorities or circumstances may take precedence and that this is not an absolute guarantee. Other Vehicle Maintenance Services (LD 11). The Company shall provide all other vehicle maintenance and fleet management needs, including but not limited to those listed below as well as Services to non-recycling vehicles as stated in Section 11.I(1): Lubrication and greasing of all zerk points on body and chassis. Check PTO pump mechanism and repair/recommend as needed. Check coolant system/radiator and repair/recommend as needed. Check welds and repair/recommend as needed. Check and change oil and filters of automatic transmission when required or need and recommend interval for this service. Check and repair exhaust system, DPF filter and related components. consultation, recommendation, and repair of mechanical breakdowns, including but not limited to the following: i. Damaged components in engine compartment. ii. Damaged components, missing parts in chassis. iii. Damaged components in hydraulic system, including hoses, pumps, switches, leaks and oil changes, packer blades, operating handles, wear-and-tear. iv. Troubleshoot electrical issues and codes from on-board computers, and repair/recommend as needed. v. On-road emergencies as requested. vi. Provide complete report of all repairs to the City. Every attempt will be made to schedule services such that vehicles requiring service will be returned to the City within 72 hours of receiving vehicles. Every attempt will be made to conduct all services within 72 hours of receiving vehicles for servicing with the understanding that other priorities or circumstances may take precedence and that this is not an absolute guarantee. Company reserves the right to utilize third party vendors as Company determines necessary, subject to written City approval. The City will pay approved costs for work provided by third party vendors directly. The City agrees to follow and implement all Company recommendations regarding vehicle operation and ongoing maintenance requirements for recycling collection vehicles; such recommendations will be followed and implemented in a manner that is in keeping with available budgets. Compensation for Fleet Maintenance and Management Services. The City agrees to an initial 2014 annual cost of $107,900 for Services described in this Agreement, per the terms listed below: ---PAGE BREAK--- Agenda Item No. 7(A) Attachment 2 Page 5 of 6 The annual cost includes all labor costs, Company Operating Margin costs, and additional insurance premiums paid by Company as a result of performing Services. Below is calculation of the initial 2014 annual cost: Wages $68,064 Benefits 22,345 Operating Margin 9,491 Insurance 8,000 Total Annual Cost 107,900 The Company shall bill the City quarterly for all Services – including parts, tires and supplies at the Company’s cost – performed by the Company per the terms of this Agreement. Term and Termination. The Services provided under Section 11 subsection I of this Franchise Agreement shall commence on October 16, 2013 and shall terminate on December 31, 2014. These terms will continue to renew automatically for successive terms of year each unless the City gives ninety (90) day written notice of its intent to terminate the terms of service in this Section, or upon termination or expiration of the Franchise Agreement. City Responsibility for Pre-Existing Conditions. The Company will not be liable for any and all pre-existing violations, citations, claims, liabilities, lawsuits, causes of action, damages, litigation, judgments, settlements, losses, costs, liens, inspections, re-inspections, or expenses whether known or unknown to the City, that occurred before December 1, 2012, the date that Company began performing vehicle maintenance services and that arise out of or are in connection with the City vehicles that are the subject of the Sixth Amendment to Franchise Agreement. 3. Section 11 (Company Provided Services) Subsection Y (Liquidated Damages) is hereby amended to include the following: 11. $250 for each failure to conduct and accurately document services required in Section 11.I of this Agreement. 12. Actual cost of any citation, fine or other monetary penalty to the City up to $10,000 per incident for failure to maintain the City’s vehicles and/or any associated reporting requirements in accordance with the terms and conditions of this Amendment. Company will not be liable for any preexisting violation that existed prior to the execution of this Amendment to the Franchise Agreement. 13. The actual cost incurred for required parts for any instances of failure to maintain the City’s vehicles in accordance with the requirements necessary to provide the full benefits of the manufacturers’ warranties. ---PAGE BREAK--- Agenda Item No. 7(A) Attachment 2 Page 6 of 6 4. Section 21 (Indemnification) of the Franchise Agreement is amended to include new paragraph as follows: D. The City agrees to defend and indemnify the Company and East Bay Truck Maintenance, Inc., (and their respective officers, directors, shareholders consultants, predecessors, successors, assigns, agents, representatives, employees, parent and subsidiary companies, affiliates, and each of them) from and against any and all claims, demands, causes of action, liabilities, judgments, settlements, losses, costs, damages, and/or expenses in law or equity, contract or tort, of every kind and nature whatsoever to the extent they arise out of or relate to operator error, as defined below, or to the extent they arise out of or relate to the negligence or willful misconduct by any operator of any City vehicle that is the subject of the 6th Amendment to Franchise Agreement when the operator of the City vehicle is not an employee of the Company or East Bay Truck Maintenance, Inc. Operator error includes driving errors, failure to follow written recommendations by the Company or East Bay Truck Maintenance, Inc., and failure to report vehicle deficiencies to the Company or East Bay Truck Maintenance, Inc., when required by state law. 5. Franchise Agreement. Except as expressly set forth herein, the Franchise Agreement remains in full force and effect. 6. Entire Agreement. This Sixth Amendment is executed in three duplicate originals, each of which is deemed to be an original. This Sixth Amendment includes six pages of text. IN WITNESS WHEREOF, the parties hereby have executed this Agreement on the day first above written: City Company Signature Signature Printed Name Printed Name Title Title Date Date APPROVED AS TO FORM: ATTEST: City Attorney City Clerk 2176045.1