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PURCHASE OF THREE FIRE ENGINES AND ONE LADDER TRUCK
recommended action
RECOMMENDATION
It is recommended that the City Council adopt a resolution approving findings, approving and authorizing the City Manager to execute a Master Lease/Purchase Agreement with TPB Investments, Inc. in the amount of $2.0 million (up to $2.2 million authorized), approving and authorizing the City Manager to execute two Purchase Agreements with Rosenbauer America in the amount of $2,721,884.32 for the purchase of three fire engines and one ladder truck, and amending the Fiscal Year 2014-15 budget in the amount of $2.0 million in the Fleet Fund.
It is further recommended that the motion and resolution authorize the City Manager to take appropriate actions to carry out the purpose and intent of this motion and resolution.
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Summary
The City’s fleet of heavy fire equipment includes several units that have been in service for over 20 years, are unreliable for emergency response, and are costly to maintain. The Fire Department and Fleet staff has identified three fire engines and one ladder truck in this category that are in need of replacement.
Over the past 12 months, Fire and Fleet staff reviewed and updated the heavy fire vehicle specifications to ensure provision of a durable, safe, and highly functional vehicle that will meet the needs of the community at the lowest possible acquisition and operational cost. Staff then evaluated multiple fire truck manufacturers to determine the appropriate fit to the fire vehicle needs noted above, and requested proposals from three manufacturers. Rosenbauer America is the only manufacturer that submitted a complete proposal that satisfies the needs of the City. Staff recommends that the City purchase equipment from Rosenbauer America, utilizing a cooperative purchasing agreement with the National Joint Power Alliance (NJPA). By utilizing the benefit of a cooperative purchasing agreement competitively reached between the fire apparatus manufacturer and another public agency, the City can place an order now and realize price savings.
The Fire Department, Public Works Department (Fleet), and Administrative Services Department developed the replacement and the financing alternatives to manage, maintain, and replace all fire vehicles. This purchase would be the first under the new fleet management process for the Fire Department. City staff reviewed three different alternatives and recommends entering into a ten-year master lease/purchase agreement with a City Contribution of at least 20% of the purchase price. Three of the four fire vehicles will be lease financed and one will be purchased using Measure W Public Safety Tax Funds which will count towards the City Contribution already appropriated in the FY 14-15 Annual Budget. Measure W Public Safety Tax Funds are sales tax proceeds designated for Public Safety services, supplies and equipment. Fire and Police Departments receive the full benefit of these tax dollars. All four vehicles will serve as collateral and purchasing one vehicle provides the necessary down payment.
DISCUSSION
Background
The City’s fleet of heavy fire equipment consists of 16 fire engines and five ladder trucks. The equipment is maintained by the Fleet Section of the Public Works Department. The Fire Department operates the equipment, and responds daily with 12 of the 16 fire engines and three of the five ladder trucks. The remaining units are in reserve status, to be used when any of the daily response units are out of service. The oldest engine is a 1989 model; the newest is a 2014 model. The oldest ladder truck is a 1989 model, and the newest is a 2007 model. The equipment has a very high level of use, with an annual average of 37,544 calls for service per year over the last 10 years. In addition, during the last seven years of fiscal crisis, the Fire Department reduced the number of in-service fire units by two, thus increasing the response burden on the rest of the fire vehicle fleet. The combination of high demand and the decrease in available fire units to handle the high call load has exacerbated the wear and tear on the aging fire fleet.
The City has historically relied upon a 20-year replacement cycle for the heavy fire fleet of fire engines and ladder trucks. However, as a result of deferred replacements due to the City’s financial situation; by 2012, 50 percent of the front-line fire fleet had been in service for 20 years or more. These older units are typically placed in reserve status and used less than front line units; however, they must be reliable when called upon. Fleet data indicates that maintenance expenditures typically increase as units age, despite decreasing use. When these older units are called into service, breakdowns occur and maintenance costs are incurred. Over the last five years, the oldest engines have cost an average of $22,000 per year to maintain, and the oldest ladder trucks have cost an average of $40,000 per year to maintain. These annual expenditures are typically greater than the salvage value of the old units.
In 2011-12, the City began to address the deferred replacement issue and reserved $1.0 million for the replacement of fire fleet. In 2012, Council, through the cooperation and approval of the Bankruptcy Court in 2013, approved the acquisition and funding through a Master Lease/Purchase Agreement with Oshkosh Capital for four fire engines from Pierce Manufacturing. In 2014, the City also received a $1.0 million FEMA Fire Act Grant for 80 percent funding (the $200,000 match was funded from the Fleet Internal Service Fund (ISF) balance) of two fire engines that were purchased from Pierce Manufacturing through the Houston-Galveston Area Council (H-GAC) Cooperative Purchasing Program. Despite these purchases, the Fire Department still operates five front-line fire vehicles that are now 20 years or older.
Present Situation
Fire Fleet Requirements
In cooperation with Fleet, Purchasing, and Budget staff, the Fire Department has developed a proposal for establishing a 15-Year Vehicle Replacement Plan that provides a sustainable, reliable, and lower maintenance cost fleet of fire engines and ladder trucks in alignment with industry standards. The National Fire Protection Association Standards for Fire Department Apparatus (NFPA 1901) suggests that busy fire fleets be evaluated based on call load, maintenance costs, and needed technology updates to determine replacement cycles. The identified industry standard is between 12 to 20 years for first line response units depending on local condition, community demand, engine hours, miles driven, and maintenance costs. Fire departments that are similar to the City of Stockton in size and call load have replacement cycles ranging from 10 to 15 years. According to the NFPA standard, therefore, a 15-year replacement cycle is at the outer edge of the industry standard range. Given the financial capacity of the City, consideration of a shorter duration cycle is not realistic. Implementing a 15-year cycle will be a significant improvement and will align the fire fleet with changing technologies and contemporary best firefighting practices, and allow the Fire Department to adjust and adapt quickly. The Fire Chief and Fleet Manager recommend that the City adopt and utilize a 15-year replacement cycle for all new fire vehicles.
Fleet staff has prepared a long term replacement plan with updated replacement rates for the heavy fire fleet based on the 15-year replacement cycle. Fire Department and Fleet staff has identified three fire engines and one ladder truck that have exceeded 20 years of service life and are recommended for replacement. The vehicles being replaced will be decommissioned, useable equipment will be removed, and the vehicles will be sold at auction.
Fire Call Management
Of the 37,544 calls per year based on the 10-year annual average of calls for services, 66 percent were for medical response. Twenty-five percent of the total call volume, on average, was cancelled prior to arrival on scene. Low-level medical and cancelled calls are causing a high level of unnecessary wear and tear on the heavy fire fleet. In an effort to address the high call load for fire department resources, Fire Department staff has worked collaboratively with the San Joaquin Local Emergency Medical Services Agency (LEMSA) and AMR Ambulance (AMR) over the last two years. This effort has reduced call load from a high point of 40,206 in 2012 to approximately 36,373 in 2014, a 9.06 percent reduction in total calls. The Fire Department has also been able to reduce cancelled calls by 8 percent and to reduce low-level medical call responses by approximately 6 percent. Fire Department staff is continuing to work with LEMSA and AMR to further reduce the low-level medical and cancellation calls.
Through the use of Measure W Public Safety Tax Funds in the summer of 2014, the Fire Department implemented a 40-hour a week, two-person squad, utilizing a smaller response vehicle. This Squad provides the right-size vehicle for the low-level medical needs of the community. This smaller unit is designed to handle low-priority medical responses (i.e. sprains, strains, ill persons) during the busy times of the day (7:00 a.m. - 6:00 p.m.) instead of responding with heavy fire engine and ladder trucks. This objective has proven to be difficult to achieve, due to the complexities of the County Emergency Medical Services Response System. The Fire Department is continuing to work with LEMSA and AMR on dispatch training for managing these low-level medical calls, in order to maximize the use of the Squad and further reduce the wear and tear on the heavy fire fleet.
Evaluation of Heavy Fire Equipment Manufacturers
In past years, Pierce Manufacturing had provided the majority of heavy fire equipment owned or leased by the City. Recently, however, the high cost of Pierce Manufacturing’s proprietary replacement parts and related services, as well as general service deficiencies, resulted in a need to consider other heavy fire equipment manufacturers. The Fire Apparatus Committee, comprised of Fleet and Fire staff, reviewed state of the art equipment on the market and created a new specification to acquire the most appropriate equipment for the City. The focus of the new specification was to acquire safe, efficient, effective, and productive vehicles capable of meeting the City’s demand for service over 15 years frontline at the lowest acquisition and maintenance cost. The specification also required reduced diesel exhaust emissions, with the intent of acquiring the most fuel efficient equipment as possible. The specification, while intended to be generic, did include requirements that were expected to be challenging for some manufacturers, such as limited use of proprietary components.
Staff utilized the new specification to evaluate three fire truck manufacturers - Pierce Manufacturing, Spartan ERV, and Rosenbauer. Each manufacturer was requested to submit a proposal to supply engines and ladder trucks in accordance with the specification. Rosenbauer America was the only manufacturer that submitted a complete proposal that satisfied all of the City’s requirements. Fire Staff visited and interviewed other fire departments that use Rosenbauer equipment, and performed a site visit of the Rosenbauer manufacturing facility. The Committee recommended that the City acquire Rosenbauer America equipment. This recommendation was based on the following:
• Rosenbauer America submitted a proposal that met the City’s requirements and specification.
• Rosenbauer America has been a leader in production of quality firefighting equipment since 1886.
• After considering the added value of state of the art features like engine idle reduction and superior body material, the proposed pricing is less than, or equal to, the price of engines purchased from Pierce Manufacturing in 2013.
• Maintenance costs are anticipated to be lower than has been experienced with the Pierce equipment due to:
• a 10 percent cap on dealership markups for purchase or repair of the Rosenbauer-designed core components.
• design that utilizes many generally-available commercial off the shelf vehicle parts and components, as opposed to proprietary parts and components that must be used to maintain warranties.
• chassis components that can be obtained individually from Rosenbauer or other commercial sources, as opposed to requiring replacement of entire chassis assemblies (consisting of multiple components).
• Two-year bumper-to-bumper warranty is included in the pricing.
• Superior idling fuel consumption and emission reduction.
The use of a cooperative purchasing agreement allows the City to expedite the bid process for vehicles through a proven and vetted purchasing process that is utilized by local and State governments. The NJPA is one of two cooperative purchasing groups the City is enrolled with and reviewed for the fire fleet purchasing. The other is the H-GCA Cooperative Purchasing Program. As the NJPA administrative costs are approximately $6,000 lower than the H-GCA Cooperative Purchasing Program for the same equipment, the NJPA was deemed to be the preferred cooperative for the purchase. The NJPA vendor selection and contracting processes meets or exceeds the City’s Purchasing requirements as that entity conducted a competitive bid process on behalf of its members (Attachment A and Attachment B).
As noted, the City requested proposals including NJPA pricing from three manufacturers: Pierce Manufacturing, Rosenbauer America, and Spartan ERV (through its dealer Hi-Tech Services). Rosenbauer America submitted the only complete proposal, and the Apparatus Committee concluded that their proposal met all of the City’s requirements and specifications. The Apparatus Committee recommended acquiring equipment from Rosenbauer America. No manufacturers of fire apparatus exist within the local area.
The costs of purchasing the three fire engines and one ladder truck through Rosenbauer America are:
Fire Engines (3) $ 471,303 $1,413,909.00
Ladder Truck (1) $1,109,039 1,109,039.00
2,522,948.00
Sales Tax (9%) 227,065.32
Total Cost $2,750,013.32
In addition, the Rosenbauer bid provides the City with discounts for early payment of the various components during the manufacturing process of each vehicle, as well as discounts for the aerial assembly for the ladder truck. These additional discounts can be summarized as the Fire Engines’ chassis pre-payment discount of approximately 1.0 percent, Ladder Truck chassis and aerial device combined pre-payment discount of approximately 1.4 percent. These discounts will total approximately $28,000.
Financing Alternatives
The Administrative Services Department in connection with the City’s Financial Advisor, Del Rio Advisors, LLC, solicited proposals for the lease/purchase alternative from four financial institutions (National Cooperative Leasing, BBVA Compass Bank, Umpqua Bank, and Western Alliance Public Finance). Only one proposal was returned by Western Alliance Public Finance. The lease terms received are included in a letter of intent from Western Alliance Public Finance summarized in Attachment C. Though only one bid was received, the terms are in line with terms received for a comparable financing arrangement entered into in 2013 with Oshkosh Capital for the acquisition of four fire engines.
Recognizing the City’s limited resources and the need for cash preservation as the City emerges from its chapter 9 bankruptcy, staff performed a cost analysis of three options to fund the acquisition of the vehicles. Those were outright cash purchase, a lease/purchase paid over seven years, and a lease/purchase paid over ten years. As part of this analysis, the interest charges for the lease were weighed against the opportunity costs associated with potential earnings from the City’s pooled investment portfolio to arrive at an expected real cost of financing through a lease purchase.
With the City’s contribution of at least 20 percent of the purchase price (essentially a down payment requirement of the terms with Western Alliance Public Finance), the analysis shows the following:
Based on the alternatives considered, the lease options provides the best preservation of cash, preferred use of limited resources, and budget certainty with level annual payments, which are supportable by ongoing annual charges to the City’s General Fund through the Fleet ISF. The incremental cost of borrowing in today’s market using the quoted interest rate of 3.9 percent for a 10-year lease is $233,369, which is acceptable over the term of the lease and can fit within the City’s guidelines under the Long Range Financial Plan.
Staff recommends that Council approve proceeding with a 10-year master lease/purchase agreement in the amount of $2.0 million, with the use of Measure W Public Safety Tax Funds and Fleet Funds in the amount of $721,885 to meet the City’s Contribution requirement to acquire these fire vehicles.
Staff also recommends the purchase of three fire engines and one ladder truck constructed by Rosenbauer America through the above-mentioned cooperative purchasing agreement based on the findings below:
Findings
In accordance with Stockton Municipal Code Section 3.68.070 (B), the following findings were provided in support of using a cooperative purchasing agreement for the purchase of these fire vehicles and Western Alliance Public Finance for the lease:
1) NJPA completed a Request for Proposal (RFP) for fire trucks and fire apparatus with related accessories and supplies in 2013 and established a National Cooperative Purchasing Contract pursuant to a competitive bidding process.
2) Under the NJPA Cooperative Purchasing Contract, the City has evaluated the participating manufacturers and selected Rosenbauer America for the purchase of three fire engines and one ladder as the manufacturer that best meets the City specification and requirements.
3) The RFP and bid specification used by the NJPA has been assessed as compatible to the City’s standards.
4) The purchase of the Rosenbauer engines will provide an overall lower cost of maintenance of the City’s fire fleet due to availability of commercial off the shelf parts, lower costs to repair chassis components, and a 10 percent cap on specific parts for the life of the vehicle.
FINANCIAL SUMMARY
The total purchase price of the four fire vehicles with ladder truck chassis and aerial discounts, and three engine chassis discounts are shown below. Terms of the discounts are provided in Attachment D.
Three Fire Engines $ 1,413,909.00
One Ladder Truck $ 1,109,039.00
$ 2,522,948.00
Sales Tax (9%) $ 227,065.32
Total Cost $ 2,750,013.32
Engine Discount $ -12,687.00
Truck Discount $ -15,442.00
Final Purchase Price $ 2,721,884.32
The acquisition will be financed through a combination of:
• Proceeds from a capital lease agreement in the amount of $2.0 million with Western Alliance Public Finance for a term of 10 years at 3.9 percent interest rate (based on market rates as of March 4, 2015),
• Use of available capital outlay budget of $212,393 from the Fleet Fund, and
• Use of available capital outlay budget from Measure W Public Safety Tax Funds FY 2014-15 of $509,493 (one engine with discount).
|
ITEM |
ACCOUNT NO. |
AMOUNT |
|
Fleet ISF Replacements |
501-5060-670 |
$2,212,392 |
|
Measure W Public Safety Tax Funds |
081-2636-603 |
509,493 |
|
Total |
|
$2,721,885 |
The FY 2014-15 Budget amendment is recommended as follows:
Fleet Internal Service Fund:
Increase Other Financing Sources 501-5060-411 $2,000,000
Increase Replacement Equipment 501-5060-670 $2,000,000
The lease/purchase annual payments for the 10-year lease are estimated at $239,481, with an option to prepay the lease, as financial conditions permit, without penalty. The Replacement Plan for the fire fleet incorporate the lease/purchase payment schedule, and provide annual charges to the Fire Department to accumulate funds for replacement of these vehicles in 15 years.
Attachment A - NJPA RFP and Addendums
Attachment B - NJPA Committee Comment and Review
Attachment C - WA Term Sheet
Attachment D - Rosenbauer Quote Letters