1. FLEET ACQUISITION STRATEGY STRATÉGIE
D’ACQUISITION DU PARC DE VÉHICULES |
COMMITTEE RECOMMENDATIONS AS AMENDED
That Council:
1. Approve the purchase of 226 New Flyer buses (model D60LFR) from
New Flyer under the existing agreement, as outlined in this report;
2. Delegate authority to the General Manager, Transit Services, to
amend the current warranty support agreement with New Flyer to incorporate the
new vendor support agreement;
3. Delegate Finance the authority to seek alternative funding sources
and report back to Council with the results; and
4. Direct that an annual report be provided to Transit Committee that will describe the operating costs and savings of the New Flyer articulated bus purchase.
Recommandations MODIFIÉS du Comité
Que le Conseil approuve :
1. l’achat de 226 autobus New Flyer
(modèle D60LFR) de la société New Flyer en vertu de l’accord existant, comme
l’explique le présent rapport;
2. la délégation de l’autorité au
directeur général des Services de transport en commun, afin qu’il puisse
modifier l’entente de soutien garantie avec la société New Flyer en vue
d’incorporer la nouvelle entente de soutien du fournisseur;
3. la délégation de l’autorité au
Service des finances afin qu’il recherche de nouvelles sources de financement
et qu’il présente les résultats au Conseil sous forme de rapport; et
4. Qu’un rapport annuel soit présenté au Comité du
transport en commun afin de décrire les coûts de fonctionnement et les
économies qui découleraient de l’achat des autobus articulés New Flyer.
DOCUMENTATION
1. Deputy City Manager, Infrastructure
Services and Community Sustainability’s
report dated 21 April 2010 (ACS2010-ICS-TRA-0005).
2. Extract of Draft Minute 44, 21 April
2010 to be distributed prior to Council
and Council / et au
Conseil
21 April 2010 / le 21 avril 2010
Submitted by/Soumis par : Nancy Schepers, Deputy City Manager/Directrice
municipale adjointe, Infrastructure Services and Community
Sustainability/Services d 'infrastructure et Viabilité des collectivités
Contact Person/Personne ressource : Larry Atkinson, Chief Transit
Maintenance
Transit Services/Service de
transports en commun
(613) 842-3636 ext. 2160,
larry.atkinson@ottawa.ca
SUBJECT:
|
|
|
|
OBJET :
|
That
Transit Committee recommend Council approve:
1. The
purchase of 226 New Flyer buses (model D60LFR) from New Flyer under the
existing agreement, as outlined in this report;
2. Delegate
authority to the General Manager, Transit Services, to amend the current
warranty support agreement with New Flyer to incorporate the new vendor support
agreement; and
3. Delegate Finance the authority to seek alternative funding sources and report back to Council with the results.
Que le Comité du transport en
commun recommande au Conseil d’approuver :
1. l’achat de 226 autobus New Flyer (modèle
D60LFR) de la société New Flyer en vertu de l’accord existant, comme l’explique
le présent rapport;
2. la délégation de l’autorité au
directeur général des Services de transport en commun, afin qu’il puisse
modifier l’entente de soutien garantie avec la société New Flyer en vue
d’incorporer la nouvelle entente de soutien du fournisseur;
3. la délégation de l’autorité au Service
des finances afin qu’il recherche de nouvelles sources de financement et qu’il
présente les résultats au Conseil sous forme de rapport.
In 2001, 226 New Flyer (DE60) articulated buses were
purchased after the Transition Board set in motion an aggressive direction to
purchase buses to reduce the average age of the fleet and increase the number
of accessible low-floor models.
The City's investment in the bus fleet has resulted in
lowering the fleet age from 14.7 years to approximately seven. Low-floor designs now comprise over 75 per
cent of the bus fleet.
However, as detailed in Review of Bus Fleet
Maintenance Standards and Process (ACS2009-ICS-TRA-0001) in March 2009, the
rapid renewal of the fleet has brought some unintended consequences arising
from more complex designs. As a result,
Transit Services has seen lower fleet availability for service than would have
been expected from a newer fleet.
Transit Services entered into an agreement with New
Flyer in 2009 to address warranty repairs and maintenance management support on
all delivered New Flyer products. This
resulted in New Flyer establishing a service centre in Arnprior, Ontario.
Transit Maintenance currently has a large backlog of
work due to major repairs required on a number of buses, including the 226 New
Flyer DE60 models that were purchased between 2001 and 2004, in accordance with
the direction of the Transition Board, which are due for mid-life overhauls.
Transit Services has a Council approved mandate to
increase bus availability to 90 per cent, which will provide more reliable
service for customers. Transit Services
has also committed to reducing its environmental footprint and improving its
revenue/cost ratio.
Due to current market forces in the North American
transit industry, an opportunity has arisen for Transit Services to make great
strides towards Council’s goals by replacing the 226 New Flyer DE60 Models,
purchased between 2001 and 2004, with brand new buses - with nil impact to
City’s tax base.
The total cost of this Fleet Acquisition Strategy
would be $155.7 million, with $142 million financed through debt. However, this
cost will be more than offset by savings created by replacing the aging fleet
of 2001–2004 models with new, fuel-efficient models.
For instance, by taking advantage of this opportunity,
Transit will avoid spending $66 million on needed overhauls to the older
models, and save $6 million per year for nine years on fuel and maintenance, in
addition to several other efficiencies and savings this opportunity presents.
In total, a financial analysis shows a savings of $156.9 million as a result of
the recommended Fleet Acquisition Strategy for a net present value of $1.2
million.
The Strategy would also produce benefits that are not
included in the net present value calculation. These include reducing the
maintenance risk of continuing to run the older buses, and the risk that the parts
to keep them on the road will become obsolete. The Strategy will also allow
Transit Services to defer the purchase of buses in the short term and
potentially the long term.
In short, the Strategy will allow for the replacement
of the City’s 2001 to 2004 articulated bus models with new buses for the same
cost as it would take to keep the older buses on the road, while improving
customer service.
The body of this report sets out the details of this Fleet Management Strategy.
New Flyer approached the City of Ottawa to purchase
additional new articulated buses at a significantly reduced cost as the
economic conditions in the U.S have significantly reduced demand for transit in
2010. With this discounted pricing as a precursor, Transit Services reviewed
the economic viability of refurbishing its existing articulated bus fleet and
came to the conclusion that the proposal submitted by New Flyer was worth
pursuing further. As secondary market
for used transit buses is not prevalent, Transit Services considers the
proposal a unique and unprecedented offer to improve the OC Transpo fleet and
solidify the relationship with New Flyer through new service and warranty
agreements.
The City of Ottawa has an existing contract with New
Flyer, resulting from a 2006 competitive Request for Proposal, which provides
Transit Services the authority to purchase additional articulated buses in
quantities to be determined “based on available funding and updated bus
growth/replacement projections.” Transit Services has previously obtained
budget approval to purchase 80 high capacity buses this year.
The City’s contract with New Flyer is open ended as to
the number of buses to be purchased in 2010, and the contract requires that all
articulated buses purchased by the City in 2010 must be purchased from New
Flyer.
As a result, the proposed Fleet Acquisition Strategy
is within the existing contract between the City and New Flyer. The Strategy
does not require a new agreement, and could not be executed with any other
company as the City is contractually bound to buy articulated buses from New
Flyer only (in 2010).
In practice, the City would be adding to its plan to
purchase 80 articulated buses from New Flyer in 2010.
The strategy proposed in this report would see this
purchase expanded to take advantage of New Flyer’s offer and meet the City’s
goals and needs, in accordance with the existing contract.
The proposed agreement between the City of Ottawa and
New Flyer includes:
• Ottawa will
receive a 19 per cent discount on 226 buses (including trade-in credit for the
2001 to 2004 New Flyer DE60 Models) on the previously tendered price;
• Ottawa
will receive a 10 per cent discount on the scheduled purchase of 80 buses in
2010;
• New Flyer will purchase 226 of Ottawa’s old
buses (DE60), which is an unprecedented trade-in opportunity to replace the
older buses with the new model;
• Delivery will begin in August 2010, with New
Flyer committing to provide all 306 buses by Q1, 2011; and,
• New Flyer will provide a strong partnership
for future maintenance and warranty solutions, including a five-year
bumper-to-bumper warranty (longer than industry standard).
Council Direction
Transit Services has been directed by Council to
achieve a 90 per cent bus availability rate (ACS2009-ICS-TRA-0001). As part of that commitment, Transit Services
is obligated to reduce the number of models in its fleet from the its current
level of 14. The goal is to reach three
or four models by 2011 through the re-fleeting plan, which will reduce
inventory, the amount training needed and improve quality of maintenance.
Council also directed Transit Services to improve its
environmental footprint and revenue/cost ratio.
The environmental benefits of purchasing the New Flyer
D60LFR are significant. It is estimated
that the new model will require 26 per cent less fuel and reduce emissions of
Nitrogen Oxides (NOX) by 1.98 million kilograms (1,400%) and Particulate Matter
by 51,400 kilograms (1,000%) over the next 9 years.
The purchase of 306 new buses will also improve the
revenue/cost ratio by:
• Reducing the
costs of maintaining and/or overhauling the 226 New Flyer DE60 purchased between
2001 and 2004;
• Improve bus reliability, which will improve
service;
• Reduce inventory;
• Integrating 5-year bumper-to-bumper warranty;
• Integrating new Grafitti Management package;
and
• Continuing the long-term maintenance support
agreement with New Flyer.
Efficiencies
New maintenance planning initiatives uncovered issues
surrounding the older buses that will result in significant overhauls or
obsolescence of the 226 New Flyer articulated buses.
Transit Services’ analysis concluded that it is more
cost effective to purchase new buses instead of overhauling and maintaining the
old buses.
New buses provide significant savings through:
• 26 per cent reduction in fuel consumption;
• 15 per cent maintenance cost reduction; and,
• Will result in lower inventory.
As the result of increasing bus availability,
estimated at 34 buses on average over the period from 2011 to 2013, Transit
Services will be able to defer, and possibly avoid, new bus purchases in future
years.
Benefits of the D60LFR
Transit Services identified five sub-systems of the New
Flyer articulated buses (purchased in 2001 through 2004) that had a history of
maintenance difficulties, including:
• Engine
• Brakes
• Articulated Joint
• Rear Axle
• Air Dryer
Transit Services has concluded that significant
improvements have been made to these sub-systems in the new model. Transit
Services currently has 53 of the New Flyer model D60FLR in the fleet, which
have been performing very well.
In addition to the re-design of the five sub-systems,
the new model will be delivered with a number of value-added features,
including:
• Anti-Graffiti Configuration;
• Modern Styling;
• Maintenance Program Review;
• Onsite Representative; and,
• Kitted and consigned parts technology.
Financial Evaluation
Financial analysis of this proposed agreement with New
Flyer shows good value, and that this arrangement will pay for itself.
Finance staff completed a net present value analysis
of the investment, which indicated that future cash flows from savings and cost
avoidance exceeded the initial cost of the investment, including financing
costs over a 15-year period at the City’s estimated financing rate of 5.5 per
cent.
Savings resulting from the 226 new bus purchases were
estimated. These included costs that
would form part of the City’s current operating budget, such as fuel and
repairs. Ongoing savings of $6M per year
are expected.
Cost avoidance resulting from the investment was also
considered. This included costs such as
upcoming bus refurbishments, major engine and transmission overhauls, which are
required given the advanced age of the articulated buses (i.e. 50 – 75% of what
the standard life of transit buses), and amounting to $66M which would have
been included in future budgets. Warranty
savings, and the New Flyer credit for parts, which are directly related to the
new bus purchases, and which provide savings over a limited timeframe were also
taken into account.
Savings and cost avoidance estimates used in the
analysis were compared to both external sources and the City’s own experience
from the newer articulated buses in service. These comparisons found the
estimates used in the evaluation to be conservative. A sensitivity analysis was also conducted
that continued to show a positive value even if interest rates were to
increase, or if major savings from fuel or refurbishments were decreased.
The financial analysis was also reviewed by an
external consultant who found the approach taken to be appropriate and the
stated results to be conservative in nature.
It should also be noted that this analysis excluded
the added benefit of deferring $20M and avoiding $20M of additional future bus
purchases. The buy-back provision
offered by New Flyer results in the older buses being traded in, eliminating
the six-month refurbishing period that would have been required for each of the
older articulated buses over the next three years and effectively increasing
the number of buses available on a daily basis.
As a result of this analysis we are confident that the benefits exceed the cost of investment and also eliminates the risks associated with retaining the older articulated buses.
Transit Services across the City, including service to rural areas, will be provided in a more cost-effective and efficient manner with improved customer service as a result of the recommendations contained in this report.
No public consultation was required.
Memo from City Clerk and Solicitor to be issued separately to committee.
• Achieve a 30 per cent modal split by 2021.
• Realize 100 per cent accessible transit fleet by
2017.
• Achieve a state-of-the-art fuel and environmental efficiency 2017.
A financial analysis of net present value indicates
that this deal has financial merit for the City. No pressure will be placed on the tax base
from renewing all 226 of the older articulated buses.
Benefits and cost avoidance will result from reduced
repair and fuel costs given newer, more efficient buses and the five-year
warranty period that is included in this agreement. New Flyer has also offered the City a $16M
credit on parts that will be received over a three-year period. Additionally, the City will avoid costs of
refurbishing the older articulated buses over the next four years. The articulated bus renewal will reduce the
City’s need to carry inventory.
Currently, the City holds approximately $2M in New Flyer parts in
inventory at any point in time. As part
of the new arrangement with New Flyer these will now be held on a consignment
basis with the City paying New Flyer only as parts are used for repairs,
effectively freeing up cash over the next two years.
The total investment for replacement of the 2001-2004
articulated buses is $155.7M. This is
net of an initial purchase discount of approximately $16M in the form of a
parts credit that will reduce the operating budget and offset debt-servicing
costs.
Debt financing of $142M will be required by the City
in regards to this investment. This
amount is after savings of $5M from the 80 planned bus purchases for 2010 and
$9M in funds from the province.
The debt will be issued over the 2010 and 2011
calendar years. Debt serving costs will
increase by $6.9M in 2011 that will be offset from operating budget reductions
for fuel and repairs attributed to the articulated bus renewal. Debt servicing costs will increase by a
further $6.9M in 2012 that will be covered by debt servicing for revolving debt
that will drop off by $4M and by the reduced 2011 capital program requires as a
result of the increased service availability of the articulated bus fleet. Debt service costs are based on a 15-year
term and an estimated interest rate of 5.5 oer cent.
Finally, the debt financing resulting from this investment will continue to be within the 7.5 per cent debt service limit of own source revenues. The current limit in 2010 allows for $26M in debt for Transit. The current debt level for Transit is $9.8M that will increase to $17M in 2011. The debt level for Transit will remain at $17M in 2012.
Due to the time sensivity of the New Flyer discounted pricing offer, staff require this report to proceed to the Council meeting of April 28, 2010. Upon Council approval, staff will proceed with the contract negotiations with New Flyer.