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HomeMy WebLinkAboutCS 08-03 Ciú¡ o~ REPORT TO COUNCIL Report Number: CS 08-03 Date: January 20, 2003 From: Gillis A. Paterson Director, Corporate Services & Treasurer Subject: Approval of a Purchase of a 2002 Champion 740VHP Grader Recommendation: 1. 2. 3. 4. That Report CS 08-03 of the Director, Corporate Services be received; that the tendering requirement of the Purchasing Policy as adopted under By- Law 5900/01 be waived in this instance; that the Manager, Supply & Services be authorized to purchase a 2002 Champion 740VHP Grader from Champion Road Machinery Sales at a gross cost of $239,800 plus applicable taxes and the currently owned 1990 Champion Grader be traded in at an estimated value of $47,000 to be used as a credit against the purchase price resulting in an estimated net cost of $192,800 ($214,000 inclusive of GST net of rebate and PST); that Council authorize the Director, Corporate Services & Treasurer to finance the purchase of the grader through; a) funding in the amount of $53,100 be transferred from the Development Charges Reserve Fund (1991 #4.2); b) debt financing through the Region of Durham in the amount of $160,000 for a period not exceeding 5 years, at an estimated rate of 6% per annum; c) financing and repayment charges in the amount of approximately $38,200 be included in the annual Current Budget for the City of Pickering commencing in 2004 and continuing thereafter until the loan is repaid; the Director, Corporate Services & Treasurer has certified that this loan and the repayment thereof falls within the City's Debt and Financial Obligations approved Annual Repayment Limit for debt and other financial obligations for 2003 as established by the Province for municipalities in Ontario; d) Report CS 08-03 Date: January 20,2003 Subject: Approval of the Purchase of a Champion 740VHP Grader Page 2 e) the balance of the cost of acquisition in the estimated amount of $900 be financed from the 2003 Current Budget, Operations & Emergency Services Department; f) the Treasurer be authorized to take any actions necessary in order to effect the foregoing; and, the appropriate officials be given authority to give effect thereto. 5. Executive Summary: The current grader has been in use in the City of Pickering for approximately 13 years for summer road grading and winter snow removal. It is nearing the end of its useful life and must be replaced. The purchase of a new grader is included in the 2003 Draft Capital Budget for the consideration of the Budget Committee and Council in February and March. However, an opportunity has presented itself that enables the City to save a considerable amount of money if the purchase is approved now. Staff appreciate that there are other considerations and difficulties with bringing this matter forward at this time. However, only a couple of weeks ago the company had five of these graders for sale. Today there is only one. Therefore, considering the potential dollar savings there appeared no alternative but to put this matter before Council now. Financial Implications: Should the purchase of the grader be approved the City will save approximately $14,200 by purchasing a 2002 (new) as opposed to a 2003 model. The trade-in value being offered is considerably higher than anticipated reducing the net cost by $47,000. We are reasonably confident that this trade in value will decrease considerably over the near term. Also, $10,000 to $20,000 in estimated repair costs on the existing grader will be avoided as will rental costs while repairs are being undertaken. The City's cost of the purchase, if approved now, will decrease from $254,000 to $239,800 less the $47,000 trade in value, or $192,800 ($214,000 with taxes). We believe that we are receiving a far higher trade in value at this time on this particular purchase than we would otherwise receive, on a 2003 model. Background: The City of Pickering's two road graders are key components in the construction and maintenance of the City's transportation system. The graders are in use year-round in exercises such as winter control and grading in summer. With more than 150 kilometers of gravel surface roads within the municipality, it is imperative to ensure staff has reliable and safe equipment. To ensure the City achieves the maximum life from its equipment, the Fleet Section of Municipal Operations within Municipal Property and Engineering Division invests time and materials undertaking pre-emptive mechanical maintenance. Report CS 08-03 Date: January 20, 2003 Subject: Approval of the Purchase of a Champion 740VHP Grader Page 3 The oldest grader in the fleet, a Champion 740 was purchased in 1990 through a Quotation call and Champion was the low bidder. In 1999, the need to replace the 1983 Champion grader was reviewed. As a result of a Quotation call No. QWC-26-99, three quotations were received for the supply and delivery of a grader of which Champion Road Machinery Sales was the low bid for a 740VHP grader. Champion equipment has traditionally provided a reliable produce and good service to the City and staff are familiar with its maintenance and operations. Also, our existing parts inventory can be used on the new grader as the engine, Cummins diesel, is being replaced with a Volvo engine starting with the 2003 model. The reality is, that equipment must be replaced once its life expectancy is reached and/or surpassed. It has been determined that the optimum life cycle for a grader, based on our use is twelve years. When a replacement is sought, generally the City goes to the open market in order to secure the best value in the interest of the community as well as to observe the mandate of the Purchasing By-law. However, on occasion, an opportunity presents itself that, in the opinion of staff, benefits the organization but is outside the general operating practices of the By-law. Such is the case with the proposed purchase of a 2002 740VHP Champion Road Grader. The Operations & Emergency Services Department in conjunction with the Corporate Services Department has discovered an opportunity for the City to not only save on the purchase, but also to capitalize on the trade-in of the existing machine and minimize projected repairs costs. In short, by adopting the recommended strategy, the City of Pickering will reduce a gross capital request from $254,000 less some trade in value to $192,800 due to purchasing a new 2002 model and due to the value the manufacturer has assigned ($47,000) to the trade-in (exclusive of applicable taxes). In addition, estimated repair costs in the range of $10,000 to $20,000 that are anticipated should the existing grader break down if it is kept in use much longer will be avoided. The window of opportunity is very narrow. According to staff's research, on January 10, 2003 there were five 2002 740VHP models left in Champion's yard. As of January 14, 2003 only one remained. Staff responded quickly, and secured a quote in writing as well as to request that Champion hold the unit until January 21, 2003. The manufacturer - Champion Road Machinery Sales (in good faith) agreed, but could not guarantee the equipment would be available beyond that date. The actual debt financing through the Region of Durham will not take place until after all the financing requirements for 2003 are approved by Council with the annual Current and Capital Budgets. At the appropriate time an additional report to Council will be prepared covering all debt financing requirements for 2003. Report CS 08-03 Date: January 20, 2003 Subject: Approval of the Purchase of a Champion 740VHP Grader Page 4 Attach ments: Not applicable Prepared I Approved I Endorsed By: ~.... ~"~.".~. , , .. -:::> ~ - .-'.----- Gillis A. Paterson Director, Corporate Services & Treasurer GAP:vw Copy: Chief Administrative Officer Director, Operations & Emergency Services Division Head, Municipal Property & Engineering Manager, Supply & Services