Memorandum

City of Lawrence

Public Works

TO:	Chuck Soules, P.E., Public Works Director
FROM:	Robert Aaron, Fleet Division Manager
Date: CC:	09/18/2014 Tammy Bennett, Mark Thiel, Mike Perkins, Bob Brower, Dave Wagner, Mike Lawless
RE:	Backhoe Lease

Please place the following item on the consent agenda for the City Commission to consider at their October 7, 2014 meeting:

Authorize the Public Works Streets Department and the Utilities Department to bid a backhoe replacement lease through the City’s bidding process.

Background

The Public Works Streets Division and the Utilities Department entered into a three year lease for backhoes in the 2012 budget year.  This lease will be at its term on February 1, 2015. 

Public Works and Utilities have determined that the lease provides a lower cost of ownership over the life of the machine.

Acquisition costs of a leased machine example:  Upfront lease payment $40,600.00+ maintenance and repair costs over 3yrs of $7,450.50 equals a cost of ownership of $48,100.05.

Acquisition costs of a purchased machine example: unit 231, purchase price was $74,233.00 + maintenance and repair costs for its first 3yrs of $11,994.39 equals a cost of ownership of $86,227.39.

The leasing is a savings of close to half of what a purchased unit would cost.  This would be compounded by the reality that historically the City’s backhoe rotation schedule had been longer than five years.  In the example above of unit 231 costs, we only used the first three years of repair costs.  In the case of unit 231 actual repair costs over the extended 10 years it has been in the fleet has exceeded $77,765.00, which would be a 104% of its purchase price.

The lease has proved to provide the best cost of ownership for the City’s operation.  These units are a crucial part of the City’s repair and maintenance of city services.  The lease option provides an additional budgetary tool known as a full machine warranty that helps keep unexpected repair costs down.  The only repairs that we perform would be on wearable items or operator damage.  This has proven to be an area of savings that also make the lease option a viable solution.  This additional savings and lower costs of ownership is the reason that Utilities Department has decided to include one more of their backhoes in this program.

If the City determines not to rebid this lease agreement, final payment will be required on Feb 1, 2015 of $183,964.75 for Public Works and $61,321.58 for Utilities.

Public Works and Utilities department would like to proceed with the bidding process for backhoe replacement through a lease agreement.  An early bid process will ensure that build and delivery times will not interfere with City operations. 

Utilization

The City’s backhoe fleet is used for a wide variety of maintenance functions throughout the City operation.  These are versatile machines that serve important roles in keeping City services in working order.  Utilities Department utilizes these machines for water main replacement, water main leak repairs, and water service installations.  The Public Works Department uses these machines in pavement rehab both concrete and asphalt, curb and gutter repair, replacement, and new construction. Storm water uses backhoes for drainage work clearing open drainage ditches, doing excavation for repairing and installing inlet and junction boxes, and excavating for the installation of culverts and drainage pipe. All three backhoes makeup a major part of our snow and ice equipment, they are used to load de-icing materials, open intersections after plowing operations, and remove snow as needed from ADA access areas at crosswalk areas.

Funding

The adopted 2015 budget included fund allocation for this lease. Funding for these purchases will be from the 2015 operating budget.  Funding for these backhoes will utilize 2015 accounts 214-3800-6005 for units 342 and 770, 505-3910-6005 for unit 771, and 501-7-7610-6004 for the two Utilities units. 

Action Request

Authorize the Public Works Streets Department and the Utilities Department to bid a backhoe replacement lease through the City’s bidding process.