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HomeMy WebLinkAboutC2011-139 - 3/22/2011 - NAAmendment No 1 to the Contract between Mercma Associates Inc. and City of Corpus Christi, Texas regarding Analysis on Privatization of City Fleet Services Whereas, The City of Corpus Christi ( "City') and Mercury_ Associates, .Inc ( "Mercury ") executed a Contract regarding Analysis on Privatization of Qty Fleet Services authorized by City Council on February 8, 2011, in Motion 2011 - 048 ( "Agreement "); Now, therefore, the parties agree to amend the Agreement to change the scope of services as follows: 1. The attached Exhibit E, titled "Revised Fleet Study Scope ", dated February 24, 2011 supersedes and replaces the scope of work referenced in the City's Request for Proposal BI- 0057 -11. Sections 3.1. 3.2 and 4.0 and Mercury's response to Request for Proposal No . BI- 0057 -11, Proposed Approach and Methodology, gage 4 Information Gathering and evaluation Techni ues• Methodoloqy_pages 5. 6 and 7Land Cost Proposal page 29 2. This amendment takes effect upon execution by the Assistant Director of Financial Services. 3. All other terms and conditions of the agreement remain unchanged. Agreed tq, by: CITY OF ISTI Date: 1✓v % I By: Michael arrera Assistant Director of Financial Services MERCURY ASSOCIATES, INC Name: Rk(4 G . Ow Title: � , 0, N C a y 2011 -139 03/22/11 Mercury Associates Date: I% I INDEXED Exhibit E Mercury Associates Inc. is has been awarded a contract to conduct a business case analysis of the feasibility of privatizing the City's fleet management operations. The City has requested that the scope of the project be amended to focus on achieving cost savings by rightsizing the fleet. The issue of privatization feasibility will be addressed by conducting a high -level assessment of the competitiveness of current fleet operations. Below we have outlined our proposed. work plan for the City. PROPOSED WORK PLAN Our proposed approach to this engagement and recommended work plan is summarized in the following paragraphs: TASK 1 — COLLECT INFORMATION We will provide the City with a written information request after executing a contract (or receiving other written authorization to proceed pending the finalization of a contract), which identifies the quantitative data and documentary material pertaining to current fleet operations and fleet management practices that we would like to obtain. We will then use the information collected via this request to analyze key performance attributes relative to the City's fleet (such as average age, life -cycle cost, utilization, downtime, etc.) so that we can recommend changes in the current fleet management model that will provide the City with net improvements in fleet performance and cost. The information request will be organized by functional area of vehicle and business management; e.g., Vehicle Inventory, Policies and Procedures, Vehicle Replacement and Acquisition; Fleet Utilization Management, Vehicle Maintenance, Budgeting and Financial Management, Record Keeping, etc. It will be written in the form of a checklist that the City staff can fill out and return along with available data and documents. This way, we will have a clear record of what types of information were — or were not — available for our use in conducting the study. We will also meet with the City to discuss and finalize the Scope of Work and project schedule. We recommend that specific agenda items for this meeting include the Mercury Associates, Inc. PROPOSAL TO PROVIDE FLEET MANAGEMENT CONSULTING SERVICES following: • Introductions of team members and discussion of specific roles and responsibilities on the project; • Review and discussion of the project approach, methodologies, work plan, deliverables, schedules, and critical success factors (which we will record in a formal project plan); • Review and discussion of the draft information request, which we will have - delivered beforehand; • Establishment of agreement on project progress reporting frequency and format; • Determination of project logistical procedures, including points of contact; protocols for scheduling meetings, arranging site visits, setting up focus group sessions, etc.; work space for our team members when on -site; and • Resolution of any other outstanding contractual or administrative matters relating to the conduct of the study. TASK 2 — CONDUCT DETAILED STUDY OF VEHICLE USE TO RIGHT SIZE THE FLEET The primary driver of fleet related costs for any organization is the size and composition of the feet. Simply stated, the more vehicles an organization owns, the higher the annual cost. This is due to the fact that depreciation is the top fleet cost. Every day that a vehicle is owned by an organization it loses market resale value. Moreover, even under - utilized vehicles consume fuel and maintenance resources each year. Consequently, as with any organization that operates a large fleet, any serious effort to lower the City's fleet costs needs to start with right- sizing the fleet. In our experience, with a fleet of nearly 2,000 units potential savings and cost avoidance for the City could be in excess of $1 million over five years. Savings will be derived from: • The sale of eliminated vehicles; • The avoidance of the costs of replacing eliminated vehicles in the future; • The avoidance of the maintenance, fueling, and other operating costs of the vehicles that are eliminated, although increased utilization of remaining assigned vehicles will offset some of these cost savings; • Elimination of the need for a parking space within the City. Of course we cannot pre judge savings until we conduct our analysis and actual savings generated will be dependent on the City implementing our proposed fleet reductions. The steps that we propose to assist the City right size its fleet are as follows: Step 1: Develop Detailed Fleet Deployment and Use Profile Mercury Associates, Inc. 2 PROPOSAL TO PROVIDE FLEET MANAGEMENT CONSULTING SERVICES We will begin our data analysis by developing a detailed inventory of vehicles and equipment by vehicle type, by customer organization, and by physical location. This information will be used to develop a map of vehicle domiciles so that any overlaps in vehicle assignments can be identified. We will also use this information to analyze the proximity of vehicle user office and corporation yards to those of other vehicle users, the proximity of sites to motor pool locations, and the proximity of sites to commercial vehicle rental locations. Finally, we will develop annual use profiles for each vehicle in the City's fleet. Step 2: Analyze Vehicle Utilization Data Our next step will be to conduct an in -depth review of data relative to vehicle assignment and utilization. This review will include calculation of average use by vehicle class, development of utilization thresholds for each type of vehicle and identification of units that have more intensive review. We will past use of, and expenditures private car mileage. Step 3: S_ urvey Fleet Users low life mileage and, therefore, are candidates for a also review available information regarding the City's for, rental cars and equipment, and reimbursement of Utilization statistics alone, of course, can be misleading indicators of the need for a vehicle or piece of equipment. A common definition of a vehicle being in use is when it is not available for use by another organization. In many such situations, a vehicle that is in use may or may not be accumulating many any) miles or engine hours. For example, a pickup truck assigned to a carpenter may function as a tool box on wheels and carry materials to a job site where the vehicle sits for extended periods. Analysis of historical miles driven will indicate that it is not used very much, but this clearly does not mean that the unit is underutilized or not needed. Consequently, we will analyze equipment utilization from a number of perspectives in addition to meter readings for low mileage units and will also. tailor our analysis to the different types of equipment and conditions in which user organizations operate. Other pertinent factors for analyzing equipment use and an organization's need for assignment of a vehicle include: • Passenger, cargo carrying, and towing requirements; • Requirements to transport tools and equipment; • Any special security needs; • Requirements for special equipment and attachments; • Emergency response requirements; • Typical required times of use including after normal working hours; Mercury Associates, Inc. 3 PROPOSAL TO PROVIDE FLEET MANAGEMENT CONSULTING SERVICES • Seasonal and peak periods of use; • The existence of any backup or spare units; and • Users' assessment of the criticality of each vehicle. We will gather this information through an on -line survey of fleet users and, if required, in a series of interviews or focus group sessions. Ste 4: Develop a Table of Allocation for the Fleet Data will be input to our Vehicle Allocation Methodology (VAM) tool, which is a Microsoft Excel based model we use to identify vehicles that are potentially underutilized based upon historical fleet use and indicators of mission criticality. From our analysis of available data, the results of our vehicle utilization questionnaire, meetings with the City managers, and an analysis of the costs of alternatives to permanent vehicle assignment, we will develop a table of allocation for the fleet that characterizes each vehicle need as falling into one of the following categories: • Justified permanent assignment to an individual or work crew; • Opportunity for use of a pooled vehicle; • Opportunity for use of a commercial rental vehicle; • Opportunity to reimburse an employee for use of their personal vehicle; and • Opportunity for reduction. We will provide the table of allocation to fleet users and discuss the resulting recommendations in a series of conference calls. Our goal will be to assist managers determine their base fleet needs by reviewing the fleet assignment matrix, historical use data, mission criticality, and work activities. We will note where users concur with our fleet rightsizing recommendations and where they do not. TASK 3 — CONDUCT COMPETITIVENESS ASSESSMENT In this task we will assess and compare the competitiveness of current fleet services costs against both other comparable organizations and private vendors and will calculate and analyze (subject to the availability of existing data) quantitative measures of fleet performance and will compare performance in key cost and service areas against established industry standards and benchmarks. Our objective in this task will be to develop cost data for each major fleet maintenance function and activity such as parts management and inventory practices, in -house maintenance and repair activities, procurement and management of commercial vendor services, and management of fueling operations. Then, subject to the quality of available data, we will also develop benchmark comparisons for service quality for each of these same functions and activities. Mercury Associates, Inc. 4 PROPOSAL TO PROVIDE FLEET MANAGEMENT CONSULTING SERVICES Our proposed approach is more strategic and less involved than in our original proposal for completing a privatization business case. This will enable us to shift resources to the fleet rightsizing task, which is more likely to yield cost savings in the short-term. The activities we will complete in this task are described in more detail below. Determine Current Service Costs. The objective of this effort is to calculate and document the current cost of providing fleet maintenance services in a form that will provide a fair, "apples -to- apples" basis for comparison between the Fleet Services Division and on -site maintenance contractors who could provide fleet maintenance services to the City. Our emphasis will be on identifying the avoidable costs of these services, and accumulating those costs in a form consistent with the structure of contracts that municipalities use to acquire maintenance services. With regard to the first of these considerations, it should be recognized that some of the costs that the City currently incurs to provide fleet maintenance services in -house are not "transferable" to a contractor or vendor should the performance of the service be outsourced; they are unavoidable. Examples of such costs.include depreciation of the maintenance facility(ies), fleet management organization overhead costs, and most if not City overhead costs allocable to a fleet maintenance organization. In this task, we will identify and separate those current service delivery costs that would go away from those that would remain if a function were outsourced. With regard to the second consideration, most commercial fleet maintenance contracts define the cost of providing maintenance and repair services in terms of "target" and "non- target" costs. Target costs refer to a flat annual fee for providing all routine maintenance and repair services. A fair and accurate comparison of in -house costs with each other, and with those proposed by contractors or commercial providers requires that we first identify all existing costs incurred for routine maintenance and repair, and then back out that portion of the costs which would not be avoidable under the commercial contract, that is, those costs such as depreciation on the maintenance facility, which would continue to be incurred by the City regardless of who provides the service. In this example, attempting to compare maintenance costs on an activity or unit of service basis, such as using a fully burdened labor rate, would not provide a fair comparison with a contract structured on the basis of a fixed annual fee or target price. Furthermore, including unavoidable costs in the calculation of current, in -house service - delivery costs would provide an unfair advantage to commercial vendors since their contracts would not be burdened with these costs. Determine Current Service Quality. The major thrust of this effort will be to calculate a series of performance benchmarks, and to document findings from interviews with key fleet management personnel and other stakeholders. We will utilize the results of these processes to identify the current level of service quality for each fleet maintenance activity. We will calculate and interpret the quantitative measures of Mercury Associates, Inc. 6 PROPOSAL TO PROVIDE FLEET MANAGEMENT CONSULTING SERVICES performance, and utilize our own extensive knowledge of "best practices" in other municipal fleet operations to gauge the level of performance in each of the operations examined. Examples of performance measures and characteristics we will compare include, but are not limited to the following: • Ratio of maintenance employees to vehicle equivalents; • Average vehicle age; • Total maintenance and repair cost per vehicle equivalent; • Preventive maintenance compliance rate; • Rate of scheduled to unscheduled repairs; • Fleet availability percentage; • Supervisor to mechanic ratio; • Administrative support staff ratio; • Mechanic productivity; • Shop capacity utilization; • Parts inventory turnover rate; and • Parts usage per vehicle equivalent. • Vehicle downtime; • Maintenance turn- around time; • Rework rate; • Maintenance operation staffing levels; • Average parts delivery times; • Percent of orders filled from stock; • Stockout rates; and • Parts operation staffing levels. We will note activities that are competitive and those that are not competitive in our project report, as well as estimating the potential savings if activities are optimized. We will also provide high -level recommendations for closing any competitiveness gaps and provide the City with our opinion if privatization or reengineering would be the best approach to optimizing fleet program activities_ Mercury Associates, Inc, 6 PROPOSAL TO PROVIDE FLEET MANAGEMENT CONSULTING SERVICES TASK 4 — PRESENT FINDINGS AND RECOMMENDATIONS We will provide the City with a final, summary-level report that will include specific steps taken and other, prospective changes in fleet operations that will enhance efficiency while enhancing customer service for the City. We will provide a draft report and meet with staff to elaborate on our findings and recommendations. We will finalize the report based on comments received by staff and provide the City with up to 10 bound copies of the final report. We will also make one formal presentation of our findings and recommendations at a meeting with City management. COST PROPOSAL AND TIMELINE Our proposed firm fixed price for conducting this project is $74,997 inclusive of all professional fees and travel expenses. This proposed budget is based on an average professional billing rate of $191.32 per hour, which was the rate used in our original proposal to the City. We propose to invoice the City on a monthly basis for actual work completed and expenses incurred. We will provide appropriate details on study progress to support each invoice submitted. The following table presents our proposed budget by task: Project Budget By Task - - + Collect Information $ 4,974 Fleet Right- sizing $ 49,743 Competitiveness Assessment $ 14,923 Report and Presentation $ 4,974 Totals $ 74,615 We estimate that this project will take 4 to 6 months to complete. Please note this timeline assumes that we receive all requested data, documentation, and access to individuals for interviews and meetings, as well as feedback on any draft reports from the City in a timely manner. A concept schedule by task is shown in the table below: + A'aslc 1. Collect Data 30 2. Fleet Rightsizing 90 3. Competitiveness Assessment 30 4. Present report 30 Mercury Associates, Inc. 7