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Home My WebLink About2023 06 12 Regular 500 - Veolia Annual Fee Adjustment and Cost Escalation.pdfREGULAR AGENDA ITEM 500 CITY COMMISSION AGENDA | JUNE 12, 2023 REGULAR MEETING TITLE Veolia Annual Fee Adjustment and Cost Escalation SUMMARY The economic climate in fiscal year 2022 and continuing into 2023 has been exceptional. Consumer Price Index values have been over 8% and utility indices have been even higher due to COVID, supply chain disruptions and other Force Majeure events beyond the reasonable control of Veolia. These costs affect everything in the operation of the utility treatment facilities and lift stations including labor, chemicals, materials, etc. In addition to extraordinary inflationary pressures, the facilities have experienced increased flow and loadings causing multiple financial impacts. These events and circumstances constitute Change in Scope under Section 10 of the Agreement for which Veolia is able to be negotiate an increase in compensation under Section 10.2 of the Agreement. In addition to inflationary impacts, the facilities have experienced increased flow and loadings which additionally constitute a Change in Scope under Section 10 of the Agreement. Section 10.1.4 of the Agreement provides that a Change in Scope occurs when flows from the potable water treatment plants and to the water reclamation facilities and the influent loadings to the reclamation facilities exceed 10% of the baseline flow and loading values contained in Appendix C-1 of the Agreement. Potable water flows have exceeded the 10% threshold from the end of 2021 through 2022 to the present date in 2023. Wastewater influent flows have exceeded the 10% threshold from September 2022 to the present date. Wastewater influent loadings exceeded the 10% threshold in 2022 and continue to the present date in 2023. Veolia is entitled to a change order to recoup these additional costs under Section 10 of the Agreement. Section 8.5 of the Agreement provides for the parties to negotiate adjustments to the next Annual Fee at least four months prior to the City’s next Fiscal Year, which starts October 1. Given numerous Changes in Scope under Section 10 of the Agreement which will impact the next Annual Fee, it is requested that the parties address Changes in Scope in Section 10 and adjustments to the Annual Fee under Section 8.5 at the same time. In this regard, the CPI specified in Appendix E of the Agreement was 8.0% for 2022. As a specific example of these costs, chemicals have far exceeded even that increase with sodium hypochlorite increasing 82%, orthophosphate increasing 17%, and polymer increasing 32%. These high inflation rates have a material effect on the cost of providing these services. 84 The water reclamation facilities were intended to have a refurbishment completed within 12 to 18 months from the start of the Agreement. For various reasons, construction has taken much longer and currently continues three years later. The delayed and continuing construction activities constitute Force Majeure events that are beyond Veolia’s reasonable control and have caused Veolia to incur substantial increased operational costs that Veolia is entitled to recover under Section 10 of the Agreement. To address the financial impacts of inflation, flows and loadings, and construction activities, the following adjustments are proposed: 1. A one time payment for 2022 costs of $369,588. This includes $226,193 for flow and loading increases and $143,395 for construction incurred costs. 2. The current Annual Fee value in Fiscal Year 2022 is $3,580,645.56, which is the sum of the Fixed Fee value of $3,321,089.28 and the Maintenance and Repair Limit value of $259,556.28. Commission approval is requested of an adjusted Annual Fee value of $3,840,109.51 for the period October 1, 2022 through September 30, 2023. This is comprised of a 7.5% increase on the Fixed Fee component of the Annual Fee, resulting in an adjusted value of $3,570,170.98 and a 4% increase on the Maintenance and Repair Limit component of the Annual Fee, resulting in an adjusted value of $269.938.53. The Annual Fee adjustment value is $259,464. 3. A flow and loading adjustment for 2023 of $243,158. This adjustment would be spread over the remaining fiscal year upon approval. 4. An inflationary cost adjustment of $117,700 for materials, such as chemicals, that have far exceeded the adjustment provided in item 2 above. This adjustment would be spread over the remaining fiscal year upon approval. 5. Construction incurred costs of $10,573 per month starting October 2022. RECOMMENDATION Veolia requests City Commission approval of the following: The requested Annual Fee adjustment of $259,464 is able to be negotiated per paragraph 8.5 of the Agreement for Utilities Operations, Maintenance, and Management Services. The requested flow and loading adjustments of $226,193 for FY 2022 (October 1, 2021 through September 30, 2022) and $243,158 for FY 2023 (October 1, 2022 through September 30, 2023) is able to be negotiated per paragraph 10.1.4 and 10.2 of the Agreement. The requested Construction Period Cost of $143,395 for FY 2022 (October 1, 2021 through September 30, 2022) and $10,573/ month for FY 2023 (October 1, 2022 through September 30, 2023), October 1, 2022 until demobilization of the belt press rental equipment in 2023, is able to be negotiated per paragraph 10.1.1, 10.1.2, and 10.2 of the Agreement. The additional costs were not anticipated when the Agreement was executed, the City has 85 contractual control of the contractor, and construction has extended significantly beyond the original schedule. The requested Inflationary Cost Increase of $117,700 is able to be negotiated per paragraph 8.5 of the Agreement. Additionally, authorization for the City Manager and City Attorney is requested to prepare and execute any and all applicable contract documents consistent with this Agenda item. 86 Winter Springs June 2023 87 2 ●FY 2022 (Oct 2021 - Sep 2022) ○Flow and Loading Increase ○Construction Period Extension ○Chemical Cost Increases ○Inflation ●FY 2023 (Oct 2022 - Sep 2023) ○Flow and Loading Increase ○Construction Period Extension ○Escalation Periods and Cost Impacts 88 3 ●Flow and Loading Increase: ○Water ■Flow increase > 10% before Oct 2021 ○Wastewater ■Flow increase > 10% Jun 2022 ■TSS increase > 10% Jan 2022 ■BOD increase > 10% before Oct 2021 Flow Impacts 89 4 Flow Impacts 10% Threshold Baseline 12-month running average in million gallons per year 90 5 Flow Impacts Baseline 10% Threshold Baseline 10% Threshold 10% Threshold Baseline 12-month running average in million gallons per year 12-month running average in pounds year 12-month running average in pounds year 91 6 ●Construction Period Extension: ○Originally expected to end Oct 2020 with cost impact of $150K/yr ○Still ongoing - impacts continue ○Temp staff, yard dog rental, sludge trailer rental, floating aerator power consumption ■Floating aerators turned off in Sep 2022 Construction Period Extension 92 7 ●Chemical Cost Increases (unit prices): Cost Impacts 93 8 ●Chemical Cost Increases: Cost Impacts 2019 2020 2021 2022 Increase thru 2022 Sodium Hypo $0.587 $0.592 $0.554 $0.554 $0.77 $0.77 $1.07 82% Aquafresh $475.5 $475.5 $504 $504 $504 $555 17% Polymer $1.51 $1.51 $1.60 $1.725 $1.78 $1.903 $1.985 32% 94 9 ●Inflation: Cost Impacts Contract Limit4.00% 95 10 ●FY 2022 (Oct 2021 - Sep 2022) FY 2022 Impacts Summary Item Value Flow and Loading Increase $226,193 Construction Period Cost $143,395 Total due from prior periods $369,588 96 11 ●FY 2023 (Oct 2022 - Sep 2023) FY 2023 Revised Fee Item Value Current Fee $3,580,646 Escalation $259,464 Flow and loads $243,158 Negotiated inflationary cost increase (per Section 8.5) $117,700 Total $4,200,968 Construction Period Extension`$10,573/mo 97 12 Current Accounts Receivable O&M invoices only - excludes CPM and Hurricane Ian invoices 98 13 THANK YOU! 99