TO:
Honorable Mayor and Members of the City Council
THROUGH:
Mark Danaj, City Manager
FROM:
Bruce Moe, Finance Director
Gwen Eng, Purchasing Manager
SUBJECT:Title
Award of a Three-Year Bulk Fuel Contract to Merrimac Energy Group (Estimated Annual Value of $350,000) (Finance Director Moe).
APPROVE
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Recommended Action
RECOMMENDATION:
Staff recommends that the City Council award Bid #1050-16 to Merrimac Energy Group to provide fuel with an estimated annual value of $350,000.
Body
FISCAL IMPLICATIONS:
Sufficient funds are available in the Public Works budget for on-going fuel purchases. Given today’s fuel prices, the City’s annual cost to purchase gasoline and diesel fuel with taxes and fees is estimated to be $350,000 annually.
BACKGROUND:
The City operates a fueling station located at the City Yard. For the past year, the City has successfully procured automotive fuel through a bulk fuel contract with fixed indexed pricing.
The industry standard index, Oil Price Information Service (OPIS), publishes a daily index of fuel prices. With this pricing tool, the City and a supplier enter into a contract at a fixed markup over the daily Oil Price Information Service average published prices over the course of the agreement.
DISCUSSION:
Staff solicited bids and four responses were received. The City specified regular (87 octane) and mid-grade (89 octane) unleaded gasoline and 10% biodiesel. Biodiesel is one of the methods used by the City to reduce our carbon footprint.
The bid comparison (Attachment 1) shows the suppliers’ markup over the Oil Price Information Service daily rate. In order to determine the bid ranking, staff applied the discount/premium per gallon bid by the supplier for each grade of fuel (87 octane, 89 octane, biodiesel) and multiplied it by the annual estimated City usage. The sum of the three discounts/premiums indicates the value of each bid with the lowest number equating to the lowest total cost.
Staff would have considered splitting the award to the various vendors that had the lowest price by type of fuel but these prices are based on “truck and trailer” loads (8,000 gallons). A truck and trailer load is the industry standard bulk fuel order and the most cost-effective method as it entails only one trip for delivery. The City Yard’s fuel tanks have the capacity to handle these quantities. In this case, the lowest vendor by aggregate is Merrimac Energy Group.
The lowest bidder, Merrimac Energy Group, meets specifications for all three grades of gasoline and provided the lowest total estimated cost for an annual contract. As a result, staff recommends that the City Council award Bid #1050-16 to Merrimac Energy Group.
This annual contract offers a deeper discount than the previous contract. It was determined that the new contract pricing will result in an average savings of $280 per purchase (approximately twelve purchases annually).
The estimated spend level is based on current expenditure trends. The contract period is for three years. If this purchase is approved, the contract will be in the form of a purchase order. In addition, the City may cancel the contract at any time without cause if necessary.
CONCLUSION
Staff recommends that the City Council award Bid #1050-16 to Merrimac Energy Group for a three-year bulk fuel contract in the amount of $350,000.
Attachment:
1. Bid #1050-16 Comparison for Bulk Fuel