HomeMy WebLinkAbout08/06/1991, C-3 - TRANSIT CONTRACT RATE INCREASE I�Ih��RH�IyI��IIIIIIIIIIuIII � T MEETING OA
cI o san tins ogIspo
COUNCIL AGENDA REPORT I NUMBER:
FROM: Ken Hampian, Assistant City Administratiry Officer
Prepared by: Harry Watson, Transit Manager �/
SUBJECT: Transit Contract Rate Increase
CAO RECOMMENDATION: By motion, approve a contract rate increase
for Fiscal Year 1991-92 in the amount of $. 05 per mile to Laidlaw
Transit, Inc. for SLO City Transit Service (from $1.85 per mile to
$1.90 per mile) .
DISCUSSION:
Background
The City of San Luis Obispo is entering the last year of a Transit
contract with Laidlaw Transit, Inc. , which began in 1982 and
included a five-year extension clause. The original contract was
with CalCoast Charter, Inc. which was subsequently purchased by
Laidlaw Transit, Inc. The contract is for the operation,
maintenance, coach lease, and some staff support for the operation
of SLO Transit. The remuneration for these services is based on
a per mile rate. The contract provides for an annual Compensation
Adjustment.
The annual Compensation Adjustment is based on a complicated set
of national indexes for labor, fuel, miscellaneous goods and
services and potential net income equity. A copy of the formula
is provided as Attachment 1. These indexes were relevant and
worked in the beginning of the contract, but have lost a measure
of their value as the number of years over which the index is
spread has increased. Several of the indexes upon which our
compensation adjustment is based have a base year of 1972.
Two problems exist with our current method of compensation
adjustment. The first is that in any short-term (and sometimes
substantial) increase in the cost of doing business is not
adequately dealt with using the index method. An example is the
recent major fluctuation in the cost of diesel fuel. With the
recent Persian Gulf crisis, the cost of retail diesel fuel went
from $1. 16 per gallon to $1. 64 per gallon, with a post crisis price
leveling out at $1.23 per gallon. Although the vendor was paying
a 41% increase in the cost of fuel during the crisis period, the
index method of compensation adjustments blends that spike in with
an overall 1972 through 1990 cost of fuel prices resulting in a
negligible index adjustment.
The second and more recent impact on the remuneration to Laidlaw
has to do with the addition of the trolley service. Because we pay
by the mile of service provided, the trolley operation is one in
which the vendor has the same basic expenses, such as labor,
overhead, and vehicle maintenance as they would on a high
41111111 NI city of san tins ompo
COUNCIL AGENDA REPORT
Page Two
mileage transit route, but are being paid by the City for the
relatively low number of miles that the trolley operates on our
downtown loop. The trolley was not a part of the operation at the
contract's inception in 1982, and its actual operating costs were
not fully known at the time Laidlaw agreed to provide the service
under the existing contract.
Compensation Adjustment Request/Recommendation
The FY 1990-91 per mile rate was $1.85, up $. 07 from the 1989-90
rate of $1.78 per mile. Using the index formula, the FY 1991-92
rate would also be $1.85. Laidlaw initially requested an increase
to $2 .24 per mile for FY 1991-92, based on diesel and trolley
costs. Following a meeting between staff and Laidlaw Transit
management, and after reviewing and revising maintenance and other
cost estimates, it was agreed that a $0. 05 .per mile increase would
be appropriate during this final year of the existing contract.
ALTERNATIVE:
Take no action on the vendor contract in this last year of the
contract.
Staff has reviewed a substantial amount of documentation provided
by Laidlaw regarding fuel prices and the trolley. service costs and
believes that they have made a valid case for not rigidly adhering
to the index formula in this final contract year. Staff believes
the agreed upon 3% increase represents a modest but reasonable rate
adjustment.
FISCAL IMPACT:
An increase of $. 05 to a new rate of $1. 90 would result in an
approximate 1991-92 operating cost increase of $12, 000 over the
prior year cost (+3%) , assuming approximately the same number of
miles as 1990-91 (240,000) . Sufficient funds exists in the 1991-
92 operating, maintenance, and trolley operations budgets to
accommodate this increase.
ATTACM1ENTS:
1. Compensation Adjustment Formula
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LAIDLAW
SECTION 3. COMPENSATION ADJUSTMENT
The compensation rates for providing coaches and for providing
maintenance/operations facilities shall remain fixed for the term of this
contract.
The compensation rate for vehicle service mileage shall be adjusted
effective July 1 each year (beginning on July 1 , 1983) to reflect changes in the
costs of labor (L). fuel (F), and miscellaneous goods and services (M) and
changes in potential net income earned on owner's equity (I). City shall adjust
this rate according to the formula
.4 R1 L2 l R1 F2. .4 R1 M2 . 1 R1 I2
R2 = L1 + F1 + M1 + 11
Where R2 = the new compensation rate
R1 = the existing compensation rate
L2 = the Hourly Earnings Index for Non-Supervisory Workers in
Private Transportation for the month of May in the
calendar year of adjustment
L1 = the Hourly Earnings Index for Non-Supervisory Workers in
Private Transportation for the month of May in the calendar
year preceding the year of adjustment
F2 - the Producer Price Index for Refined Petroleum Products
for the month of May in the calendar year of adjustment .
F1 = the Producer Price Index for Refined Petroleum Products
for the month of May in the calendar year preceding the year
of adjustment
M2 � the Consumer Price Index for All Urban Consumers for All
Items Less Food and Energy for the month of May in the
calendar year of adjustment
M1 = the Consumer Price Index for All Urban Consumers for All
Items Less Food and Energy for the month of May in the
calendar year preceding the year of adjustment
12 = the interest rate for 6-month Treasury Bills on May 31
in the calendar year of adjustment
11 the interest race for 6-monch Treasury Bills on May 31
Y in calendar year preceding{ the4year of adjustment
ATTACHMENT 1
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