AR 020706 Contract/Ionics Ultrapure Corp.

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CITY OF COLTON AGENDA REPORT FOR COUNCIL MEETING OF FEBRUARY 7, 2006 TO: HONORABLE MAYOR AND CITY COUNCIL FROM: Jeannette Olko, Electric Utility General Manager SUBJECT: Approve Additional Expenditures for Lease of Water Treatment Equipment to Ionics Ultrapure Water Corporation through March 30, 2006 DATE: January 30, 2006 BACKGROUND: On October 15, 2002, City Council approved an Operations and Maintenance Agreement with E.I. Colton, LLC, (operator) to handle operations at the Agua Mansa Power Plant. As part of that agreement, Section 4.07 Procurement gives E.I. Colton, LLC authority to negotiate contracts on behalf of the City for power plant operations so long as E.I. Colton also complies with the City's purchasing and bidding guidelines. Our review indicates that E.I. Colton has in fact complied with the City's guidelines. Any contracts above $50,000 require City Council approval. Under this authority, E.I. Colton, LLC requested proposals for a water treatment system to de -mineralize, or purify, water to be used in the turbines at the Agua Mansa Power Plant. On April 1, 2003, City Council approved a two-year lease agreement with Ionics Ultrapure Water Corporation for this equipment. The agreement included options to extend the term from a two year lease to either a five or ten year lease at reduced base rates. The initial contract term has expired, but the equipment is still in place and in use at the City's facility. The equipment is being used on a month-to-month basis until a new agreement can be negotiated. DISC USSION/ANALYSIS: Prior to the expiration of the initial term, E. I. Colton, LLC began negotiations with Ionics to extend the lease. In addition to negotiating with Ionics, E.I. Colton attempted to obtain quotes from other suppliers of water treatment equipment. Two other sources were found, Ecolochem, Inc. and U.S. Filter. The City's informal bidding procedures for non-public projects require that E.I. Colton endeavor to obtain bids from at least three vendors, which E.I. Colton was able to accomplish in receiving bids from Ionics, Ecolochem, and U.S. Filter. Ecolochem and U.S. Filter provided quotes for the original lease in 2002/2003, but were higher than that of Ionics. Ecolochem, Inc. provided the same quote they submitted in 2002. U. S. Filter declined to provide a new quote since their cost would have to include the initial installation and set-up in addition to the monthly costs. Per the terms of E.I. Colton's O & M contract, the City issued a purchase order to Ionics in July 2005 in order to pay the lease until a new contract could be negotiated. Staff had expected the new terms to be agreed upon by September, 2005, but Ionics was purchased by G. E. Water, a division of General Electric Power, causing a delay in the negotiations. Since the purchase order was issued for a not -to -exceed amount of $50,000.00, we have been unable to pay the lease payments from October to present. The total outstanding at this time is $58,616.00 and needs to be paid in order for negotiations to be finalized. Council approval is required for this as the amount exceeds the $50,000.00 limit established in the O&M contract. Staff is recommending