Santa Paula Council Revisits Wastewater Treatment Maintenance Contract

By Sheryl Hamlin

Santa Paula City Council October 3, 2016 Item 11.D

Public Works Director Brian Yanez returned with an enhanced report comparing the three bids for the new Operations & Maintenance (O&M) contract for the Wastewater Treatment Facility. Note that this item was discussed previously here.

Since late Wednesday evening, some excellent questions and clarifications came in, he said, including information arriving on the flex-Friday. There was additional information from KMS who provides the Koch menbranes. Taking this into consideration, they would like to go back and create a detailed table with all the items in the RFP and a budget with all the details enumerated. He would send this to the proposers for response. This would mean a special meeting was required during the week of October 24th with the returned information. He does not want to take Public Comments or the staff report in the packet.

Council Member Gherardi asked if this would be a BOFO (best and final offer) to which he answered affirmatively.

Mayor Hernandez asked if this was a re-offering of the bid, a process question. Theoretically, each vendor gave a BOFO already, he said. Are you allowing them to change bids?

Council Member Gherardi said it is wonderful and the ratepayers of Santa Paula will benefit if bids come back lower. She said a table was the way to compare an apples-to-apples comparison.

Mayor Hernandez said that the most aggressive bidder was responsible for the problem at the plant for which the ratepayers are paying and said that the winner provides “wonderful service” for Fillmore.

Vice Mayor Crosswhite reiterated the lack of the ability to compare one bid to the next, to which Council Member Tovias said that comparing numbers was just comparing numbers, but he trusted the consultants. Note that Mayor Hernandez and Council Member Tovias were on the committee with the consultants.

Council Member Procter said they need a matrix to understand details like membranes, chemicals and details.

Public Speakers

Bob Nespeca of PERC Water said that this was a double edged sword. PERC has submitted two proposals (two RFP’s were issued changing the insurance requirements) and PERC has lowered the price for the 8-hour shift by $228,000 per year and they will forgo $500,000 of the termination fee. PERC saves the city $930,000 in year one and $228,000 in each subsequent year. With six years running as well as designing the plant, their bid is the strongest, he said. PERC will participate the new bid presentation.


Bob Nespeca

Nate Owen, a colleague of Bob Nespeca, said PERC is the lowest and most competitive. They offer an extended, three-year warranty of the Koch membranes, only if PERC is the operator. Recovering the funds for the buyout is a huge expense for the ratepayers, he said. Two staff who work at the staff are born and raised in Santa Paula and want to keep their jobs.

Council Discussion

Council Member asked the consultant how the buyout was considered in the analysis.

The consultant said the buyout fee was “discussed” which is why they want to come back and provide an apples-to-apples comparison. The committee goal was not to hide the buyout, he said, but did not enumerate how the buyout was factored into the calculation. He said the selection is a “risk question” as much as a “cost question”. Although the buyout is significant, spills are significant too, he said, obviously alluding to the 2015 spill at the plant.

The consultant then responded to the seemingly contradictory information about the Koch membranes, where in one case the warranty goes with the system, but there is a conflicting letter to the contrary received on Friday.

The period of time to replace the membranes is a warranty decision, he said. There are also other vendors of membranes. Koch has also said they have new technology. He said it is in the city’s best interest to take control of as many things such as warranties itself, rather than letting the operator provide these services, although Koch said that PERC had operated the membrane bioreactor well. The RFP stresses city control. He reiterated that the Koch membrane warranty extension goes with the PERC contract.

Council Member Procter asked about interchangeability. The consultant is not certain, but this should be considered and investigated regardless of the chosen operator. He said the city should be part of the capital improvement budgeting process along with the operator. For example, a different provider might install new equipment for the operator.

Council Member Gherardi moved to accept the staff’s recommendation to provide an apples-to-apples comparison. The vote was 3-2 with Council Member Tovias and Mayor Hernandez opposing.

The Silent Elephant in the Room

Having referenced the 2015 spill several times and the cost the city had to pay, the Mayor did not clarify why the city had to pay for the cost of the spill, particularly in light of the insurance requirements specified in the 2015 Wastewater Enterprise Revenue Bond Prospectus. On page 18 of this document, it says:

The WRF Operating Agreement requires PERC to maintain commercial general liability insurance in the amount of at least $5,000,000 per occurrence, professional liability insurance in the amount of at least $3,000,000 per occurrence, automobile liability insurance in the amount of at least $1,000,000 and workers compensation up to statutory requirements…

Asked after the meeting, Mr. Cotti, city attorney, said that PERC’s insurance carrier rejected the 2015 spill claim because they do not cover “pollution” This appears to be counter-intuitive because a wastewater treatment plant by definition processes pollution.

The city obviously realized that a precise definition of insurance must be established for the new O&M contract which is why two RFP’s were issued clarifying the insurance requirements. Note that the PERC representative said in Public Comments he “did not understand this”, but PERC responded to the second RFP.

It would be worthwhile to understand how the insufficient liability insurance policy passed through the city when the city was negotiating the DBOF agreement with Alinda Capital and PERC Water. Presumably the city has filed a claim for the $1.5 million, but this was not discussed. However, it was clear that the spill was a major factor in the depletion of the Wastewater Enterprise fund and would jeopardize future rebates to citizens.

To watch the meeting click here. Read previous article on the hiatus of citizen rebates here.

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