Memorandum
City of Lawrence
Public Works
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TO: |
David L. Corliss |
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FROM: |
Mark Thiel |
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CC: |
Chuck Soules, Tammy Bennett , Tom Orzulak, Steve Stewart |
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Date: |
2/23/2009 |
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RE: |
Request to Bid a Lease Agreement for Three Loader/Back-Hoes March 3, 2009 Consent Agenda Item |
Justification:
In 2002 the City of Lawrence Street Division began leasing its back-hoes versus purchasing outright with the idea of saving money, reducing down time for maintenance repairs and improving efficiency. Over time it has proved to be a beneficial decision. Our Fleet Division has tracked the cost associated with owned back-hoes versus leased back-hoes and determined that it cost us twice as much to own a back-hoe as it does to lease. Over the same three year period the owned back-hoe cost the city $15,667 in maintenance cost. The same leased back-hoe has cost the city $8,846 for that same three year period to which some of this cost was not associated with maintenance but rather equipment damage. This cost comparison did not account for lost productivity due to additional down time which would increase the cost savings. The cost to purchase a new back-hoe is approximately $100,000. Our lease plan costs $20,000 per year over a three year period or $60,000 total. The cost to buy the back-hoe at the end of the lease is $40,000, making the cost to own or lease virtually the same. The primary difference is that the leased equipment is under factory warranty for the entire three year period. To purchase three new back-hoes would cost $300,000. Then, at the end of three years, the city would be responsible for all of the maintenance and at the end of the next three years the back-hoes would be considered to be at the end of their service life.
These back-hoes are mission critical and basic equipment that are utilized daily by all crews for a variety of activities from street maintenance, levee maintenance, storm water excavation and emergency operations that include snow removal and disaster response. It is imperative that these back-hoes are operational as much as possible to avoid down time. The current lease expires in April 2009.
The lease gives us the best option for cost savings, operational effectiveness and reliability.
Project Funding:
Funding for this lease will come from 214-3800-578.60-08 (Special Motor Fuel Tax Fund) $60,000, and 505-3900-579.60-08 (Stormwater Fund) $120,000. This lease is paid in the first year to avoid paying any interest. No additional lease cost will be incurred in year two or three.
Action Request:
Authorize the Public Works Department to bid this leased equipment.
Attachments: Request for Vehicle Bids; Vehicle/Job Appropriateness Survey