Memorandum

City of Lawrence

Public Works

TO:	David L. Corliss
FROM:	Mark Thiel
CC:	Chuck Soules, Tammy Bennett , Tom Orzulak, Steve Stewart
Date:	March 25, 2009
RE:	Request to Award a Lease Agreement for Three Loader / Backhoes

The Public Works Street Division received bids for the three year lease of three backhoes on March 24, 2009. The bids were as follows;

1. Murphy Tractor and Equipment Co.	$123,815.93
2. Martin Tractor Co.	$110,001.00
3. The Victor L. Philips Co.	$105,364.39
4. Kan Equipment Co.	No Bid

Justification:

 In 2002 the City of Lawrence Street Division began leasing its backhoes 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 backhoes versus leased backhoes and determined that it cost us twice as much to own a backhoe as it does to lease. Over the same three year period the owned backhoe cost the city $15,667 in maintenance cost. The same leased backhoe 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 backhoe as currently bid is $88,886. Our lease plan will cost, as bid, $35,112 over a three year period per machine. The cost to buy the back-hoe at the end of the lease is $55,121 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 backhoes would cost $266,659.  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 backhoes would be considered to be at the end of the service life.

These backhoes 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 backhoes are operational as much as possible to avoid down time. The current lease expires in May 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) $35,121.46 and 505-3900-578.60-08 (Stormwater Fund) $70,242.92. 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 enter into a three year lease agreement with The Victor L. Philips Company for a total cost of $105,364.39.