200 S. Anaheim Blvd.
Suite #620
Anaheim, CA 92805
Tel: (714) 765-5110
Fax: (714) 765-5288
www.anaheim.net
CITY COUNCIL AGENDA REPORT
City of Anaheim
FINANCE DEPARTMENT
DATE: JANUARY 24, 2023
FROM: FINANCE DEPARTMENT
SUBJECT: APPROVE INCREASE IN PURCHASE ORDER FOR THE
ACQUISITION OF VARIOUS SIZE TRANSFORMERS FOR
ANAHEIM PUBLIC UTILITIES
ATTACHMENT (Y/N): NO ITEM # 04
RECOMMENDATION:
That the City Council, by Motion, waive Council Policy 4.0 and authorize the Purchasing Agent to increase the value of Purchase Order 521-399554 with Howard Industries c/o Young & Co., Pasadena, CA by $485,661.41 (16.5%) from an amount of $2,943,402.45 to $3,429,063.86, due to escalating prices for raw materials and production costs caused by supply chain impacts for manufactured electric distribution system transformers.
DISCUSSION:
Since 2020, global supply chain challenges have impacted many different sectors, including the utility industry. Due to constraints on materials and production capacity, there is a nationwide shortage of electric distribution system transformers, causing lead times to increase from approximately three months to up to two years and prices to increase significantly, resulting in some manufacturers no longer taking new orders as they experience difficulty fulfilling their current backlogs. Anaheim Public Utilities (APU) has slowed down its capital projects because of this shortage of transformers.
On January 20, 2022, Purchasing awarded a competitive bid which included delivery of four hundred and eighty-six (486) transformers totaling $2,731,696 (before tax) to Howard Industries, Inc., against the referenced Purchase Order. Approximately nine months after the award, the vendor requested a 16.5% price increase to fulfill delivery of the electric transformers. This is due to raw materials, such as steel, that remain in extremely short supply globally putting upward pressure on pricing. Transformers require steel as a critical raw material, which has resulted in a total proposed increase of $450,729.84 plus applicable tax to the order. Because this increase exceeds Purchasing’s 10% threshold for change orders, staff is requesting that City Council consider approval of the amendment to the Purchase Order.
Approve Increase in P.O. for Acquisition of Various Size Transformers January 24, 2023
Staff carefully reviewed the price adjustment request, determining that the vendor’s justification and amount requested for the supply chain price escalation was based on current market conditions, and is consistent with known global supply chain constraints that have also affected other utilities. Because of the nationwide shortage of transformers and APU’s limited stock of transformers at present, receiving this order is crucial to replace aging infrastructure as well as retaining stock for emergency events.
IMPACT ON BUDGET:
Sufficient funds are available in the Anaheim Public Utilities Fiscal Year 2022/23 restricted Electric Capital Improvement Program budget.
Respectfully submitted, Concurred by,
Barrick L. Bartlett Dukku Lee
Purchasing Agent Public Utilities General Manager