MEMORANDUM
DATE:
August 12, 2026
TO:
Peter Luchetti, Principal & General Manager for Rialto Water Services (RWS) and John Rossi, Senior Consultant for the City of Rialto
FROM:
Veolia Rialto Management Team
SUBJECT:
2024 Periodic Reset of Labor Component
I. Labor Reset Requirement in the Operations and Maintenance Subcontract
According to the Operations and Maintenance Subcontract (OMS, Section 8.11 & 14.11) and Concession Agreement (CA, Section 8.11 & 14.11), the periodic reset of the labor component is required at the conclusion of every fourth Contract Year. Due to delays, the initial Labor Reset scheduled for 2016 was necessarily deferred. Thus, the Parties (Veolia, RWS, and the City) combined the 2016 and 2020 Labor Resets. The combined Labor Resets were approved and established the current organizational structure of 49 employees, which took effect on January 1, 2020, and remained in effect through 2023. The next Labor Reset should have been completed in 2024, but again due to delays it has been postponed for almost three years. This memo outlines how the Parties plan on completing the 2024 Labor Reset with the added positions starting in September 2026.
The purpose of the labor reset is to include flexibility in the long- term OMS and acknowledge labor cost variances based on the prior four and next four years of the operation. At the same time, the labor reset interval provides predictability and budgetary stability to the City for 4 -year periods. Through the CA, Veolia was provided staffing levels originally envisioned in the form of an organizational chart (Schedule L) and an initial fixed labor fee. The CA also provided Veolia with the autonomy to add staff for operational necessity and service level expectations, follow Prudent Industry Practices and/or to be in conformance with applicable laws as required under OMS Sections 5.1(b) and 11.1(b) and CA Sections
5.1(b) and 11.1(b). It is important to note that Schedule L was provided merely as a guideline and documentation of initial conditions as it was very necessary to ramp up staffing in order to achieve the desired service level.
The Sections of the OMS governing the reset are 8.11 (WW) and 14.11 (Water). For purposes of this memo, the Sections pertaining to Wastewater are referenced; however, the operative provisions of Wastewater and Water are the same.
Following the conclusion of every fourth (4th) Contract Year, the Wastewater Labor Component shall be reset to an amount that is equal to the sum of the following: (i) the average annual Wastewater Labor Expense during the immediately preceding four (4) Contract Years, as adjusted in accordance with Section
8.7; plus (ii) an adjustment based on the anticipated changes in the Wastewater Labor Expense that Contractor reasonably believes are likely to be incurred during the succeeding four (4) Contract Years (“Wastewater Additional Labor Adjustment”); plus (iii) the Contractor Charge with respect to the subtotal of the foregoing clauses (i) and (ii).
The 2024 reset includes the averages for the preceding four Contract Years of Labor Expense (2020-2023) and anticipated next four years (2024-2027) of labor expense as detailed in the contract language. The 2024 reset includes the averages
for the preceding four Contract Years of Labor Expense (2020 -20 2 3) a n d a n ti c i p a t e d n e x t f ou r y e a r s ( 20 24-2027). For purposes of computing the labor expense, the definition used in the OMS applies:
“Labor Expense” means all costs and expenses incurred by Contractor to provide labor consistent with the S t a ffi n g P l a n t h a t i s a s s o c i a t e d w i t h ( i ) t h e o p e r a ti o n o f t h e U ti l i t y F a c i l i ti e s , ( i i ) t h e p e r f o r m a n c e o f Maintenance, (iii) Repair Cost, (iv) Replacement Cost, (v) Operating Repair and Operating Replacement; and (vi) any other Services except for that portion of Services related to design and construction as noted below.
The term “Labor Expenses” includes costs and expenses associated with the recruitm ent, training, tuition reimbursement, continuing education, licensing of personnel, payment of salaries, wages and benefits (inclusive of all taxes, insurance, medical, disability and health benefits, pensions, retirement plan costs, contributions, assessments, sick time, vacation time, overtime, premium time, holidays, and continuing education), temporary labor, expense reimbursements, termination and severance payments, all of which are consistent with Contractor’s standard employment practices, any colle ctive bargaining agreement or prevailing market rates in the water and wastewater treatment industry for Southern CA.
The labor reset not only includes the average annual Labor Expense during the preceding four years and an adjustment based on the anticipated changes in the Labor Expense in the next four years, but it also includes the Contractor Charge for overhead and profit fixed at 18%. According to the OMS, the definition of Contractor Charge states:
“Contractor Charge” means the portion of the Compensation to be paid to Contractor in the form of a mark- up that is applied to certain amounts due as Compensation (prior to application of the Contractor Charge) as expressly set forth in this O&M Subcontrac t i n t h e t o t a l a m o u n t o f e i g h t e e n p e r c e n t ( 1 8 % ) , t h a t i s comprised of ten percent (10%) for costs associated with overhead and administration and eight percent (8%) for profit.
In short, each labor reset for both Water and Wastewater is the average of the past four years of Labor Expense, plus an adjustment based on the anticipated changes made to the Labor Expense in the next four years, plus an 18% charge applied to the total. The result is compared to the current fixed labor component received by Veolia per the contract. If the labor reset is higher than the Labor Component of Veolia’s fixed fee, then the fixed fee is increased.
II. Veolia Staffing Changes since the completion of the 2020 Labor Reset
Currently, the staffing plan shows 49 employees under the CA/OMS, see Exhibit A for the current organizational chart. The org chart includes the two (2) perchlorate operators, who are not included in the Labor Component nor Labor Reset calculation as they are accounted for in the separate perchlorate contract between the City and Veolia. For the purposes of the 2024 Labor Reset, three (3) positions have been requested to be added to the current organizational chart. They are: (1) a Lab Technician, and (2 & 3) two (2) collection technicians. These positions are being added due to Change in Law and/or Change in Scope in accordance with the CA/OMS as outlined in the reasonable substantiation memos attached as Exhibit B.
III. Comparing Rialto Staffing Levels to other Cities
Veolia completed a review of the wastewater systems in the areas surrounding the City of Rialto, CA and learned that the Rialto project is understaffed in the collection department by comparison. This analysis reviewed the budgets and staffing levels per MGD of the following cities: El Cajon, Hesperia, Compton, Chino Hills, Vista, Hemet, Fontana, Redlands, San Bernardino, Yucaipa, and Westminster. It is difficult to make a side-by-side comparison, since MGDs (at design capacity) vary between locations, po pulation, service area, and because many city operations throughout California include programs not covered in Rialto (and vice versa). In review, Rialto is significantly understaffed as demonstrated in Exhibit C.
IV. Labor Reset Calculation according to Concession Agreement
Impact of the Labor Reset on labor compensation, separately stated for Water and Wastewater The labor reset calculations resulted in:
1. Annual fixed labor component value of $3,763,956.50, which represents a 4.15% increase when compared to 2024 escalated rates.
2. Annual fixed labor component value of $3,685,333.29 , which represents a 6.87 % reduction when compared to 2024 escalated rates.
Upon acceptance, the labor reset, the labor component fixed fee starting September 2026 will be based on the 2024 calculated values listed above, escalated through 2026:
1. Water Labor Component: $4,053,454.77 annually or $337,787.90 monthly
2. Wastewater Labor Component: $3,967,896.30 annually or $330,658.02 monthly
The resulting fixed fee labor compensation amounts listed below show the before-and-after effect of the reset compared to actual billed rates for January 2024 - August 2026, see Exhibit D for the Labor Reset calculation.
V. Conclusion
Veolia proposes adding three (3) new positions to the CA/OMS staffing plan due to a Change in Scope and/or Change in Law. The fully burdened impact of these three (3) positions amounts to $284,971.63 annually. Additionally, the labor component is subject to annual escalation utilizing 100% of the ECI change per the CA/OMS. While this Labor Reset should have been completed in 2024, the Parties are using September 2026 as the start date for the three (3) added positions in the labor reset calculation. The labor reset calculation was originally drafted by the City’s Financial Consultant, FG Solutions, during the combined 2016-2020 labor reset, and the same model/calculation is being utilized for the 2024 labor reset. The impacts to the Labor Component are delineated in Section IV. After review, we welcome any questions the City or RWS may have so that the City’s consultants can report to the Water Subcommittee members that we are in agreement on the Labor Reset calculations and impacts.
EXHIBIT B
Dear City of Rialto,
Veolia is writing to formally request the addition of two new staff members to the Collections team. We cite a significant increase in workload and growing project demands that are currently exceeding the capacity of our existing team.
Reasons for Justification:
Increased Project V olume:
Over the past several years the collections department has seen on average a 30% or more increase in their day-to-day workload. The additional workload consists of three new lift stations (Valley, El Rancho, and Frisbee) with a fourth new lift station proposed on the northeast corner of Pepper Ave. There has also been an unknown amount of new sewer main lines added to the City as a result of growth within the city limits mainly contributed by residential construction and commercial developments. With the decommissioning of plants 1-4, housekeeping is needed to ensure that there are no vector or odor complaints. All of these factors have created a significant impact on the staff's ability to focus on contractual deliverables.
Critical Gaps:
The additional staff members would address specific gaps in our teams, both on Veolia’s and the city side. Particularly oversight of finished underground constructions and the tracking of new sewer infrastructure to update the GIS in regards to the industry standards [staffing needed for operating the GapVax Vacuum/Jetter truck, CCTV Van, responding to DigAlerts, and station rounds for the nine current lift stations throughout the City of Rialto ].
Proposed Roles and Impact:
Collection Systems Tech:
Maintains the municipal wastewater collection system by cleaning sewer lines of grease, roots, and other debris with vacuum / jetter truck and other rodding equipment.
Performs sewer maintenance work of increasing difficulty and provides technical assistance, coordination, and training to entry-level and temporary staff as assigned.
Evaluates the need for repairs to sewer lines, pipes, pipe connections.
Operates the CCTV equipment to search for illegal sewer line usage and to check for overall conditions.
Monitors gas and oxygen levels in confined spaces. Performs routine maintenance to lift station pumps and all auxiliary equipment.
Financial Considerations:
● We have carefully analyzed the potential cost of adding these new positions and believe the increased revenue generated by improved efficiency and capacity will significantly outweigh the additional expense.
Conclusion:
Adding two new staff members to our team is essential to maintain our current service level while maintaining safety for our staff. This increase in staff will give us the opportunity to response to critical callouts during business hours to minimize negative environmental impacts, while preventing potential burnout among our existing staff.
Please let me know if you have any questions or require further details.
Sincerely,
Soheil Sadighi
General Manager
Veolia
Dear City of Rialto,
Veolia is writing to formally request the addition of a new staff member for our laboratory. We cite new regulatory requirements and process control needs.
Reasons for Justification
TNI Standard:
The laboratory is certified by CA ELAP which has adopted a new set of standards (2016 TNI Standard) the laboratory must adhere to starting 2024. The laboratory will be audited against this standard this year. In 2023, a third party auditor performed a gap assessment to identify necessary changes for compliance with the new standard. Based on the findings, the lab is required to perform additional internal audits and reviews on a regular schedule, implement new procedures for document review and equipment verifications, and provide additional
training to staff. It is also strongly recommended for all laboratory data to undergo a secondary review by an experienced person. The time required for our Lab Supervisor to perform these functions will take away from time that is currently spent on laboratory analysis.
The TNI standard also mandates the lab to designate a Technical Manager to oversee laboratory operations and monitor quality control and validity of laboratory results. This person must meet specific educational and experience requirements. Our Lab Supervisor is designated to fill this role, however “if [the Technical Manager is] absent for a period of time exceeding fifteen (15) consecutive calendar days shall designate another staff member meeting the qualifications of the technical manager(s) to temporarily perform this function” (2016 TNI Standard Rev. 2.1, V olume 1, Module 2, Section 4.1.7.2).
Process Control:
The laboratory is working to analyze more process control samples in-house that were previously sent to a sublab for analysis. The standard turnaround times for sublabs is 10 business days whereas in-house analysis allows for same day results. This gives the operators real-time data to make informed decisions and allows them to take a more proactive approach handling wastewater operations.
Critical Gaps:
The additional staff member would fill the role as the primary analyst for the lab, allowing our Lab Supervisor sufficient time to ensure the new TNI requirements are met to maintain our certification. They will also be trained to serve as the back-up for the Technical Manager role.
The additional staff will also allow for cross-training with the IPP coordinator. This will allow the program to have an adequate transfer of knowledge and a back-up in place, which is currently not in place.
Proposed Role and Impact:
Laboratory Technician:
Performs routine and non-routine procedures, including analysis and sampling according to specified methodology as described in the SOP
Follows QA/QC procedures as outlined in the Laboratory Quality Program Manual and performs corrective action when needed.
Performs monitoring, preventive maintenance, and calibration of on-line meters.
Serves as the Technical Manager for the lab in the absence of the Lab Supervisor (when designated)
Financial Considerations:
● We have carefully analyzed the potential cost of adding this position and believe the ability to maintain our laboratory certification and meet regulatory requirements without compromising on sample analysis will outweigh the additional expense.
Conclusion:
Adding a lab technician to our team will give us the labor needed to meet the new requirements of the TNI Standard while also performing process control analyses that help our operators make critical decisions for the plant.
Please let me know if you have any questions or require further details.
Sincerely,
Soheil L. Sadighi
General Manager
Veolia
EXHIBIT C
Here's a list of Citys in Southern California with populations between 90k- 100k and the number of Collection staff responsible for sewer lines. All systems are sanitary only and not combined storm water/sanitary systems.
City Collections Employees Miles of Sewe rPump Stations
Rialto 4 265 9 (+2)
El Cajon 9 200 0
Hesperia 9 150 2
Compton 6 147 0
Vista 8 316 4
Chino Hills 7 200 8
Hemet 4 125 3**
Fontana 29*** 450 8
Redlands 7 247 1
San Bernardino 11 467 15
Yucaipa 15 228 7
Westminster 6 174 4
* Totals do not include management/supervisor
positions
** Pump stations are on SCADA
*** Public works Utilities and Streets handles all sewer line cleaning, spills, and repairs