TO: HONORABLE MAYOR FROM: Julia H. Cooper
AND CITY COUNCIL
SUBJECT: AMENDMENT TO PURCHASE DATE: May 23, 2022
ORDERS FOR FUEL AND
PETROLEUM PRODUCTS
Approved Date 05/26/22
RECOMMENDATION
Adopt a resolution authorizing the City Manager to:
(a) Amend open purchase order OP 60662 with Tom Lopes Distributing, Inc., dba Western States Oil Co. (San José, CA) for fuel and petroleum products as needed to:
a. Retroactively approve the seven one-year options that extended the term to July 31, 2022; and
b. Increase compensation by $2,120,000 for a revised maximum compensation not- to-exceed $7,620,000 through the seventh option term ending July 31, 2022; and c. Negotiate and execute a purchase order to extend services for up to two additional option terms for a total of nine options through July 31, 2024, subject to the appropriation of funds; and
(b) Amend open purchase order OP 60659 with Bosco Oil, Inc., dba Valley Oil Company (Mountain View, CA) for fuel and petroleum products as needed to:
a. Retroactively approve the seven one-year options that extended the term to July 31, 2022; and
b. Negotiate and execute a purchase order to extend services for up to two additional option terms for a total of nine options through July 31, 2024, subject to the appropriation of funds; and
(c) Approve a contingency of $380,000 for any unforeseen changes in the dynamic commodity market for fuel and petroleum products, subject to the appropriation of funds.
OUTCOME
Authorizing the City Manager to take this action will ensure the continued availability and timely delivery of different types of fuel to power the City of San José’s (City) fleet of vehicles.
COUNCIL AGENDA: 06/07/2022
FILE: 22-832
ITEM: 2.18
HONORABLE MAYOR AND CITY COUNCIL
May 23, 2022
Subject: Amendment to Purchase Orders for Fuel and Petroleum Products
BACKGROUND
The City maintains seven fueling stations on City property for the exclusive refueling needs of the City’s fleet of vehicles. The Fleet Management Division of the Department of Public Works (Fleet) oversees fuel management on behalf of various City departments, such as the Fire and Police, and relies on several purchase orders to meet the City’s fueling requirements. The San José-Santa Clara Regional Wastewater Facility utilizes the same purchase orders for its two onsite fueling stations and to power the Co-Generation plant.
The City currently acquires fuel through open purchase orders with primary providers Western States Oil Co. and Valley Oil Company. These companies were authorized by City Council in November 20131 as a result of a competitive Request for Proposal (RFP) solicitation. The City has renewed these purchase orders on annual basis since that time.
The original solicitation allowed for eight one-year options to extend the agreement, seven of which have been exercised. The City now desires to add two additional options for a total of nine options.
In 2013, fuel vendors generally represented they would not agree to a fixed markup rate for longer than two years at a time. As such, City Council approved a resolution that authorized staff to “issue a RFP … every two years or after the expiration of each period fixing the markup to the wholesale petroleum fuel prices, whichever occurred first”. The purpose of this process was to allow vendors the ability to increase their markup, and to facilitate the City’s ability to secure the most favorable pricing. As the City’s fuel vendors have maintained a fixed markup rate since 2013, the City has exercised seven annual options pursuant to the original RFP, maintaining that fixed markup, rather than going back out for an RFP, which would allow the vendors to increase the markup. The freight fee has been subject to price adjustments based on the Consumer Price Index consistent with standard business practices.
The original resolution contemplated issuing an RFP every two years or sooner if the period fixing markup expired. However, market conditions have been such that exercising the options to extend the agreement, with a 2013 fixed markup rate, was more favorable for the City.
Therefore, staff is seeking retroactive approval for these seven options. While the options were contemplated in the RFP, the ability to exercise the options was not part of the original recommendation approved by City Council.
The City places orders for fuel in large volumes. Fuel pricing is obtained based on the Oil Price Information Service Low Rack San José index on the day of purchase. The fuel providers charge the current Oil Price Information Service index price plus a fixed markup and freight cost for fuel delivery. Fuel is delivered to the seven fueling sites throughout the City. Deliveries include various types of fuel such as unleaded petroleum and renewable diesel; types and quantities of fuel deliveries vary depending on specific vehicle requirements.
1 November 5, 2013, Resolution: https://records.sanjoseca.gov/Resolutions/RES76840.PDF
HONORABLE MAYOR AND CITY COUNCIL
May 23, 2022
Subject: Amendment to Purchase Orders for Fuel and Petroleum Products
Due to the current extreme volatility in the fuel and petroleum products market, costs have increased and the current purchase orders are insufficient to cover costs through the end of the current term, June 30, 2022.
ANALYSIS
The City consumes roughly 85,000 gallons of unleaded petroleum and 40,000 gallons of diesel on a monthly basis through current purchase orders. The demand for fuel is ongoing year-round in order to provide essential services for City residents and to maintain operations.
Fleet, in coordination with the City Manager’s Budget Office, has reviewed monthly expenditures to forecast expected fuel usage and determined the necessary funding to maintain ongoing City-wide fuel operations. With this City Council action, staff will maintain purchase orders with existing fuel providers to ensure continuity of service.
CONCLUSION
Approval of the recommendation will ensure the City continues to receive these essential fuel products and services with minimal impact to operations.
EVALUATION AND FOLLOW-UP
This memorandum will not require any follow-up from staff.
CLIMATE SMART SAN JOSE
The recommendation in this memorandum has no effect on Climate Smart San José energy, water, or mobility goals.
PUBLIC OUTREACH
This memorandum will be posted on the City’s website for the June 7, 2022, City Council meeting and the June 9, 2022, Treatment Plant Advisory Committee meeting.
COORDINATION
This memorandum has been coordinated with the Department of Public Works, the Environmental Services Department, the City Attorney’s Office, and the City Manager’s Budget Office.
HONORABLE MAYOR AND CITY COUNCIL
May 23, 2022
Subject: Amendment to Purchase Orders for Fuel and Petroleum Products
COMMISSION RECOMMENDATION/INPUT
There is no commission recommendation or input associated with this action.
BUDGET REFERENCE
The table below identifies the funds and appropriations to fund the contracts recommended as part of this memorandum.
Fund # Appn. # Appn. Name Total Appn.
Amt. for
Contract
21-22
Adopted
Budget Page
Last Budget
Action
(Date, Ord. No.)
552 0083 Inventory purchases $8,039,000 $2,000,000 1026 02/08/2022, 30717
513 0762 ESD Non-Personal/
Equipment
$35,387,669 $120,000 1014 10/19/2021,
30682
CEQA
Not a Project, File No. PP17-003, Agreements/Contracts (New or Amended) resulting in no physical changes to the environment
/s/
JULIA H. COOPER
Director of Finance
For questions, please contact Jennifer Cheng, Deputy Director of Finance, at [email protected].