Staff is requesting a budget modification of $25,000 to supplement and complete the Alternative Fuels Demonstration Project. The request was prompted by the actions of a non-responsive contractor who has breached his contract with the City of Sunnyvale and has not returned progress payments made in good faith by the City.

Capital Improvement Project 801401, Alternative Fuels Demonstration Project, was established in July 1999 through RTC 99-300. The project was designed to:

1. increase the number of alternative fuel vehicles operated by the City; and
2. expand the capacity of the existing compressed natural gas (CNG) fueling facility to accommodate the ever-increasing alternative fuel portion of the City’s fleet.

The original cost estimate for the project was $272,000, with a large portion of the funding for this project provided through a grant of $238,850 from the Bay Area Air Quality District (BAAQMD), administered by the Valley Transportation Authority (VTA). The remaining $33,150 consisted of matching funds from the City.

Acquisition of the vehicles identified in the project is complete and the subject vehicles have been in service since early 2001. This portion of the project yielded four CNG vehicles and five electric vehicles and charging stations.

The second portion of the project involves a pipeline and compressor station that will increase the capacity of existing infrastructure and reduce the cost of CNG by 50% or $15,000 per year based on current consumption. Staff prepared specifications, solicited responses from six vendors, and ultimately issued a purchase order to Clean Fuels, LLC in April 2000 to furnish, assemble and install a compressor station and control system. Terms of the purchase order called for three progress payments: one when plans were delivered, a second when equipment arrived at the contractor’s site for assembly and a final payment when the work was completed.

The project suffered an inordinate initial delay (nearly a year) due to slow response from PG&E installing the natural gas supply line. Actual cost for the supply line exceeded initial PG&E cost estimates requiring an additional $30,000 of matching City funds and raising the total project cost to $302,000.

During this time, Clean Fuels prepared plans and took delivery of the necessary equipment. City staff accepted the plans and inspected the equipment when it arrived at the Clean Fuels assembly site in Stockton, California. Since the purchase order called for progress payments at each of these milestones, the Fleet Manager approved progress payments of $18,354 and $27,467 accordingly.

After the PG&E work was completed in April 2001, Clean Fuels indicated that they would complete the project within 60 days. After that deadline passed, Staff asked the City Attorney’s office to intervene. The Deputy City Attorney and the Fleet Manager conferred with Clean Fuels in person and by written communication on several occasions. Clean Fuels ultimately became non-responsive and the City Attorney cancelled the contract with Clean Fuels and has filed a complaint for breach of contract. The complaint includes language calling for the contractor to reimburse the City for the aforementioned progress payments and be responsible for any additional cost incurred by the City to complete the project. All reimbursement received from Clean Fuels will be returned to the Equipment Replacement Reserve Fund.

With the contract with Clean Fuels now cancelled, Staff requested a one-year extension from the VTA to preserve the $82,330 of grant funding reserved for this project. This request was approved and staff developed an alternate plan to complete the project. Unfortunately, loss of the progress payments issued to Clean Fuels will require an additional $25,000 of City funds to complete the project.

This project is supported by the Air Quality Sub-element of the General Plan through Goal C, "Make a contribution towards improving regional air quality", and through Policy C.4, "reduce emissions from City of Sunnyvale fleet vehicles".

If Council approves the proposed budget modification, staff will proceed with completion of the project with the installation of a compressor station at the existing CNG fueling facility.

Approval of this agreement will benefit the City of Sunnyvale by reducing the cost of CNG fuel by 50% and allowing the City to continue expanding its alternative fuel fleet. The remaining funds required for the acquisitions are currently available in the adopted FY 2001/2002 Budget in the General Services Fund Fleet Sub-fund.

Public contact was made through posting of the Council agenda on the City’s official notice bulletin board, posting of the agenda and report on the City’s web page, and the availability of the report in the Library and the City Clerk’s office.

Staff recommends alternative #1.

Prepared by:

Gene Waddell

Fleet Manager

Reviewed by:

Marvin Rose

Director of Public Works

Mary J. Bradley

Director of Finance

Approved by:

Robert S. LaSala

City Manager