February 10, 2004
SUBJECT: Rejection of Bids Received in Response to Invitation for Bids No. F0311-33 and Award of Invitation for Bids No. F0301-40 for Vehicle Fuel
REPORT IN BRIEF
Approval is requested for the rejection of all bids received in response to a cooperative purchase of vehicle fuel by reverse online auction (Invitation for Bids No. F0311-33).
Approval is also requested for the award of two three-year contracts resulting from a second cooperative purchase of vehicle fuel by reverse online auction (Invitation for Bids No. F0301-40). The requested contracts include one contract to Petro-Diamond, Inc., of Irvine for unleaded fuel and one contract to Valley Oil Company of Mountain View for ultra low sulfur diesel fuel. Each contract includes an option to extend the contract for two additional one-year periods.
BACKGROUND
Vehicle fuel is stored in several underground storage tanks within the boundaries of the City of Sunnyvale and monitored by Central Stores staff. Since 1998, the City's fuel provider has been Malaco International, Inc., of Walnut Creek. This contract, which was awarded by Council on November 10, 1998, resulted from a cooperative purchase with other public agencies, including several Bay Area transportation authorities. Exceptional pricing was achieved, based upon a combined volume of 65 million gallons of diesel fuel and 9 million gallons of unleaded gasoline over a three-year period.
Under the Malaco contract, fuel has been ordered on a weekly basis; and prices have been calculated each week, based upon the Oil Price Information Service (OPIS) San Jose average. The City has been paying .0110% less than OPIS for unleaded fuel and .0175% more than OPIS for diesel fuel.
That contract was subsequently extended on two occasions and will expire in mid-February.
DISCUSSION
In Fall 2003, City of Sunnyvale Purchasing and Fleet staff took the lead in the development of a new cooperative purchase for vehicle fuel. Participating agencies included the County of Santa Clara, and the Cities of San Jose, Santa Cruz, and Sunnyvale with a combined purchase volume of more than 4 million gallons of fuel.
The selected procurement method was an online reverse auction conducted by Orbis Online of San Antonio, one of the leading providers of online auction services. This type of auction takes place in real time (live) on the Internet. In contrast to a traditional sealed bid, both the buyer and seller can see each bid as it is placed. Bidders can reevaluate and adjust their bids in response to other bids. Auctions are commonly scheduled for one-half hour. If a "last minute" bid is received, the auction is automatically extended for an additional five minutes to allow thoughtful reaction by other bidders.
The Sunnyvale Municipal Code authorizes the Purchasing Officer to use non-traditional procurement methods on an experimental basis, provided that such methods do not inhibit fair and open competition or compromise the integrity of the procurement process and that the use of such a method is approved in advance in writing by the City Manager. Although the City of Sunnyvale had participated in one previous online reverse auction for another commodity, this was an entirely new experience for the other participants.
On December 19, 2003, an online reverse auction was conducted which was labeled Invitation for Bids #F0311-33. Starting bids were set at 5% over OPIS. Fuel requirements were split into eight lots, as follows:
Lot 1 - Large tanks of unleaded and diesel fuel for Santa Clara County;
Lot 2 - Large tanks of unleaded fuel for the City of Santa Cruz;
Lot 3 - Large tanks of unleaded and ultra low sulphur diesel fuel for the City of Sunnyvale;
Lot 4 - Large tanks of unleaded and diesel fuel for the City of San Jose;
Lot 5 - Small tanks of unleaded and diesel fuel for the City of San Jose;
Lot 6 - Small tanks of unleaded and diesel fuel for the County of Santa Clara;
Lot 7 - Unleaded fuel for the City of Santa Cruz; and
Lot 8 - Bio-diesel fuel for the City of Santa Cruz.
Five bidders placed a total of 72 bids during the one-hour auction event. The low bids were received from Valley Oil Company of Mountain View, Interstate Oil Company of San Jose, and Golden Gate Petroleum of Salinas. Bids ranged from a low of .05% over OPIS (Lot 1) to a high of 4.9% over OPIS (Lots 5 and 6).
The low bidder for the City of Sunnyvale's fuel requirements (Lot 3) was Interstate Oil with a bid of .19% over OPIS for both unleaded and diesel fuel.
Bid results were disappointing to all participating agencies; and it was agreed that a change in specifications and auction rules (i.e. starting bids, lot configuration, etc.) would most likely result in better bid pricing. Staff, therefore, requests that Council reject all bids received in response to Invitation for Bids #F0311-33.
On January 16, 2004, a second online reverse auction was conducted which was labeled Invitation for Bids #F0301-40. All lots (except Lots 11 and 12) were to be bid as a percentage above or below OPIS San Jose. Lots 11 and 12 were to be bid as a one-year firm, fixed price. Based upon supplier feedback, Addendum No. 1 was subsequently issued which changed the bid format for Lot 12 (Sunnyvale's ultra low sulfur diesel) from firm, fixed price to cost plus percentage. Starting bids for OPIS-based pricing were set at 1% over OPIS, 4% less than the starting bid for the first auction; and fuel requirements were split into twelve lots:
Lot 1 - Large tanks of unleaded fuel for Santa Clara County;
Lot 2 - Large tanks of unleaded fuel for the City of Santa Cruz;
Lot 3 - Large tanks of unleaded fuel for the City of Sunnyvale;
Lot 4 - Large tanks of unleaded fuel for the City of San Jose;
Lot 5 - Large tanks of diesel fuel for Santa Clara County;
Lot 6 - Large tanks of diesel fuel for the City of Santa Cruz;
Lot 7 - Large tanks of diesel fuel for the City of San Jose;
Lot 8 - Small tanks of unleaded and diesel fuel for the City of San Jose;
Lot 9 - Small tanks of unleaded and diesel fuel for Santa Clara County;
Lot 10 - Small tanks of diesel fuel for the City of Santa Cruz;
Lot 11 - Small tanks of bio-diesel fuel for the City of Santa Cruz; and
Lot 12 - Large tanks of ultra-low sulfur diesel fuel for the City of Sunnyvale.
Five bidders placed a total of 119 bids during the 3-1/2 hour auction event. OPIS-based bids ranged from a high of .82% above OPIS (Lots 5 and 7) to .82% below OPIS (Lot 4). The low bidder for the City of Sunnyvale's unleaded fuel requirements (Lot 3) was Petro-Diamond, Inc., of Irvine with a bid of .13% below OPIS San Jose. Staff recommends award of a three-year contract for unleaded fuel, with an option to extend the contract for two additional one-year periods, to Petro-Diamond, Inc.
Three bidders (Golden Gate Petroleum of San Jose, Malaco International of Walnut Creek and Valley Oil of Mountain View) placed a total of six bids on Lot 12 (Sunnyvale's ultra low sulfur diesel requirements). All three bidders offered a firm, fixed price instead of cost plus pricing as required by Addendum No. 1. All three bids must, therefore, be deemed non-responsive.
Section 2.08.110(d) of the Sunnyvale Municipal Code authorizes procurement without further bidding in those situations where none of the bids meet the requirements as specified in the solicitation document. Since none of the Lot 12 bids can be considered responsive, staff has negotiated a bid of cost plus $.04 with Valley Oil for ultra low sulfur diesel. Valley Oil has provided fuel to the City in the past, and staff has been well satisfied with their services. Staff, therefore, recommends award of a three-year contract to Valley Oil, with an option to extend the contract for two additional one-year periods, for ultra low sulfur diesel fuel.
FISCAL IMPACT
Total cost for vehicle fuel over the next three years is not expected to exceed $900,000. Funds are budgeted in Department of Public Works Fleet Maintenance Program 763 - Vehicles and Motorized Equipment.
Although cost savings were realized through this cooperative purchase, they are difficult or impossible to precisely quantify. Had the City issued an individual competitive bid for unleaded fuel, based on its annual purchase volume of 190,000 gallons, it is unlikely that pricing of less than 4% above OPIS could have been achieved. Assuming a +4% bid and using the current San Jose OPIS of $1.1267 per gallon, an annual cost savings of $8,840 for unleaded fuel can be estimated.
With regard to ultra low sulfur diesel fuel, the City only recently began using this type of fuel; and no historical price data exists. In addition, there is currently no San Jose OPIS for this fuel. Cost savings, therefore, cannot be estimated at this time.
For information only: The City's pro-rated share of the auctioneer's fees was $1,618 (6.47% of the total fee, based on purchase volume).
RECOMMENDATION
It is recommended that Council:
1. Reject all bids received in response to Invitation for Bids No. F0311-33 (Lot 3 only);
2. Award a three-year contract for unleaded fuel, with an option to extend the contract for two additional one-year periods, to Petro-Diamond, Inc.;
3. Award a three-year contract for ultra low sulfur diesel fuel, with an option to extend the contract for two additional one-year periods, to Valley Oil Company; and
4. Authorize the Purchasing Officer to issue blanket purchase orders to that effect.
Prepared by:
Elaine Wesely
Purchasing Officer
Reviewed by:
Mary Bradley
Director, Finance
Reviewed by:
Marvin Rose
Director, Public Works
Approved by:
Amy Chan
Acting City Manager