January 31, 2006

SUBJECT: Award of Contract for Water and Wastewater Treatment Chemicals (F0511-34)

REPORT IN BRIEF

Approval is requested for the award of two one-year contracts for liquid chlorine and liquid sulfur dioxide for the Water Pollution Control Plant:  one contract to Sierra Chemical Company of Sparks, Nevada, and the other to Pioneer America, LLC, of Walnut Creek.

BACKGROUND

Liquid chlorine and liquid sulfur dioxide are used in large quantities in the wastewater and recycled water treatment process at the Water Pollution Control Plant (WPCP).

In recent years, cost effective procurement of these toxic chemicals has become difficult. Increasingly stringent environmental regulations for processing and storage have eliminated all suppliers in Santa Clara County, and several have left the state. Buying in bulk is the best way to reduce unit costs and generate competitive bids from the larger suppliers.  However, this requires buying by the rail car which creates potential safety and security risks for the Water Pollution Control Plant when required to store that much volatile material onsite. In order to strike a balance between safety and pricing, the Water Pollution Control Plant orders these products in one-ton containers (carboys).

During the past year, product availability was also an issue.  In September 2005, a strike in the Northeast disrupted production of liquid sulfur dioxide, and there was a significant increase in price from September through the end of the year.

DISCUSSION

Bid specifications, including estimated quantities, were prepared by Public Works and Purchasing staff. The contract duration was set at one year because, due to the volatility of the market for these products, that is as long as suppliers will hold their pricing firm. Bid packages were directly supplied to the eight known Western US suppliers for these products.

Two bids were received and publicly opened on December 21, 2005. 

Bidder	Liquid Chlorine	Liquid Sulfur Dioxide	Total
Pioneer America, LLC	$429.00/Ton	$412.00/Ton	$182,997
Sierra Chemical Co.	$449.50/Ton	$384.50/Ton	$184,079

Although Pioneer America is the aggregate low bidder, in order to safeguard sourcing for these critical supplies, staff recommends that Council award contracts to both suppliers in the following manner:

• Award a contract to Pioneer America as the primary supplier (low bidder) for liquid chlorine and the backup supplier (second low bidder) for liquid sulfur dioxide.
• Award a contract to Sierra Chemical Company as the primary supplier (low bidder) for liquid sulfur dioxide and the backup supplier (second low bidder) for liquid chlorine.

Bid specifications allow the City to make multiple awards, and both suppliers have indicated that these arrangements are acceptable.

FISCAL IMPACT

Based on estimated annual requirements and the assumption that each product will always be available from its primary supplier (low bidder), total cost to the City for two one-year contracts will most likely not exceed $164,925. This breaks down to $107,250 for liquid chlorine (250 tons at $429/ton) and $57,675 for liquid sulfur dioxide (150 tons at $384.50/ton).  However, due to last year’s experience with product shortages and price fluctuations, staff recommends that Council authorize total expenditures under the two contracts up to $250,000.  Although it is likely that considerably less than this amount will actually be required, it will give staff the flexibility to maintain an uninterrupted supply of these critical chemicals in the event of a labor dispute or other unexpected situation that results in price increases during the one-year contract terms.

Funds are available in the Department of Public Works Environmental Services Division Program 342 - Wastewater Management.

RECOMMENDATION

It is recommended that Council: 

1. Award two one-year contracts for liquid chlorine and liquid sulfur dioxide in substantially the same form as the attached draft blanket purchase orders:  one to Sierra Chemical Company, and the other to Pioneer America, LLC; and

2. Authorize expenditures not to exceed $250,000 under these two contracts.

Prepared by:

Elaine Wesely

Purchasing Officer

Reviewed by:

Mary J. Bradley

Director, Finance

Reviewed by:

Marvin Rose

Director, Public Works

Approved by:

Amy Chan

City Manager

Attachments

Draft Blanket Purchase Orders(pdf)