Notice Number: 052617
Date Posted: May 26, 2017
Comments Due: Thursday, June 1, 2017
at 12:00 PM current Mountain Time.
The Utah Procurement Code provides that a procurement may be made without competition when the University determines that there is only one source that can reasonably meet the University’s need for the required supply or service, as described in Utah Code Ann. § 63G-6a-802.
The Purchasing Department has received the following request for sole source procurement:
Product and/or Service to be Purchased: 60 MMBTHU high-temperature water generator
Sole Source Supplier: English Boiler Incorporated
Earliest Proposed Purchase Date: Thursday, June 1, 2017
Buyer Name: Adam Hurst
Sole Source Justification: Energy Consortium Industries (ECI) in Bountiful, UT is the only authorized manufacturer’s representative for English Boiler Inc. in the state of Utah. Variations or modifications to the 60 MMBTUH high-temperature water generator from the English high- temperature water generator design currently in use at the University would force personnel to become competent operating and maintaining two different styles of equipment, a transition that would require additional traininq and could lead to confusion and potentially serious errors. Estimated to be between $200,000 and $350,000. There are two primary categories of transition costs for this procurement:
Project Costs. Each potential HTW generator has a different size, weight, configuration and associated piping and ancillary equipment. As a result, it is necessary to select one generator to use as the basis of design in preparing bidding documents for the construction involved with adding a generator to the HTW plant. Otherwise, it is not possible to obtain competitive bids for this work. A change to a generator that was not used as the basis of design would result in substantial additional costs to revise the design and then to modify the construction work. While this impact would vary depending on the specifics of which generator was subsequently selected, the cost is estimated to be between $200,000 and $350,000 based on past experience. The 2014 procurement of English Boilers resulted in a change from the HTW generators that had been the basis of design. This resulted in additional design cost of $65,961 and
$151,195 in change orders paid to the installation contractor, for modifications related to the change to English. In sum, the change from the basis of design to English totaled $217,156. Repeating the selection process for the 60 MMBTUH process would result in the need to pay additional costs for revision of the installation drawings and for construction change orders stemming from the design change.
In additional to potentially high transitional costs, using a generator manufacturer other than English could lead to a project delay of up to 300 days. This projection is based on the delay that took place following the change from basis of design to English with the 2014 procurement. Introduction:
As part of a program to upgrade the high-temperature water (HTW) system that serves the lower campus at the University of Utah, the Facilities Management Department (FM) has begun replacement of the existing HTW generators in building 0303. Originally, FM intended to replace these generators with four 40 MMBTUH HTW generators. After beginning the design and procurement of two of these four generators, FM completed a dispatch study for the HTW system that revealed that installation of two 40 MMBTUH and one 60 MMBTUH boiler would be more efficient than installation of four 40 MMBTUH HTW generators. Prior to completion of this study, the University had entered into a pricing agreement with English Boiler to procure the four 40 MMBTUH HTW generators that were part of the original replacement plan. The University has now procured and installed two of the four 40 MMBTUH authorized by this pricing agreement. We are seeking authorization to add a 60 MMBTUH generator to the pricing agreement with English Boiler.
This analysis evaluates the following costs of entering into a sole-source agreement with English Boiler: 1. Costs of repeating the selection process for a HTW generator manufacturer
2. Costs of selecting a generator manufactured by a firm other than English in the HTW system
3. Demonstration that the English Boiler pricing is fair and reasonable Costs of repeating the selection process
The original selection process for English Boiler, from solicitation of Statements of Qualification to award of the HTW generator installation contract, lasted 300 days. Although repeating this process for procurement of the 60 MMBTUH HTW generator may not require 300 days, a significant delay would result that could lead to the following additional costs: 1. Additional fee to RMH Group to support selection process. The agreement between the University of Utah and RMH Group for design of the 60 MMBTUH HTW generator does not include provisions for supporting a selection process. RMH group estimates the cost to support the selection process at $15,000.
2. Costs associated with maintaining existing HTW generators 3 and 4 during the delay. In order to ensure that adequate heating capacity is available for the campus during the delay caused by repeating the selection process, maintenance would need to invest in repairs to generators 3 and 4 to ensure that they would continue to operate reliably. Maintenance estimates that costs to return generator 3 to service will total approximately $150,000 for tubing replacements and controls repairs, while costs to ensure that generator 4 continues to operate reliably would total $50,000 for control repairs.
3. Costs associated with rental of temporary boilers. In the event that the cogeneration system and the existing HTW failed and were unable to provide adequate heating for campus, costs to rent temporary boilers (based on rental costs for the HTW shutdown from the summer of 2016) could total $2,500 per day, plus one-time setup and teardown costs for the temporary equipment. Assuming temporary generators are needed for a 20-day period, rental, setup and teardown costs could total $100,000.
4. Cost of price increases during delay. Assuming that the Producer Price Index increases at approximately the same rate in 2017 as in 2016, costs will increase 4.2% (based on Bureau of Labor Statistics data for total manufacturing industries) annually, or 3.5% during a 300 day delay period. Based on the expected $1,343,000 cost of the English Boiler, total price increase due to the delay could total $46,360. Costs of selecting a generator manufactured by a firm other than English
In addition to the expenses associated with repeating the selection process and the related delay, installing a HTW generator other than English would result in other costs. These costs include the following: 1. Additional Training: Operators and maintenance personnel will require additional training to learn how to operate and maintain equipment manufactured by a different company. Based on the need to train 20 operators for four hours each at an average wage rate of $35/hour, additional training costs could total $2,800.00.
2. Change drawings to reflect selected generator. In an effort to reduce the delay caused by the selection, FM could opt to authorize RMH Group to design the HTW generator installation during the selection process. Designing the HTW generator installation concurrently with manufacturer selection would reduce the duration of the delay but would increase the risk that redesign would be needed if the HTW generator used as the basis of design were not selected. The cost to revise the installation drawings when English Boiler was selected during the first phase of the HTW generator replacement project rather than Indeck, the manufacturer used as the basis of design, totaled $65,961. Costs for a second drawing revision would be similar.
3. Issue change orders to correct discrepancies found during construction between the basis of design HTW generator and the selected generator. In the event that FM chooses to reduce the duration of the selection delay by designing HTW generator installation concurrently, the transition from the basis of design HTW generator to the selected HTW generator could result in discrepancies that lead to change orders during construction. Change orders of this type issued during the first phase of the HTW generator project led to change orders totaling $151,195.Ensure fair pricing
An important part of evaluating the cost and benefits of entering into a sole source agreement with English Boiler Inc. for procurement of a 60 MMBTUH H1W generator is to ensure that the pricing is fair and reasonable. The first step ir, this evaluation is to escalate the $942,694.00 cost for the 40 MMBTUH paid in 2014 to compensate for industry-wide price increases. Subtracting the Bureau of Labor Statistics (BLS) Producer Price Index (PPI) of 185.9 for February 2017 from the PPI of 195.2 for February 2014, when the English pricing agreement was finalized, yields a decrease of 9.3%. Applying this decrease to $942,694 generator cost results in a current cost of $831,303. The next step is to increase this base cost for a 40 MMBTUH H1W generator to the cost for a 60 MMBTUH generator. Since the 60 MMBTUH equipment has a capacity that is 50% larger than the 40 MMBTUH H1W generator, this calculation consists of simply increasing $831,303 by 50% to a total of $1,336,955. The adjusted $1,336,955 cost is 0.5%, less than the English cost proposal of $1,343,000, an insignificant difference that suggests that the pricing is fair and reasonable.
Submit comments regarding this notice of sole source procurement by filling out the form below prior to the “Comments Due Date” indicated above: