Presented By:

Dave Zelenok John Danielson Chief Innovation Officer City Manager

City of Centennial

APWA Colorado Chapter Reinventing Public Works

Through a Public-Private Partnership October 2014

History

• Largest conversion of Public Works services from public to private sector

• July 1, 2008 program start

• 2011 citizen survey found 79% satisfaction rate with PW

• Award winning program!

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• Renegotiated contract in 2012 for new 5 year term

Award Winning Partnership

• American and City County Magazine

• 2012 Alliance for Innovation Transforming Local Governments conference – Feature Presentation on Centennial PPP

• National League of Cities Municipal Excellence

• National Council for Public Private Partnerships (NCPPP). The partnership for public works services selected in the Service Award category

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Award Winning Partnership

• Public Works Administration for Innovative Customer Service Call Center from American Public Works Association Colorado Chapter

• 2011 Excellence in Environmental Design – Energy Saving Transportation Project – Colorado APWA

• 2012 ITE Transportation Achievement Award in Operations – Snow Plow Route Optimization

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15 MILES

• Incorporated February 7, 2001

• Approximately 30 square miles (27 at time of incorporation)

• 1,100 lane miles (2014) • 54 FTE In-house Staff (2014)

City of Centennnial

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Fire Districts Park Districts

Stormwater Water & Sewer Districts

Arapahoe Park and

Recreation District

Partnerships with Other Public Agencies

Click to edit Master title style P2’s and P3’s in Centennial

• Sales & Use Tax Collection

• CIP Administration

• Public Works

• Animal Control

• Building

• City Attorney’s Office

• Code Enforcement

• Facilities/Fleet/Landscape

• IT

• Law Enforcement • Arapahoe County Sherriff

Largest Muni Public Works Contract

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Initial Conversion - 2008

PART I

Public Works

P3 Version 1.0

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Decision to review Public Works Services

• 8 months / “Best Value” Quantified Pre-existing Levels of Service

– Snow Routes - # Plows, # Lane Miles

– Miles of Street Sweeping

– Tons of Pothole Patching

– Signs Replaced

– Citizen Requests – Call Volumes

– Emergency Response Ability

“Managed Competition”

= Public vs Private Sector

“Value for Money”

= Best method to provide service

Click to edit Master title style RFP Process Continued

3 teams vs Gov’t proposal

• Review Process:

– Step 1 – Quality-based selection • Proposals ranked independent of costs

– Step 2 – Costs reviewed Separately

– Step 3 – Costs compared to City’s in-house estimate

– Step 4 – Presentation and Interviews

Highly Competitive ~ $10 Million Per Year x 10 years

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Largest Public-to-Private Conversion of its Kind in the Nation Snow Removal Unique Only 33 Pages (+28 pp exhibits)

Click to edit Master title style Building a Public Works Dept. for Centennial Org. Chart

City Council

City Manager

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Pavement Maintenance

• 85% of Potholes in 24 Hours

• 1,000 tons of patching/year

• 45,000 lbs of crack filling

• 300 Tons of gravel

• City pays for asphalt materials (Shared Risk)

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Traffic Engineering

• 500 New signs per year (maximum)

• 7 year replacement of existing signs

• 15,400 feet of preformed stop bars

• 1.1 Million feet of latex striping

• Operate 70 Traffic Signals

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Snow Plowing • One Pass on 689 Lane-Miles in 12 hours

• 815 Lane Miles of Non-plowed Residentials

• Real-time GPS Tracking Mandatory

• City pays for deicing chemicals & materials

• 60 12-hour Call-outs Per Year

• $24,882 per additional Call-out -Shared Risk

Define:

What’s Important?

How FAST do you need it?

Admit – RISK

Decide How Much You’ll Accept

Explore - Partnering

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Click to edit Master title style Work – Plan vs Actual

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5=30?

Click to edit Master title style Value Exchange Table 2009 EQUIVALENT VALUES OF MAINTENANCE ACTIVITIES

2009

Number of units in these columns are cost equivalent to 1.00 units in the Maintenance Activity

Column

Unit Example: 0.091 CY of curb and gutter replacement costs the same as 1.00 T of major patching

Value

Maintenance Pothole Patch Major Crack Gravel ADA Xpan CGSW Curb &

Activity Patch Back Patch Seal Maint Ramp Apron Comb Gutter Sidewalk

Units T T T T T CY CY CY CY CY

Pothole patch T $ 93.00 1.000 1.500 1.755 0.058 3.720 0.175 0.204 0.175 0.160 0.171

Patch Back T $ 62.00 0.667 1.000 1.170 0.039 2.480 0.117 0.136 0.117 0.107 0.114

Major Patch T $ 53.00 0.570 0.855 1.000 0.033 2.120 0.100 0.116 0.100 0.091 0.097

Crack seal T $ 1,600.00 17.204 25.806 30.189 1.000 64.000 3.019 3.501 3.008 2.754 2.941

Gravel maint T $ 25.00 0.269 0.403 0.472 0.016 1.000 0.047 0.055 0.047 0.043 0.046

ADA ramps CY $ 530.00 5.699 8.548 10.000 0.331 21.200 1.000 1.160 0.996 0.912 0.974

Crosspans & Aprons CY $ 457.00 4.914 7.371 8.623 0.286 18.280 0.862 1.000 0.859 0.787 0.840

C,G & SW Comb. CY $ 532.00 5.720 8.581 10.038 0.333 21.280 1.004 1.164 1.000 0.916 0.978

Curb & Gutter CY $ 581.00 6.247 9.371 10.962 0.363 23.240 1.096 1.271 1.092 1.000 1.068

Sidewalk CY $ 544.00 5.849 8.774 10.264 0.340 21.760 1.026 1.190 1.023 0.936 1.000

Street Sweeping LM

$

40.00

0.430 0.645 0.755 0.025 1.600 0.075 0.088 0.075 0.069 0.074

Mowing & ROW AC $ 310.00 3.333 5.000 5.849 0.194 12.400 0.585 0.678 0.583 0.534 0.570

Lane Striping 10.5

CENTS PER

FOOT MI $ 3,696.00 39.742 59.613 69.736 2.310 147.840 6.974 8.088 6.947 6.361 6.794

Thermo markings SF $ 13.00 0.140 0.210 0.245 0.008 0.520 0.025 0.028 0.024 0.022 0.024

New sign Install EA $ 194.00 2.086 3.129 3.660 0.121 7.760 0.366 0.425 0.365 0.334 0.357

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5th Year Contract Renewal - 2013

PART II

Public Works

P3 Version 2.0

Goals of Negotiations

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• City to receive best value

• Align with community priorities

• Encourage innovation and improved technology

• Increase flexibility and transparency

• Focus on outcomes

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Office

Maintenance

Shop

Shed 1.5 Acre

Unprogrammed

Level of Service

• Improved level of service in areas:

– GPS tracking on all vehicles

– Increased concrete maintenance quantity

– Increased asphalt quantity

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Level of Service

• Improved level of service in areas:

– GPS tracking on all vehicles

– Increased concrete maintenance quantity

– Increased asphalt quantity

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Level of Service

• Improved levels of service in areas:

– GPS tracking on all vehicles

– Increased concrete maintenance quantity

– Increased asphalt quantity

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Level of Service - Street Name Signs

• Branding… City Identity

• 5-year replacement schedule

• 8,500 street name signs to be replaced

• Still maintaining and replacing other signs on a reactive basis (500 max/yr)

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Level of Service - Snow and Ice Management

• All Streets NOT Plowed

• Addition of 93 miles plowed

– “Route Optimization” Efficiencies =

– No additional cost

• Updated areas of special attention

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• Cost structure

– Guaranteed

• Equipment

• Drivers

• Support

• 3,100 hours (light snow year)

• Ice “Cutting”

– Additional effort “pay as you go”

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Enhanced Service – Snow Removal

• Outcome based Performance Measurement

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Before After

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Click to edit Master title style Response to Citizen Requests

• Recognized past performance

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0%

20%

40%

60%

80%

100%

JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC

Priority 1 Priority 2 Priority 3

2011 Average

Priority 1: 97.6%

Priority 2: 97.8%

Priority 3: 92.3%

New Goal = 90%

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• Renegotiated performance measurements

• Over 400 Priority 1 requests received annually

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Click to edit Master title style Flexible Service Account

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Year FSA Annual

Funding

Maximum

with Rollover

2013 $500,000 N/A

2014 - 2018 $400,000 $500,000

• Flexible Services Account (FSA) used for… – Snow removal services beyond 3,100 CDL Hours

– Ice removal on unplowed streets (Not P1 or P2)

– Damage and repairs

– Technology innovations

– Minor nuisance issues

• FSA Annual Rollover Not to Exceed $100,000

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CH2

Total Annual Fees

Flexible

Services Account

PW Service

Budget + =

Year Total Annual

Fees

Incentive

Fee

FSA Annual

Funding

PW Services

Budget

2013 $8,813,600 $30,000 $500,000 $9,343,600

2014 $8,953,711 $30,000 $400,000 $9,383,711

2015 $9,187,400 $30,000 $400,000 $9,617,400

2016 $9,439,867 $30,000 $400,000 $9,869,867

2017 $9,699,884 $30,000 $400,000 $10,129,884

2018 (6 Months) $5,004,529 $15,000 $400,000 $5,419,529

CH2

Incentive Fee +

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$-

$2,000,000

$4,000,000

$6,000,000

$8,000,000

$10,000,000

$12,000,000

2013 2014 2015 2016 2017 2018

Public Works with Enhanced Services

Projected

Proposed

Budget

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Difference

$139,217

Difference

$150,524

Difference

$149,423

Difference

$147,307

Difference

$(30,933)

Total

Difference

$955,933

Difference

$399,747

Click to edit Master title style In House vs Contract (?)

•Colorado Springs – Asphalt Paving Companies Complained and alleged – Contractors can do it cheaper •Result: City Auditor Independently Investigated •Not only should the city continue to pave streets, •They should consider following the Denver model

•Buy an asphalt plant!

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Developing a Bottom Line for Government:

A Very Big Practical Problem

Bottom Line in Private Sector:

Profits = Revenues – Costs

Bottom Line in Public Sector Net Public Value = Socially Valued Results – Costs

Key Problem in Public Sector: How Think About and Measure “Socially Valued Results”

Fully Load Cost Comparisons – “apples to apples”

Cost Side of Ledger Value Side of Ledger

• Dollar Costs to Government

• Unintended Costs

• Authority Used by Government

(Think: political capital)

• Mission Accomplishment

• Unintended Benefits

• Client Satisfaction

• Fair/Just Use of Public Money and Authority

Towards a Public Value Account

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via a Public Cost Comparator - “P.C.C.”

Compare costs for an in-house government operation vs a turn-key private sector contract

Both cost estimates represent the cost of providing the same level of service – Over the same time period – 5 years

Need to develop cost estimate for in-house operation.

– One-time startup costs – Recurring annual costs

– Final Answer: Net Present Value

Click to edit Master title style Public Cost Comparator - “P.C.C.”

Major Elements of a PCC

1. Start-up Costs

2. Operating Costs

3. Personnel Costs

4. Equipment Costs

5. Facility Costs

Goal – Compare Best Values (not low bid) Net Present Value Comparisons

Click to edit Master title style Start-Up P.C.C. Costs

Needed to begin operation

“Mobilization”

~ Month-long effort

Set-up for “seamless operation on “D-Day”

Click to edit Master title style Operating Expenses - P.C.C.

Recurring expenses:

– Maintenance and replacement schedule for Start-up items

– Fuel, mileage, car allowances

– Office space

– Maintenance facility

– Professional services

– Insurance premiums (toughest)

Click to edit Master title style Personnel – P.C.C.

Performance metrics used to estimate how many FTE’s (labor hours) needed for defined “level of service”

City employees – 54 FTE’s Ops -Traffic Engineering, Street Maintenance Workers

Full time support: fleet manager, contracts manager, etc.

Fractions of support FTE’s - Risk Mgt, HR, payroll, etc.

Assumed some lost productivity in training government employees

Labor costs are fully “loaded” -benefits, vacation, legacy pension costs etc.

Contract costs -defined by performance standards – and ultimately – decided by the bids (actually proposals)

Click to edit Master title style Facility P.C.C.

Maintenance facility

– In 2008, major facility purchase (~$7M) used as comparison, but not considered in estimate – rental assumed

– Assumed a 5-year lease & material storage needed

Bulk Material Storage Needed

Click to edit Master title style Equipment P.C.C.

Heavy Equipment Acquisition - Combination of purchase of new and used, leased

and “subbed” equipment – best value & mix

– Equipment purchases:1/3 new, 1/3 medium, 1/3 older

Replacement - Capital reserve funds considered an annual cost of operation and applied to NPV calculations

Click to edit Master title style Financial Analysis – P.C.C.

Equipment (cont.)

– Other considerations, credited as a City asset

• Salvage value

• Depreciation

• Capital reserve

Material and Oil Price Risk

– Purchased by the City in all scenarios

Insurance ~ +1%

– Risk mitigation varies for governments

– Unlimited - private sector

– Different annual cost assumptions – vary by state

CAUTION: Lawyers

And Accountants

Ahead

Click to edit Master title style Financial Analysis – “N.P.V.”

Net present value – All proposals adjusted for NPV over 5-year term

– City credited with assets

• Equipment

• Capital reserve

• Materials, fuel, and other purchases

– No adjustment for contractor costs since City does not obtain assets in those scenarios

Final comparison – NPV basis

No significant advantage to in-house operation

Click to edit Master title style Lessons Learned

• Companies don’t enjoy gov’t immunity – • (liability is unlimited)

– Signal warrants unsupported

• Minor Amendments – Make them easy! – Reimburseables

– Pass throughs

– Offsets

– Plus-ups

– Recompete for similar work?

– Exclusive - or can the city go out for other contractors?

You KNOW what you’re doing….

Just not exactly WHAT you want.

Click to edit Master title style Lessons Learned

Quantify what you want

• Performance Standards are the key: tons, miles, hours, etc.

• Incentives, Self-auditing, Reporting & GPS Tracking

• Eliminate Uncertainties for Bidders – Fuel, Asphalt, De-icers

• Allow flexibility to adjust quantities – Trade-offs

• Eliminate “Nickel & Dime” Changes in Scope

• Fuel Taxes may apply (local laws vary)

CAUTION:

REDUCED SERVICE LEVELS

AHEAD

?

Click to edit Master title style Lessons Learned

• Dashboard required - burn rate

• QA/QC program - need one with established standards, how to handle noncompliant subs <0.5%

• Data Entry - Cartegraph - city-wide system - ensure carry-over at contract termination

• Define customer service standard up front – when calls roll to answering system and max hold times

• Revenue Generation - street cut permits - successful

• Turn-Key vs Major Contracts ~ 10% (?)

Click to edit Master title style Lessons Learned

• Asset Inventory – Critical

• Call center feedback QC

• “Collection work order” labor hours

• GPS on everything and define GPS “ping” interval

• Require self-reporting of non compliance

• Define your measurements

• Sign replacement – 2 sided, single post - 14,000 vs. 22,000

• Federal (MUTCD) standards changing

• End of year rollovers – credits to future years??

• Define cost adjustment system based on values

• Get some professional help!

FUTURE MIDSIZE

OPPORTUNITIES

P3 ‘s & Private Capital

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Acknowledgements: Dr Mark Moore, Harvard Kennedy School

Wayne Reed, Deputy City Manager, City of Centennial