City weighing CH2M Hill’s contract offer

Sean C. Morgan

The Sweet Home City Council is open to extending early its contract with CH2M Hill, which operates the city’s wastewater and water treatment plants.

CH2M Hill offered a discount in the final year of its current contract with the city in exchange for an early contract renewal for up to 15 years.

The firm is in the ninth year of a 10-year contract, which expires in November 2016. Both sides of the discussion were interested in matching the contract dates going forward to the city’s fiscal year, July 1 to June 30.

Under the existing contract, CH2M Hill is requesting a payment of $1,015,382 for this fiscal year, 2015-16, to operate the plants.

It is offering a discount to the city in exchange for extending the contract this year by five to 15 years. With a five-year extension, the city would save $9,858; at 10 years, $29,574; and at 15 years, $39,432.

Projected forward based on the average annual increase in charges, 2.92 percent per year, over the past nine years, the 15-year contract would net an overall savings of $789,935, while a five-year contract would net a savings of $63,638.

Under the contract, increases are capped at 4 percent if CH2M Hill and the city are unable to settle on an amount – unless expenses increase dramatically, by 5 percent or more. This year’s request is for 3 percent.

Sweet Home Project Manager Scott LaRoque outlined to the council the value that CH2M Hill has provided over the past nine years during a council work session held on Aug. 11. When CH2M Hill took over the plant, it immediately painted the exterior and some interior walls at the plants, trained to operate the new Water Treatment Plant while continuing to operate the old plant, rebuilt signage, adjusted curbs and designed and installed a bio-filter that eliminated most of the odor problems at the Wastewater Treatment Plant.

The company has helped avoid costs by bringing in replacement equipment and parts from other operations when those have upgraded, LaRoque said. It also provides a wider pool of qualified operators, who work in cities across Oregon.

CH2M Hill is strongly committed to the community, he said, providing donations for various causes and direct participation in the Community Foundation, the Jim Bean Public Safety Fair, the Sweet Home Sweet Ride, Logger Olympics and more.

The company mitigates potential risks for the city, he said. If an employee makes a mistake, liability falls to CH2M Hill, which would pay fines. It also handles staffing in an environment where it is getting harder to find operators.

CH2M Hill also saves on costs and labor by completing required lab testing at Lebanon and Corvallis, said Gary Young, CH2M Hill regional director of operations.

CH2M Hill can offer savings if it doesn’t have to go through a new competitive bidding process, which would end up costing the city and the company time and money, LaRoque said.

“I don’t question CH2M Hill’s performance,” said Councilor Greg Mahler. “They’ve done a great job.”

Thinking as a citizen though, he said, the city needs to consider other options.

“Even hiring our own people to take care of it is an option,” said Councilor Dave Trask.

Public Works Director Mike Adams said that only CH2M Hill ended up offering a proposal to the city nine years ago. Two other interested companies chose not to submit proposals, largely because it would have cost more for them to gain a foothold in an area where CH2M Hill already has a strong presence. It has operations in Lebanon and other cities across the state.

Adams said that operators, based on data from 2006 when the city transferred operation of the plants to CH2M Hill, would cost $427,000 to $584,000 annually. Costs for CH2M Hill are split about 50-50 between labor and materials and services.

“That million dollars will never go away,” Adams said. It’s just a question of where it goes. The city will still have the same costs.

“Why not cut to the chase,” Young suggested, and pass on the savings for everyone involved. He urged the council to accept CH2M Hill’s offer.

“As a group, we have an obligation to get the best deal we can for the city,” Trask said. Requesting proposals or bids could end up costing the city more in the long run, though. “I’m not sure I want to go that way.”

Councilor Jeff Goodwin said he isn’t comfortable with the 4-percent cap over the life of a 15-year contract and asked the representatives of CH2M Hill if 3.5 percent might sound more reasonable. The company and city have nine years worth of data, and the average increase over that time is just under 3 percent.

He said he would feel a lot more comfortable with a 15-year contract with a 3.5-percent cap on cost increases.

Overall, Goodwin said, he didn’t think that the city could compete with the economies of scale CH2M Hill has by operating multiple plants.

Mahler asked if CH2M Hill could work with a 3-percent cap. Goodwin thought 3 percent might a little low, but 3.25 percent might work.

Young explained that several expenses are outside the control of CH2M Hill, including fuel or Bonneville Power Administration decisions. Those can drive up costs. CH2M Hill would need some kind of trigger to help deal with unforeseen cost increases that it cannot control.

Regional Business Manager Brian Helliwell said he could take it back to the company and then return to the council with possibilities on Aug. 25, the council’s next regular meeting.

Present at the work session were Goodwin, Trask, Mahler, Bruce Hobbs, Mayor Jim Gourley and Ryan Underwood. Marybeth Angulo was absent.