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HomeMy WebLinkAboutMemo - Mail Packet - 2/19/2019 - Memorandum From Carol Webb And Jill Oropeza Re: January 28, 2019 City Council Finance Committee Discussion Summary And Follow Up Responses: City Of Fort/Innosphere Laboratory ProjectUtilities electric · stormwater · wastewater · water 700 Wood Street PO Box 580 Fort Collins, CO 80522 970.221.6700 970.221.6619 – fax 970.224.6003 – TDD utilities@fcgov.com fcgov.com/utilities M E M O R A N D U M DATE: February 13, 2019 TO: City Council Finance Committee THROUGH: Darin Atteberry, City Manager Mike Beckstead, Chief Financial Officer FROM: Carol Webb, Deputy Director, Utilities Jill Oropeza, Director, Sciences RE: January 28, 2019 City Council Finance Committee Discussion Summary and Follow Up Responses: City of Fort Collins/Innosphere Laboratory Project At the January 28, 2019 City Council Finance Committee meeting, Utilities staff presented a proposed partnership with the Innosphere to construct a new 3-story laboratory facility on a property adjacent to the Innosphere at 320 E. Vine. The presentation provided background information on the proposed project and the associated benefits and costs. Council Finance Committee was supportive of the proposed project, however, did ask some questions that require a staff response. The questions posed and staff responses are summarized below. 1. Please provide more information regarding the option to outsource analytical services. The option of outsourcing laboratory analytical services was evaluated as part of the Labs Master Plan. Under this alternative, Water Quality Services staffing would be reduced from 19 to 6 employees, which was determined to be the necessary level of program support for sample collection, transport, contract lab data validation, compliance tracking and to coordinate with treatment process operations. Outsourcing of the analytical work was estimated to cost approximately 15% more than the current Water Quality Services combined Operations & Maintenance (O&M) budget. The primary cost-savings associated with outsourcing comes from reduction in facility costs, which is more than offset by the substantially increased cost of contracted analytical services. Outsourced analytical services were calculated based on the average number of tests run at the laboratories each year. Current City lab operations are very cost competitive with private Current - Annual O&M Budget + Capital $2,971,147 Outsourced - Annual O&M Budget + Capital $3,411,778 DocuSign Envelope ID: 4732EF2B-157B-40F1-880E-5B5ED2CB74DB 2 sector and the quality of service (e.g. responsiveness, flexibility, reliability) is considered inherently higher when provided by City Staff. Given these factors, the outsourcing option scored lower than other evaluated alternatives. 2. Both preferred locations (the Innosphere and the Drake Water Reclamation Facility - DWRF) are in the river corridor. Will standards for development in the riparian zone be applied? The Innosphere location does not encroach on the established buffer zone and would continue to comply with the protection standards in section 3.4.1 of the Land Use Code. The DWRF location would require submittal of an Ecological Characterization Study (ECS) and standards would be applied including setbacks. Conversations with planning indicated that this location may be a raptor nesting area and would need to be evaluated. 3. Will the project be subject to a special development review process given it is a City Project? No. Innosphere is the project applicant and will follow the standard development review process. 4. Does it make sense for the City to purchase the building and lease back to Innosphere? No. This model was explored early in partnership discussions and was eliminated due to Innosphere’s interest in retaining ownership in 1/3 of both the proposed building and the associated land. The proposed purchase and sales agreement does provide the City with the opportunity to purchase Innosphere’s 1/3 interest in 8 years, which Innosphere has articulated as adequate time to assess their facility needs. 5. Can Innosphere lease and/or sell some of their space to other tenants? Innosphere will lease, but will not sell, lab space on the top floor of the facility to tenants who require wet lab space. 6. Is the proposed condominium association model the best arrangement for the City? The City Attorney’s Office has indicated that the proposed condominium association model is the best arrangement for independent ownership of a portion of a single structure (or multiple structures) when compared to ownership of such a structure as joint tenants with another party. Condominium ownership provides more of the control, predictability and attributes of exclusive real property ownership than a lease or lease option (providing only a right to use for specified purposes) and fewer potential complications than other forms of common ownership (such as tenants in common). Of course, exclusive fee ownership of a single structure avoids the need for common ownership all together, but this level of ultimate control and exclusive use also appears to come at a higher price than sharing the construction costs of a larger structure to accommodate both the City’s and Innosphere’s needs. DocuSign Envelope ID: 4732EF2B-157B-40F1-880E-5B5ED2CB74DB 3 Additional details will be provided at the City Council work session for this item, currently scheduled for March 26. 7. Would it be a benefit to the City to provide the property management for the new facility? No. The Innosphere currently contracts with a 3 rd party to provide property management services for common elements related to their current facility. The City will leverage this arrangement for common elements associated with the proposed facility. The City’s Operations Services Department will provide facility maintenance for the City’s individual elements of the building. 8. Would the City have majority representation on the Condo Board of Directors? Yes. It is our understanding that the Board of Directors would reflect the City’s 2/3 ownership interest in the building and associated property. 9. Are there specific collaborative partnerships associated with co-locating with the Innosphere that benefit the City? Yes. Some examples of existing and potential future collaborative partnerships include: Coalition for the Poudre River Watershed The City is a founding member and major funder of the Coalition for the Poudre River Watershed (CPRW), a current tenant at the Innosphere. Not only would the proximity facilitate easier day-to-day collaboration, it would also foster greater awareness of the shared resources to be leveraged in work around common objectives. The co-location of the Utilities Watershed Program, laboratories and CPRW located next to the downtown whitewater park could create an effective hub for river and watershed protection activity. Water Research Foundation The Water Research Foundation frequently solicits proposals for water utility research. The City-Innosphere partnership may offer opportunities for collaboration with water-focused start-up companies on important research opportunities around emerging water-related issues. Such partnerships offer benefit to the City in terms of accessing new technologies to solve emerging water quality issues, but also provides a means for companies to effectively compete for grant funding. Open Water Foundation The Open Water Foundation is a nonprofit organization focused on providing an open source software platform to help organizations make better decisions about water. As a major generator of water quality data, there may be opportunities for Water Quality Services to collaborate on projects related to public data dissemination and communication. DocuSign Envelope ID: 4732EF2B-157B-40F1-880E-5B5ED2CB74DB 4 10. Was the non-monetary benefit criterion of collaboration evaluated for all identified alternatives? And specifically, how does the option of replacing the existing labs (Alternative 3b) compare to the option of constructing a combined Lab at DWRF and a combined lab at Innosphere? Lab replacement alternatives were evaluated in two distinct phases: the initial 2017 Lab Master Planning process and the subsequent feasibility assessment of the Innosphere Lab Partnership, completed in June 2018. The methodology used for alternatives comparison in each phase was the same; however, the benefit criteria differed. During the second assessment phase, new benefit criteria including “Collaboration” were selected to reflect the different potential benefits introduced by the Innosphere Lab concept and to enable an “apples to apples” comparison between the Combined lab at DWRF and Combined Lab at Innosphere alternatives. Because neither of the two analyses included a relative comparison of all the original eight alternatives plus the Combined Lab at Innosphere, and different benefit criteria were used in the two analyses, it is not possible to do a direct relative comparison of WQL & PCL Replacement Alternative, the DWRF Combined Lab and the Innosphere Combined Lab using available data. Despite these limitations, staff attempted to provide a side-by-side comparison of the three alternatives (see graph below), which indicates that the Innosphere option remains the preferred alternative with the highest cost-benefit score. The key drivers for the higher score are schedule and cost advantage and the desired work location. Additional details regarding the methodology used for the side by side comparison are including in Attachment 1. Next Steps City staff is collaborating with Innosphere to develop a variety of agreements associated with the partnership, including the purchase and sales agreement, the condominium declaration, the property management agreement, and a parking agreement. Staff is scheduled to present the proposal and draft agreements to City Council at the March 26 City Council Work Session. cc: Jeff Mihelich, Deputy City Manager Kevin R. Gertig, Utilities Executive Director Judy Schmidt, Senior Assistant City Attorney Tracy Ochsner, Senior Manager, Facilities and Fleet Ashley MacDonald, Senior Coordinator DocuSign Envelope ID: 4732EF2B-157B-40F1-880E-5B5ED2CB74DB 5 ATTACHMENT 1 Evaluation of Non-Monetary Benefit Scores The non-monetary benefit scores were estimated for the WQL & PCL Replacement alternative based on relative comparison and professional judgement and then compared to the actual scores for the DWRF Combined Lab and the Innosphere Combined Lab (Table 1). The rationale for assigning the criteria scores is provided in Table 2. Comparison of WQL & PCL Replacement, DWRF Combined Lab and Innosphere Combined Lab. 1 WQL & PCL Replacement benefit scores were estimated relative to DWRF & Innosphere scores. See Rationale, Table 2. 2 DWRF & Innosphere benefit scores are actual scores from alternative comparison (Innosphere Alternative Tech Memo, June 2018). The $15.3M preliminary estimate shown here is higher than the subsequent revised estimate of $13.5M from Dohn Construction, provided on September 18, 2018. *Note that this is a corrected statement from the AIS that all estimates are in 2018 dollars. The $22.2.M number for the DWRF alternative that was presented in the AIS is the $19.9M adjusted for 3 years of inflation for 2021 build year. 2.60 2.91 3.62 $22.8 $19.9 $15.3 $0 $5 $10 $15 $20 $25 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 WQL & PCL Replacement (Alt 2b) DWRF Combined Innosphere Combined Cost in Millions Benefit Score Facility Flexibility Desired Work Location Proximity to Customers Collaborative Opportunities Site layout Schedule or Finance Advantage Benefit-Cost Score Estimated Cost DocuSign Envelope ID: 4732EF2B-157B-40F1-880E-5B5ED2CB74DB 6 Table 1. Non-monetary benefit criteria scores for lab alternatives. Benefit Criteria WQL & PCL Replacement 1 DWRF Combined 2 Innosphere Combined 2 Facility Flexibility 0.79 0.79 0.47 Proximity to Customers 0.83 0.79 0.58 Site layout 0.83 0.83 0.54 Desired Work Location 0.6 0.46 0.6 Collaborative Opportunities 0.15 0.21 0.36 Schedule or Finance Advantage 0.18 0.23 0.6 Benefit 3.38 3.31 3.15 Table 2. Rationale for WQL & PCL Replacement Alternative relative ranking. Criteria Relative Ranking of WQL & PCL Replacement (Alt 3B) vs. DWRF & Innosphere Rationale for relative rank assigned to individual criteria Facility Flexibility = / + Buildings designed for new site locations will have same flexibility as DWRF combined lab Proximity to Customers + Plant sites offer the closest proximity to primary customers (treatment plants) Site layout = / + New building sites would offer options for reconfiguration and/or expansion. Desired Work Location + / = Ranked similarly to Innosphere, with a small majority of employees preferring to stay at Plant sites and others desiring to be at more central location. Score also reflects preference for remaining separate versus in a consolidated facility. Collaborative Opportunities - / - Collaborative benefit is gained by centralized facility co-located with Innosphere. Separate labs provide somewhat less opportunity as DWRF combined due to the loss of collaboration between lab groups. Schedule or Finance Advantage = / - Would be City managed capital projects, with similar expected timeline as DWRF combined lab option. DocuSign Envelope ID: 4732EF2B-157B-40F1-880E-5B5ED2CB74DB