HomeMy WebLinkAbout90-06 RESOLUTIONAMR
RESOLUTION NO. 90-06
A RESOLUTION APPROVING A PROPOSAL IN THE AMOUNT
OF $98,490.00 FROM HDR/EES TO CONDUCT A
COMPREHENSIVE WATER AND SEWER RATE STUDY; AND
APPROVING A BUDGET ADJUSTMENT IN THE AMOUNT OF
$13,344.00.
BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF
FAYETTEVILLE, ARKANSAS:
Section 1. That the City Council of the City of Fayetteville, Arkansas
hereby approves a proposal in the amount of $98,490.00 from HDR/EES to
conduct a comprehensive water and sewer rate study.
Section 2. That the City Council of the City of Fayetteville, Arkansas
hereby approves a Budget Adjustment in the amount of $13,344.00.
PASSED and APPROVED this 16th day of May, 2006.
APPROVED:
By:
ATTEST:
DAN COODY, May
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SONDRA SMITH, City Clerk
AGREEMENT
For
PROFESSIONAL SERVICES
Between
CITY OF FAYETTEVILLE, ARKANSAS
And
HDR ENGINEERING, INC.
THIS AGREEMENT is made as of May 19, 2006, by and between City of Fayetteville,
Arkansas, actingby and through its Mayor (hereinafter called CITY OF FAYETTEVILLE) and
HDR ENGINEERING, INC. with offices located at 500 1086 Avenue N.E., Suite 1200,
Bellevue, Washington 98004 (hereinafter called HDR).
CITY OF FAYETTEVILLE requires professional services in connection with the development
of a comprehensive water and sewer rate study and as more fully described in Section 2.
Therefore, CITY OF FAYETTEVILLE and HDR in consideration of their mutual covenants
agree as follows:
HDR shall serve as CITY OF FAYETTEVILLE's professional services consultant in those
assignments to which this Agreement applies, and shall give consultation and advice to CITY OF
FAYETTEVILLE during the performance of HDR services. All services shall be performed
under the direction of a professional qualified in the particular field.
SECTION 1- AUTHORIZATION OF SERVICES
1.1 Services on any assignment shall be undertaken only upon written Authorization of
CITY OF FAYETTEVILLE and agreement of HDR
1.2 Changes, modifications or amendments in scope, price or fees to this contract shall
not be allowed without a formal contract amendment approved by the Mayor and the
City Council in advance of the change in scope, costs, fees, or delivery schedule.
SECTION 2 - BASIC SERVICES OF HDR
2.1 Develop a comprehensive water and sewer rate study, in conformance with "generally
accepted" rate setting principles. The comprehensive rate study shall be composed of a
revenue requirement analysis, a cost of service analysis and a rate design analysis.
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2.2 Develop a written report of the findings, conclusions and recommendations of the study.
2.3 Provide effective public presentations of the findings, conclusion and recommendations of
the study.
A more detailed scope of services is attached as Appendix A to this Agreement.
RESPONSIBILITIES OF CITY OF FAYETTEVILLE
CITY OF FAYETTEVILLE shall, within a reasonable time, so as not to delay services of
Consultant:
Provide full information as to CITY OF FAYETTEVILLE's requirements for the Project
Assist Consultant by placing at Consultant's disposal all available information pertinent to the
assignment including financial and customer data and information, along with any other data
relative thereto.
Provide such professional legal, accounting, financial, and insurance counseling services as may
be required for the Project.
Designate in writing a person to act as CITY OF FAYETTEVILLE's representative with respect
to the services to be performed under this Agreement.
PERIOD OF SERVICE
This Agreement will become effective upon the first written notice by CITY OF
FAYETTEVILLE authorizing services hereunder.
The provisions of this Agreement have been agreed to in anticipation of the orderly progress of
the Project through completion of the services stated in the Agreement. Consultant will proceed
with providing the authorized services immediately upon receipt of written authorization from
CITY OF FAYETTEVILLE. Said authonzation shall include the scope of the services
authorized and the time in which the services are to be completed.
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COMPENSATION
For the Scope of Services described herein, CITY OF FAYETTEVILLE shall pay HDR the
lump sum amount of eighty five thousand, three hundred ten United States Dollars (US
$85,310.00), plus estimated reimbursable expenses of thirteen thousand, three hundred and
eighty United States Dollars (US $13,180.00), for a total contract not to exceed ninety eight
thousand, four hundred and ninety United States Dollars (US $98,490.00).
Subject to the City Council approval, adjustment of the lump sum amount may be made should
HDR establish and CITY OF FAYETTEVILLE agree that there has been or is to be a significant
change in scope, complexity or character of the services to be performed; or if CITY OF
FAYETTEVILLE decides to shorten the duration of work from the time period specified in the
Agreement for completion of work and such modification warrants such adjustment. Changes,
modifications or amendments in scope, price or fees to this Contract shall not be allowed without
formal contract amendment approved by the Mayor and the City Council in advance of the
change in scope, cost, fees, or delivery schedule.
The lump sum amount as stated in this Section shall be submitted in seven (7) equal portions to
CITY OF FAYETTEVILLE for services consistent with HDR's normal billing schedule.
Reimbursable expenses shall be included applications for payment as accrued. Applications for
payment shall be made in accordance with a format to be developed by HDR and approved by
CITY OF FAYETTEVILLE. Each month an updated project report will be submitted to the
CITY OF FAYETTEVILLE as the basis for determining the value earned as the work is
accomplished. Final payment for services shall be made upon CITY OF FAYETTEVILLE's
approval and acceptance with the satisfactory completion of the Project. The seventh and final
payment shall be held by the CITY OF FAYETTEVILLE until the successful completion of the
study by HDR and delivery of the final report.
Payments
All statements are payable upon receipt and due within thirty (30) days. If a portion of HDR's
statement is disputed by CITY OF FAYETTEVILLE, the undisputed portion shall be paid by
CITY OF FAYETTEVILLE by the due date. CITY OF FAYETTEVILLE shall advise HDR in
writing of the basis for any disputed portion of any statement. CITY OF FAYETTEVILLE will
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make reasonable effort to pay invoices within 30 days of date the invoice is approved, however,
payment within 30 days is not guaranteed.
Final Payment
Upon satisfactory completion of the work performed under this Agreement, as a condition before
final payment under this Agreement, or as a termination settlement under this Agreement, HDR
shall execute and deliver to CITY OF FAYETTEVILLE a release of all claims against CITY OF
FAYETTEVILLE arising under or by virtue of this Agreement, except claims which are
specifically exempted by HDR to be set forth therein. Unless otherwise provided in this
Agreement or by State law or otherwise expressly agreed to by the parties to this Agreement,
final payment under this Agreement or settlement upon termination of this Agreement shall not
constitute a waiver of CITY OF FAYETTEVILLE's claims against HDR or his sureties under
this Agreement or applicable performance and payment bonds, if any
GENERAL CONSIDERATIONS
Insurance
During the course of performance of these services, HDR will maintain (in United States
Dollars) the following minimum insurance coverages:
Type of Coverage
Workers' Compensation
Employers' Liability
Commercial General Liability
Bodily Injury and
Property Damage
Automobile Liability:
Bodily Injury and
Property Damage
Professional Liability Insurance
Limits of Liability
Statutory
$500,000 Each Accident
$1,000,000 Combined Single Limit
$1,000,000 Combined Single Limit
$1,000,000 Each Claim
HDR will provide to CITY OF FAYETTEVILLE certificates as evidence of the specified
insurance within ten days of the date of this Agreement and upon each renewal of coverage.
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Professional Responsibility
HDR will exercise reasonable skill, care, and diligence in the performance of HDR's services
and will carry out its responsibilities in accordance with customarily accepted professional
practices. HDR agrees not to seek or accept any compensation or reimbursements from the City
of Fayetteville for professional work it performs to correct any errors, omissions or other
deficiencies caused by HDR's failure to meet customarily accepted professional practices. CITY
OF FAYETTEVILLE retains all other remedies to recover for its damages caused by any
negligence of HDR.
In addition, HDR will be responsible to CITY OF FAYETTEVILLE for damages caused by any
negligent conduct to the extent covered by HDR's Commercial General Liability and
Automobile Liability Insurance policies as specified above.
Changes
CITY OF FAYETTEVILLE shall have the right to make changes within the general scope of
HDR's services, with an appropriate change in compensation and schedule only after
Fayetteville City Council approval of such proposed changes and, upon execution of a mutually
acceptable amendment or change order signed by the Mayor of the CITY OF FAYETTEVILLE
and the authorized representative having signatory authority of HDR.
Termination
This Agreement may be terminated in whole or in part in writing by either party in the event of
substantial failure by the other party to fulfill its obligations under this Agreement through no
fault of the terminating party, provided that no termination may be effected unless the other party
is given:.
Not less than ten (10) calendar days written notice (delivered by certified mail, return receipt
requested) of intent to terminate,
An opportunity for consultation with the terminating party prior to termination shall be provided.
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This Agreement may be terminated in whole or in part in writing by CITY OF FAYETTEVILLE
for its convenience, provided that HDR is given:
Not less than ten (10) calendar days written notice (delivered by certified mail, return receipt
requested) of intent to terminate,
An opportunity for consultation with the terminating party prior to termination shall be provided.
If termination for default is effected by CITY OF FAYETTEVILLE, an equitable adjustment in
the price provided for in this Agreement shall be made, but no amount shall be allowed for
anticipated profit on unperformed services or other work,
Any payment due to HDR at the time of termination may be adjusted to cover any additional
costs to CITY OF FAYETTEVILLE because of HDR default.
If termination for default is effected by HDR, or if termination for convenience is effected by
CITY OF FAYETTEVILLE, the equitable adjustment shall include a reasonable profit for
services or other work performed. The equitable adjustment for any termination shall provide
for payment to HDR for services rendered and expenses incurred prior to the termination, in
addition to termination settlement costs reasonably incurred by HDR relating to commitments
which had become firm prior to the termination.
Upon receipt of a termination action under Paragraphs above, HDR shall:
Promptly discontinue all affected work (unless the notice directs otherwise),
Deliver or otherwise make available to CITY OF FAYETTEVILLE all data, information,
specifications, reports, estimates, summaries and such other information and materials as may
have been accumulated by HDR in performing this Agreement, whether completed or in process.
Upon termination CITY OF FAYETTEVILLE may take over the work and may award another
party an agreement to complete the work under this Agreement.
If, after termination for failure of HDR to fulfill contractual obligations, it is determined that
HDR had not failed to fulfill contractual obligations, the termination shall be deemed to have
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been for the convenience of CITY OF FAYETTEVILLE. In such event, adjustments of the
agreement price shall be made as provided above.
Delays
In the event the services of HDR are suspended or delayed by CITY OF FAYETTEVILLE or by
other events beyond HDR's reasonable control, HDR shall be entitled to additional
compensation and time for reasonable costs incurred by HDR in temporarily closing down or
delaying the Project.
Rights and Benefits
HDR's services will be performed solely for the benefit of CITY OF FAYETTEVILLE and not
for the benefit of any other persons or entities.
Dispute Resolution
Scope of Paragraph: The procedures of this Paragraph shall apply to any and all disputes
between CITY OF FAYETTEVILLE and HDR which arise from, or in any way are related to,
this Agreement, including, but not limited to the interpretation of this Agreement, the
enforcement of its terms, any acts, errors, or omissions of CITY OF FAYETTEVILLE or HDR
in the performance of this Agreement, and disputes concerning payment.
Exhaustion of Remedies Required: No action may be filed unless the parties first negotiate. If
timely Notice is given, but an action is initiated prior to exhaustion of these procedures, such
action shall be stayed, upon application by either party to a court of proper jurisdiction, until the
procedures have been complied with.
Notice of Dispute
For disputes arising prior to the making of final payment promptly after the occurrence of any
incident, action, or failure to act upon which a claim is based, the party seeking relief shall serve
the other party with a written Notice;
For disputes arising within one year after the making of final payment, CITY OF
FAYETTEVILLE shall give HDR written Notice at the address listed in the contract within
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thirty (30) days after occurrence of any incident, accident, or first observance of defect or
damage. In both instances, the Notice shall specify the nature and amount of relief sought, the
reason relief should be granted, and the appropriate portions of this Agreement that authorize the
relief requested.
Negotiation: Within seven days of receipt of the Notice, the Project Managers for CITY OF
FAYETTEVILLE and HDR shall confer in an effort to resolve the dispute. If the dispute cannot
be resolved at that level, then, upon written request of either side, the matter shall be referred to
the Director/Manager of the Water Business Group of HDR.and the Mayor of CITY OF
FAYETTEVILLE or his designee. These officers shall meet at the Project Site or such other
location as is agreed upon within 30 days of the written request to resolve the dispute.
CITY OF FAYETTEVILLE represents that it has sufficient funds or the means of obtaining
funds to remit payment to HDR for services rendered by HDR
INDEMNIFICATION
Computer Models
HDR may use or modify HDR's proprietary computer models in service of CITY OF
FAYETTEVILLE under this Agreement, or HDR may develop computer models during HDR
service to CITY OF FAYETTEVILLE under this Agreement. Such use, modification, or
development by HDR does not constitute a license to CITY OF FAYETTEVILLE to use or
modify HDR's computer models. Said proprietary computer models shall remain the sole
property of HDR CITY OF FAYETTEVILLE and HDR will enter into a separate license
agreement if CITY OF FAYETTEVILLE wishes to use HDR's computer models.
Ownership of Documents
All documents provided by CITY OF FAYETTEVILLE remain the property of CITY OF
FAYE I 1EVILLE. HDR. may retain reproduced copies of drawings and copies of other
documents.
Financial and engineering documents, drawings, and specifications prepared by HDR as part of
the Services shall become the property of CITY OF FAYETTEVILLE when HDR has been
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compensated for all Services rendered, provided, however, that HDR shall have the unrestricted
right to their use. HDR shall, however, retain its rights in its standard drawings details,
specifications, databases, computer software, and other proprietary property. Rights to
intellectual property developed, utilized, or modified in the performance of the Services shall
remain the property of HDR.
Any files delivered in electronic medium may not work on systems and software different than
those with which they were originally produced. HDR makes no warranty as to the compatibility
of these files with any other system or software. Because of the potential degradation of
electronic medium over time, in the event of a conflict between the original hard copies and the
electronic files, the original hard copies will govern.
Notices
Any Notice required under this Agreement will be in writing, addressed to the appropriate party
at the following addresses:
CITY OF FAYETTEVILLE's address:
City of Fayetteville
Mayor Dan Coody
113 W. Mountain
Fayetteville, AR 72701
HDR's address:
500 108th Avenue N E
Suite 1200
Bellevue, Washington 98004
Successor and Assigns
CITY OF FAYETTEVILLE and HDR each binds himself and his successors, executors,
administrators, and assigns to the other party of this Agreement and to the successors, executors,
administrators, and assigns of such other party, in respect to all covenants of this Agreement;
except as above, neither CITY OF FAYETTEVILLE nor HDR shall assign, sublet, or transfer
his interest in the Agreement without the written consent of the other.
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Controlling Law
This Agreement shall be subject to, interpreted and enforced according to the laws of the State of
Arkansas without regard to any conflicts of law provisions.
Entire Agreement
This Agreement represents the entire Agreement between HDR and CITY OF FAYETTEVILLE
relative to the Scope of Services herein. Since terms contained in purchase orders do not
generally apply to professional services, in the event CITY OF FAYETTEVILLE issues to HDR
a purchase order, no preprinted terms thereon shall become a part of this Agreement. Said
purchase order document, whether or not signed by HDR shall be considered as a document for
CITY OF FAYETTEVILLE's internal management of its operations.
SPECIAL CONDITIONS
HDR shall be and shall remain liable, in accordance with applicable law, for all damages to
CITY OF FAYETTEVILLE caused by HDR's negligent performance of any of the services
furnished under this Agreement except for errors, omissions or other deficiencies to the extent
attributable to CITY OF FAYETTEVILLE or CITY OF FAYETTEVILLE-furnished data.
HDR's obligations under this clause are in addition to HDR's other obligations under this
Agreement or State law and in no way diminish any other rights that CITY OF
FAYETTEVILLE may have against HDR for services provided.
Remedies
Except as may be otherwise provided in this Agreement, all claims, counter -claims, disputes and
other matters in question between CITY OF FAYETTEVILLE and HDR arising out of or
relating to this Agreement or the breach thereof will be decided in a court of competent
jurisdiction within Arkansas.
Audit: Access to Records
HDR shall maintain books, records, documents and other evidence directly pertinent to
performance on work under this Agreement in accordance with generally accepted accounting
principles and practices consistently applied in effect on the date of execution of this Agreement.
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HDR shall also maintain the financial information and data used by HDR in the preparation of
support of the cost submission required for any negotiated agreement or change order and send
to CITY OF FAYETTEVILLE a copy of the cost summary submitted. CITY OF
FAYETTEVILLE, or any of their authorized representatives shall have access to all such books,
records, documents and other evidence for the purpose of inspection, audit and copying during
normal business hours. HDR will provide proper facilities for such access and inspection.
Records shall be maintained and made available during performance on assisted work under this
Agreement and until three years from the date of final payment for the project. In addition, those
records which relate to any controversy arising out of such performance, or to costs or items to
which an audit exception has been taken, shall be maintained and made available until three
years after the date of resolution of such appeal, litigation, claim or exception.
This right of access clause (with respect to financial records) applies to:
Negotiated prime agreements:
Negotiated change orders or agreement amendments in excess of $10,000 affecting the price of
any formally advertised, competitively awarded, fixed price agreement:
With respect to record pertaining directly to subagreement performance, excluding any financial
records of HDR;
If there is any indication that fraud, gross abuse or corrupt practices may be involved;
If the subagreement is terminated for default or for convenience.
Covenant Against Contingent Fees
HDR warrants that no person or selling agency has been employed or retained to solicit or secure
this Agreement upon an agreement of understanding for a commission, percentage, brokerage or
continent fee, excepting bona fide employees or bona fide established commercial or selling
agencies maintained by HDR for the purpose of securing business. For breach or violation of
this warranty, CITY OF FAYETTEVILLE shall have the right to annul this Agreement without
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liability or at its discretion, to deduct from the contract price or consideration, or otherwise
recover, the full amount of such commission, percentage, brokerage, or contingent fee.
Gratuities
If CITY OF FAYETTEVILLE finds after a notice and hearing that HDR or any of HDR's agents
or representatives, offered or gave gratuities (in the form of entertainment, gifts or otherwise) to
any official, employee or agent of CITY OF FAYETTEVILLE, in an attempt to secure an
agreement or favorable treatment in awarding, amending or making any determinations related to
the performance of this Agreement, CITY OF FAYETTEVILLE may, by written notice to HDR
terminate this Agreement. CITY OF FAYETTEVILLE may also pursue other rights and
remedies that the law or this Agreement provides. However, the existence of the facts on which
CITY OF FAYETTEVILLE bases such finding shall be in issue and may be reviewed in
proceedings under the Remedies clause of this Agreement.
In the event this Agreement is terminated as provided above, CITY OF FAYETTEVILLE may
pursue the same remedies against HDR as it could pursue in the event of a breach of the
Agreement by HDR As a penalty, in addition to any other damages to which it may be entitled
by law, CITY OF FAYETTEVILLE may pursue exemplary damages in an amount (as
determined by CITY OF FAYETTEVILLE) which shall be not less than three nor more than ten
times the costs HDR incurs in providing any such gratuities to any such officer or employee.
Arkansas Freedom of Information Act
City contracts and documents, including internal documents and documents of subcontractors
and sub -consultants, prepared while performing City contractual work are subject to the
Arkansas Freedom of Information Act (FOIA). If a Freedom of Information Act request is
presented to the CITY OF FAYETTEVILLE, HDR will do everything possible to provide the
documents in a prompt and timely manner as prescribed in the Arkansas Freedom of Information
Act (A.C.A. §25-19-101 et seq.). Only legally authorized photocopying costs pursuant to the
FOIA may be assessed for this compliance.
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Debarment And Suspension
I certify that to the best of my knowledge and belief that the company that I represent and its
principals:
(a) Are not presently debarred, suspended, proposed for debarment, declared ineligible, or
(b)
voluntarily excluded from covered transactions by any Federal department or agency,
Have not within a three year period preceding this proposal been convicted of or had a
civil judgement rendered against them for commission of fraud or a criminal offense in
connection with obtaining, attempting to obtain, or performing a public (Federal, State, or
local) transaction or contract under a public transaction; violation of Federal or State
antitrust statutes or commission of embezzlement, theft, forgery, bribery, falsification or
destruction of records, making false statements, or receiving stolen property;
(c) Are not presently indicted for or otherwise criminally or civilly charged by a government
entity (Federal, State, or local) with commission of any of the offenses enumerated in
paragraph (b) of this certification; and
(d) Have not within a three-year period preceding this application/proposal had one or more
public transactions (Federal, State, or local) terminated for cause or default.
I understand that a false statement on this certification regarding debarment and suspension may
be grounds for rejection of this proposal or termination of the award. In addition, under 18 USC
Sec. 1001, a false statement may result in a fine of up to $10,000 or imprisonment for up to 5
years, or both. I further certify that I will obtain a similar certification for each subcontract
awarded in excess of $25,000.
DEBARMENT CERTIFICATION
AUTHORIZED REPRESENTATIVE
COMPANY NAM / U R Engineerin
SIGNATURE- /�� /I� �i/ DATE: 5/ °6
PRINTED NAME: Pave he-dees TITLE: VI c,c Pyrs. don -t-
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IN WITNESS WHEREOF, CITY OF FAYETTEVILLE, ARKANSAS by and through its
Mayor, and HDR, by its authorized officer have made and executed this Agreement as of the day
and year first above written.
CITY OF FAYE j) VILLE, A • ANSAS
By:
Mayor
ATTEST:
By
°VTR '%
=U• ••
•FAYETTEVILLE:
City Cler
Title: ve Pres :de_t
9°ItoNSii:••\),
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Changes, modifications or amendments in scope, price or fees to this Contract shall not be
allowed without formal contract amendment approved by the Mayor and the City Council in
advance of the change in scope, cost, fees, or delivery schedule.
END OF AGREEMENT FOR PROFESSIONAL SERVICES
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APPENDIX A
DETAILED SCOPE OF SERVICE
Task 1—Initial Project (Kick -Off) Meeting
Task Objective: Bring the HDR project team, City management and staff together, at the start of
the project. to assure that all parties have a mutual understanding of the goals, objectives, issues
and concerns related to the study.
The imtial project (kick-off) meeting is important to the overall success of this engagement since it
forms the foundation for the rate study process. This meeting allows both parties to discuss the
overall goals and objectives for this study, while at the same time discussing any issues and
concerns that either party may have. It is proposed that the initial project meeting be approximately
1 — 2 hours in length. At the same time, this meeting may be coordinated with a meeting with the
City's Sewer Commission to determine any issues or concerns that group may have, prior to
beginning any analytical work.
Expected City Staff Support for Task 1: For this task, the City will be expected to:
■ Have their key management/project team members attend a 1 — 2 hour planning meeting.
Deliverables as a Result of Task 1 -Initial Kick-off Meeting. From the work accomplished
above, the deliverables for this optional task will be as follows:
• Identification of objectives, issues and concems by both parties.
• Face-to-face meeting to get the study off to a positive start.
Task 2—Data Collection
Task Objective: Review and assess the City's existing water and sewer data, and provide a
written data request detailing the data required to complete the study.
The initial written data request details the data and information required to conduct the study HDR
will provide a written data request to the City prior to the initial kick-off meeting so that it can be
discussed at the meeting and any problem areas quickly resolved. The data and information
requested for this study should be, for the most part, readily available information (e.g. financial,
statistical, customer, etc.). The key issue for data collection purposes may be the level of detail that
is readily available and needed for the study. It is important to keep in mind that a cost of service
study requires data and information that is more detailed than the data typically reported for annual
financial statement purposes. For those areas where the data is not readily available, or will require
significant labor and expense on the City's part to provide, HDR and the City will determine the
"sensitivity" or "importance" of the data required and if alternative data sources are available. As
with any study, it is imperative that the City provide a timely response for the data requested.
Expected City Staff Support for Task 2: For this task, the City will be expected to:
• Gather the data requested in the written data request provided by HDR. (Note: typically
requires 20 — 40 hours of total staff time to provide.)
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APPENDIX A
DETAILED SCOPE OF SERVICE
Deliverables as a Result of Task 2 -Data Collection. From the work accomplished above, the
deliverables for this task will be as follows:
• An initial written data request to the City.
• Identification of any data constraints.
Task 3—Review of Existing Financial/Rate Setting Policies, Philosophies, and
Practices
Task Objective: Review the City's existing written financial/rate setting policies, and review any
other philosophies or practices in use by the City and recommend additional policies/practices
as appropriate.
The City currently has an adopted set of written financial/rate setting policies. As a part of this
task, HDR will review these policies to assure that the study developed conforms to these
existing policies. At the same time, HDR will propose and recommend, as appropriate,
additional financial/rate policies for possible adoption by the City All analyses developed as a
part of this study will conform to the City's existing financial/rate policies, or will be based upon
"generally accepted" financial/rate practices of the water and sewer utility industry.
Expected City Staff Support for this Task: For this task, the City will be expected to:
• Gather existing written policies and provide to HDR. Discuss any existing financial/rate
philosophies or practices.
• As needed, provide clarification of existing policies.
• As needed, assist HDR is developing recommended policies for possible adoption.
Deliverables as a Result of Task 3 -Review of Existing Financial/Rate Setting Policies,
Philosophies and Practices. From the work accomplished above, the deliverables for this task will
be as follows:
• Review of the existing financial/rate setting policies and practices of the City.
• Develop additional policies/practices to help provide financial stability to the City and aid in
simplifying the financial planning and rate setting process over the long-term.
Task 4—Revenue Requirement Analysis
Task Objective: Using a "generally -accepted" rate setting methodology, develop the City's
water and. sewer revenue requirements for a projected five-year period. The analysis should
utilize the City's capital infrastructure planning documents (e.g. Capital Plan/Master Plan),
while ensuring adequate funds for operating and capital needs. The revenue requirement
analysis will establish the cost -based `level' of revenue to be collected from rates and, if
necessary, a plan to transition rates to cost -based levels.
The development of the water and sewer revenue requirement analyses is the first major
analytical portion of the comprehensive rate study process. This portion of the study entails
reviewing, for each utility, the various sources of funds (revenues) and comparing them to the
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APPENDIX A
DETAILED SCOPE OF SERVICE
applications of funds (expenses) for the utility. This task considers the prudent and proper
funding for O&M and capital expenditures for each utility, and determines the need for any rate
adjustments over the time period selected. A more detailed discussion of the various steps
involved in developing the City's revenue requirements for each utility is provided below.
STEP 1 — SELECTION OF A TEST PERIOD — The first step in the development of the revenue
requirements is the selection of a "test period". A "test period" refers to a time frame of
reference for the accumulation of revenues, expenses and consumption data. In this case, a five-
year projected time period is proposed (e.g. 2007 — 2011). By reviewing costs over this extended
time frame, the City can determine when major rate adjustments may be required and potentially
take steps today to help minimize future impacts (e.g. rate adjustment transition, accumulation of
capital reserves, etc.).
STEP 2 — METHOD OF ACCUMULATING COSTS — Once the "test period" has been determined, the
next decision is to determine the basis or method of accumulating costs. There are two choices
for accumulating costs for revenue requirement/financial planning purposes; the "cash" or
"utility/accrual" basis. Table 2-1 provides a simple comparison between these two "generally
accepted" methodologies.
Table 2-1
Cash vs. Utility Basis Comparison
Utility/Accrual Basis Cash Basis
+ O&M Expense + O&M Expense
+ Taxes or Transfer Payments + Taxes or Transfer Payments
+ Annual Depreciation Expense + Capital Projects Financed with
+ Return on Rate Base (Investment)
Revenue Requirement
Rate Revenues Deprec Exp.)
+ Debt Service (P+1)
Revenue Requirement
For determining revenue requirements, the City has historically used the "cash basis" approach.
The "cash" basis approach is most commonly used by public utilities for determining and setting
their revenue requirements since this closely follows their budgeting process. This is the
methodology HDR would recommend to establish revenue requirements for the City.
STEP 3 — ACCUMULATION OF REVENUES AND EXPENSES — Once the test period and method of
accumulating costs has been determined, HDR in conjunction with City management and staff
will develop the test period revenue requirements for each utility.
Revenue requirements are composed of two major types of costs; operational and capital
expenses. The operational costs are generally projected from historical or budgeted costs, using
assumed escalation factors, and adjusted for any known changes in operations (e.g. additional
personnel, growth/expansion, etc.) While the projection of the operational costs is fairly
straightforward, the capital cost projections are generally the focus of the analysis, and require
more thought and planning.
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APPENDIX A
DETAILED SCOPE OF SERVICE
Within this study, the starting point for projecting capital costs (expenditures) will be the City's
capital improvement plans for each utility, or any other relevant capital planning and capital
budgeting documents. For the sewer utility, this will include the most recent cost projections for
the new wastewater treatment plant.
In the financial planning process, consideration must be given to maximizing the capital
improvements (expenditures) for the system, while minimizing rates to its customers. This is
accomplished in a variety of ways. However, the most important aspect of this discussion is that
there are multiple methods of financing capital expenditures, and it is through this process that
rates can be minimized. Table 2-2 provides an overview of the general approach that is used to
develop a capital expense plan for the revenue requirement analysis.
Table 2-2
Overview of the General Methodology For Reviewing
the Financing of Capital Project Expenses
+ Total Capital Projects —
• Replacement and Refurbishment Capital Projects
✓ Legally Mandated Capital Projects
✓ System Growth and Expansion Capital Projects
— Outside Funding Sources -
✓ Capital Reserves
✓ Grants
✓ Low -Interest Loans (State and/or Federal)
✓ Connection Fees/Contributed Capital
✓ Short -Term Borrowing
✓ Borrowed Funds/Long Term Debt (e.g. Revenue Bond)
= Capital Projects Financed with Rate Revenues (2 Deprec. Exp.)
The basic framework shown above is developed on a year -by -year basis for each of the projected
five (5) years of the water and sewer revenue requirement analysis In summary form, the
general approach is to list all water and sewer capital projects in each year, and then determine
the various outside funding sources for each of the projects. These outside funding sources may
be low-interest loans, grants, customer capital contributions, system development charges, etc.
The balance of projects not funded by the available sources of funds must be financed from a
combination of Tong -term debt and rates. It is the balancing of the use of long-term debt to the
impact upon rates, which is critical to the analysis.
In balancing the use of debt to equity (rate) financing of capital projects, a number of financial
planning aspects are taken into account. First, the utility's debt service coverage ratio is an
important financial measure or indication of the utility's ability to repay debt. The strength of
the debt service coverage ratio is a direct function of the amount of capital projects that are
financed from rate revenues. At a minimum, we assume that a utility should fund an amount
equal to or greater than the utility's annual depreciation expense for renewal and replacement
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•
APPENDIX A
DETAILED SCOPE OF SERVICE
capital projects. By following this simple financial rule, the utility is not only assured of a strong
debt service coverage ratio, but at the same time, it assures that existing plant in service will be
maintained at acceptable service levels with the need for minimal long-term debt financing.
However, at the same time, by properly funding for this component of the capital projects, it
should provide the utility with greater flexibility in its ability to borrow for capital projects.
An important use of funds to help minimize rates over time is system development charges
(SDCs). System development charges can be used to off -set the cost of growth -related capital
infrastructure or growth -related debt service. Given the magnitude of the City's capital
infrastructure plans, along with growth on Fayetteville's water and sewer systems, it will be
critical to maximize the effectiveness of these funds to minimize rates to all of the City's
customers. However, the challenge in using these funds is that they are growth dependent and
not a reliable source of funds. Therefore, this risk must be balanced against the methods that
may be used to minimize rates over time.
In summary, given a better understanding of the overall magnitude of the needed capital projects,
a final financing plan can be developed which meets the City's goals and objectives for each
utility, while attempting to minimize rates and costs over time.
Expected City Staff Support for this Task: For this task, the City will be expected to:
• Provide "as needed" assistance to explain the City's data and information as it relates to
developing the revenue requirements.
• Provide "as needed" data refinements or additional data needs as determined during the
process of developing the revenue requirements.
• Attend a one-half day project meeting to review the draft revenue requirement analysis.
Deliverables as a Result of Task 4 — Development of the Revenue Requirement Analysis. From
the work accomplished above, the deliverables for this task will be as follows:
• A projected water and sewer revenue requirement analysis for a projected five-year period that
considers the necessary operating and capital needs of each utility.
• A capital financing plan within the revenue requirement analysis, utilizing the City's
comprehensive plans or capital budget, which attempts to maximize capital expenditures, while
minimizing the impacts to customers over time.
• If needed, a transition plan to "phase in" any needed rate adjustments.
IN Recommendations regarding key financial indicators (debt service coverage, capital
replacement, reserve levels, etc.).
Task 5—Cost of Service Analysis
Task Objective: Develop an average embedded cost of service study to equitably allocate the
revenue requirements of the water and sewer systems to the customers served by the City. The
cost of service methodology must conform to prior discussions and agreements between the City
and their outside City and wholesale customers.
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