REPORT TO COUNCIL
SUBJECT
Title
Award a Contract to Bulk Handling Systems (BHS), in the Amount of $34,545,000 for the Sunnyvale Material Recovery and Transfer (SMaRT) Station® Municipal Solid Waste and Source Separated Recyclables Integrated Processing System (NextGen), Accept an Addendum to the SMaRT Station Environmental Impact Report, Approve a 1.5% Contingency of $518,175, Award a Purchase Agreement in the Amount of $2,512,147 to Shredding Systems Incorporated (SSI) for the Purchase of a Pre-load Compactor, Approve a 1.5% Contingency in the Amount of $37,682, Approve Budget Modification No. 24 in the Amount of $16,735,288, and Adopt a Resolution Regarding Intention to Issue Solid Waste Revenue Bonds
REPORT IN BRIEF
Staff is recommending that the Council take the following actions:
- Accept Addendum No. 3 to the previously certified City of Sunnyvale Material Recovery and Transfer (SMaRT) Station Environmental Impact Report (State Clearing House No. 89022812) (Attachment 3).
- Award a Service Agreement in substantially the same form as Attachment 1 to this report in an amount not-to-exceed $34,545,000 to Bulk Handling System (BHS) Inc. of Eugene OR for the SMaRT Station Municipal Solid Waste and Source Separated Recyclables Integrated Processing System (Nextgen) Project.
- Approve a 1.5% contingency for the Nextgen Project in the amount of $518,175 and authorize the City Manager to execute an amendment to the BHS Agreement up to the contingency amount.
- Award a purchase agreement in substantially the same form as Attachment 2 to this report in an amount not to exceed $2,512,147 with Shredding Systems Incorporated (SSI) of Wilsonville OR for a pre-load compactor.
- Approve a 1.5% contingency for the pre-load compactor purchase in the amount of $37,682 and authorize the City Manager to execute a contract amendment up to the contingency amount.
- Approve Budget Modification No. 24 in the amount of $16,735,288.
- Adopt a Resolution declaring the intention to reimburse expenditures from the proceeds of solid waste revenue bonds to be issued by the Sunnyvale Financing Authority and directing certain actions (Attachment 5).
EXISTING POLICY
Pursuant to Chapter 2.08 of the Sunnyvale Municipal Code (SMC), contracts for this type of service are awarded pursuant to a Request for Proposals (RFP) best value process, unless otherwise exempt from the competitive bidding process. Additionally, City Council approval is required for the procurement of goods and/or services exceeding $250,000 in any one transaction.
Pursuant to SMC Section 2.08.070 (4) Sole source goods or services are exempt from the competitive bidding requirements.
Pursuant to SMC Section 2.08.140 (B): The City Council may reject, in whole or in part, bids or proposals received for which the City Council is the awarding authority. If all bids are rejected, the city has the discretion to readvertise.
Council Policy 3.2.4 - Zero Waste: It is the policy of the City of Sunnyvale that the City will work to reduce the amount of Sunnyvale waste being disposed.
Council Policy 3.2.1 Solid Waste Management, Goal 3.2F: Maintain sound financial strategies and practices that will enable the City to provide comprehensive solid waste management services to the community while keeping refuse rates at or below countywide averages for cities using cost of service pricing.
Council Policy 7.1C.1.3 - Capital Improvement Policies: High priority should be given to replacing capital improvements prior to the time that they have deteriorated to the point where they are hazardous, incur high maintenance costs, negatively affect property values, or no longer serve their intended purposes.
Council Policy: 7.1l, l.1: Enterprise Fund Policies:
7.1l.1b.1: Capital improvements associated with the existing infrastructure of a utility should be primarily funded from two sources: rate revenue and debt financing.
7.1l.1b.5: Bonded debt financing should be used for capital improvements as appropriate to:
• Make cost recovery of an asset more consistent with its useful life
• Equitably assign cost over multiple generations of customers who use the assets
• Smooth near-term rate impacts of the project
ENVIRONMENTAL REVIEW
The City Council certified an Environmental Impact Report (EIR) for the SMaRT Station in 1990 (SCH #89022812). For the “NextGen Project”, Addendum #3 to the existing EIR has been prepared per the provisions of the State CEQA Guidelines to document the finding that none of the conditions or circumstances that would require preparation of a subsequent EIR, pursuant to Sections 15162 and 15164 of the State CEQA Guidelines.
Staff’s review indicates that no major revisions are required to the Final EIR prepared for the SMaRT Station (1992) because the project will not cause any new significant environmental impacts that have not been identified in the EIR. As no additional environmental analysis or review is required for the proposed NextGen Project, preparation of a subsequent EIR is not necessary. The Addendum prepared and attached to the Final EIR is the appropriate CEQA document for the SMaRT Station NextGen project.
BACKGROUND AND DISCUSSION
The SMaRT Station is a waste transfer and processing facility that handles a diverse array of incoming material streams, including Municipal Solid Waste (MSW) or garbage, source-separated curbside and commercial recyclable materials, yard trimmings, food scraps, and construction and demolition debris.
The SMaRT Station currently operates multiple processing systems: one dedicated to MSW that became operational in 1993, another for source-separated curbside recyclables that became operational in 2008, a separate system to process yard trimmings, and another system to process food scraps. The yard trimmings equipment does not require replacement, and the food scraps equipment was recently replaced through a separate grant from CalRecycle.
Key components of the MSW and recycling processing equipment require replacement due to the wear and tear from years of heavy use. Typically, the useful life of this equipment is between 15 and 20 years. During the time the MSW and recyclables equipment have been in operation, only minor upgrades have been completed. In addition, new state laws now require a higher diversion of organic material that the SMaRT Station’s current systems are unable to do.
This project was conceptualized in 2018 (Study Issue 17-1207), and an update was provided to the City Council on July 31, 2018 (RTC No. 18-0415). Between 2018 and 2024, the project consisted of preliminary steps, including extending the partnership agreements between the partner cities (Sunnyvale and Mountain View), a facility assessment study, a feasibility study, and a detailed building inspection analysis.
Additional work completed to date as part of the project includes the refurbishment of the tip floor, the installation of a shredder, and the ongoing upgrade of the electrical service to a higher capacity.
The goal of this project is to select and install a system that:
1) Replaces old and failing equipment that is past its useful life.
2) Improves processing system efficiency by providing a single integrated system that can process both MSW and source-separated recyclables.
3) Increases organics diversion to become a high-diversion organic waste processing facility by recovering 75% or more of inbound MSW organic material.
4) Increases the diversion of recyclables from MSW by about 20%, enhances recovery from the source-separated recyclable material stream by about 5%, and increases the purity of the saleable commodities.
The City initially publicly advertised the request for proposal on DemandStar on October 4, 2023, and opened the bid proposals on January 4, 2024. The City received one late proposal from BHS, which was deemed non-responsive, and one responsive proposal from MachineX. After careful evaluation, it was recommended to reject all bids due to the sole bid being substantially over budget (RTC 24-0395).
The City publicly re-advertised the request for proposal on DemandStar on May 3, 2024, and three proposals were submitted to the City on August 3, 2024. Van Dyk Recycling Solutions submitted a proposal without the required Bid Bond and was deemed non-responsive. Staff from the Department of Public Works, the Department of Environmental Services, and the City of Mountain View assessed the proposals based on qualifications, experience, technical proposal, performance, diversion, approach, and innovation. Two vendors (MachineX and BHS) were invited to formal interviews. After the process, the evaluation team selected BHS as the most qualified candidate for the project, and the City entered into negotiations with BHS to refine the design, scope of work, and cost.
The proposal that has been selected and recommended for award achieves the project’s objectives. MSW diversion is expected to improve from the current 35% to 50%. Organics diversion from the MSW stream is expected to exceed 75%, and recyclables diversion from MSW is expected to increase by about 20%. Source-separated recyclables diversion is expected to reach 97%. Overall diversion for the SMaRT Station (including MSW, recyclables, yard trimmings, and food scraps) is expected to improve from the current 50% to 65%. In addition to achieving compliance with the Senate Bill 1383 requirement of achieving 75% organics diverstion, the project also advances the City’s Climate Action goals, specifically Play 4.1, Achieve Zero Waste Goals.
The proposed system upgrade will incorporate advanced sorting and quality control technology, including optical sensors and Artificial Intelligence (AI). Optical sorting, combined with AI technology, enhances the accuracy of material separation based on color, size, shape, and chemical composition. The project also includes the installation of an Eddy Current system for aluminum recovery and an inline electromagnet for the recovery of iron materials. The high degree of automation is expected to reduce the number of manual sorters needed by approximately 17 positions, which will be achieved gradually through attrition.
The upgraded system will be designed to operate MSW during one shift and curbside recyclables during a second shift, significantly improving operational flexibility and efficiency. The scope of work includes the removal of existing equipment and structural elements as necessary, and the complete design, fabrication, permitting, supply, and installation of new processing equipment. This also encompasses all required supporting structures, including steel and concrete components, to fully integrate the NextGen System into the facility. Some existing equipment is still being reused and will be integrated with the new equipment.
The proposed system also requires a Model 2500 SPH Compactor, which is only available directly from SSI. The City will purchase this directly from the manufacturer.
The total cost of the project is estimated to be as follows:
|
|
Cost |
|
Project Expenses to Date |
$5,540,000 |
|
BHS Contract including contingency |
$35,063,175 |
|
SSI Compactor including contingency |
$2,549,829 |
|
Other future work |
$8,260,000 |
|
Total Project Cost |
$51,413,004 |
Approximately $5.54 million has been spent on this project to date on infrastructure improvements, including the refurbishment of the tip floor, installation of a bag opener/shredder, building and equipment assessments, feasibility studies, and technical and professional services. Additional future work of $8.26M involves several remaining project components including repaving the parking lot and the internal road network, retrofitting some existing equipment, completing the electrical feeder line and upgrading the existing conveyor system. These will be executed under separate contracts.
To partially fund the project, the Sunnyvale Financing Authority plans to issue approximately $45 million in solid waste revenue bonds. It is not uncommon for public agencies to incur capital costs of a project (most frequently, design and engineering costs) before issuing bonds to finance the project, and then to reimburse itself for those initial costs with bond proceeds. However, the Internal Revenue Service has promulgated regulations limiting public agencies’ ability to reimburse themselves with proceeds of tax-exempt bonds; among other things, the regulations generally require the public agency to declare its intent to reimburse itself at least 60 days prior to the capital expenditures. Staff recommends that Council adopt a Resolution (Attachment 4) declaring the intention to reimburse expenditures related to the project from the proceeds of the solid waste revenue bonds. This will also allow for prior project expenditures to be included in the costs financed by the solid waste revenue bonds.
The City was successful in obtaining a competitive grant of nearly $6.6 million from CalRecycle to improve beverage container recycling at the SMaRT Station. The acceptance of the grant is expected to be presented to the City Council for approval in June 2025.
When the new equipment is being installed, the facility will be temporarily shut down for approximately six months. During this time, incoming material will be sent directly to the landfill with minimal processing.
FISCAL IMPACT
To date, a total of $34,677,716 has been appropriated in Fund 6143 - SMaRT Station Replacement Fund under Project 828260 - SMaRT Post-2021 Rebuild. Of that amount, $29,137,721 is available after accounting for prior project expenses.
To fund the project, the Sunnyvale Financing Authority plans to issue approximately $45 million in revenue bonds. According to the tentative financing schedule, this item is scheduled to come before the Finance Authority in July or August, when the Finance Authority will be asked to approve the issuance of revenue bonds, pledge revenues required to make the debt service and that adequate debt service coverage will be maintained, along with the associated documents. The remainder of the project will be funded by the CalRecycle grant. The reimbursement resolution has no immediate fiscal impact. The resolution preserves the City’s flexibility to reimburse itself for capital expenditures if the Council determines such reimbursement is in the City’s best interest, but does not commit itself to the project, to the issuance of bonds, or to reimbursement.
Budget Modification No. 24 in the amount of $16,735,288 has been prepared to adequately fund the entire project.
Budget Modification No. 24
FY 2024/25
|
|
Current |
Increase/ (Decrease) |
Revised |
|
SMaRT Station Replacement Fund |
|
|
|
|
Revenue |
|
|
|
|
Revenue Bond Proceeds |
$0 |
$45,000,000 |
$45,000,000 |
|
|
|
|
|
|
Expenditures |
|
|
|
|
Project 828260 - SMaRT Post-2021 Rebuild |
$29,137,721 |
$16,735,288 |
$45,873,009 |
|
|
|
|
|
The SMaRT Station Replacement Fund receives contributions from its member agencies, which include the City of Sunnyvale (72.3%) and the City of Mountain View (27.7%). The contribution from the City is paid through Fund 6101 - Solid Waste Management Fund. The debt service payments from the revenue bonds are estimated to be approximately $3.4 million annually and will be proportionally shared by the member agencies. These figures are estimates only and will depend on interest rates in August, when the planned bonds are expected to be issued. The Solid Waste Fund can support that level of debt and maintain adequate reserves, and the planned debt service is built into the proposed FY 2025/26 budget and 20-year financial plan. The City also continues to seek additional partners, which serves to spread the costs to run the facility and the associated capital improvements.
The contract includes a limitation of liability clause (Paragraph 3) that limits the contractor’s total liability to the City for breaches of contract, negligence and other tort claims to the amount paid to the contractor for the products and services sold under the agreement (approximately $34.5 million). This liability limit does not apply to liquidated damages and to insurable third-party death, bodily injury, or property damage claims resulting from contractor’s active negligent acts or omissions. The potential fiscal impact of this liability limitation is unknown and would only become effective if the City suffered total damages subject to the limit in excess of the total contract payment, which staff considers to be unlikely. In addition, the contract includes a mutual waiver of consequential damages (indirect losses) for breaches of contract such as lost profits and loss of business opportunities (Paragraph 4).
PUBLIC CONTACT
Public contact was made by posting the Council meeting agenda on the City's official-notice bulletin board at City Hall, at the Sunnyvale Public Library and in the Department of Public Safety Lobby. In addition, the agenda and this report are available at the City Hall reception desk located on the first floor of City Hall at 456 W. Olive Avenue (during normal business hours), and on the City's website.
ALTERNATIVES
1. Accept Addendum #3 to the previously certified Environmental Impact Report (State Clearing House No. 89022812).
2. Award a Service Agreement in substantially the same form as Attachment 1 to this report in an amount not-to-exceed $34,545,000 to Bulk Handling System (BHS) Inc. of Eugene OR. for the purchase and installation of the SMaRT Station Municipal Solid Waste and Source Separated Recyclables Integrated Processing System (Nextgen) Project.
3. Approve a 1.5% contingency for the project in an amount not to exceed $518,175.
4. Approve a purchase agreement in the amount of $2,512,147 to Shredding Systems Incorporated (SSI) of Wilsonville OR, for the purchase of a pre-load compactor and approve a 1.5% contingency for the compactor in the amount of $37,682.
5. Approve Budget Modification No. 24 in the amount of $16,735,288.
6. Adopt a Resolution declaring the intention to reimburse expenditures from the proceeds of solid waste revenue bonds to be issued by the Sunnyvale Financing Authority, and directing certain actions.
7. Authorize the City Manager to execute both agreements when all necessary conditions have been met.
8. Authorize the City Manager to execute amendments to both contracts to incorporate the contingencies.
9. Other actions as directed by Council.
RECOMMENDATION
Recommendation
Alternatives 1-8:
1. Accept Addendum #3 to the previously certified Environmental Impact Report (State Clearing House No. 89022812);
2. Award a Service Agreement in substantially the same form as Attachment 1 to this report in an amount not-to-exceed $34,545,000 to Bulk Handling System (BHS) Inc. of Eugene OR. for the purchase and installation of the SMaRT Station Municipal Solid Waste and Source Separated Recyclables Integrated Processing System (Nextgen) Project;
3. Approve a 1.5% contingency for the project in an amount not to exceed $518,175;
4. Approve a purchase agreement in the amount of $2,512,147 to Shredding Systems Incorporated (SSI) of Wilsonville OR, for the purchase of a pre-load compactor and approve a 1.5% contingency for the compactor in the amount of $37,682;
5. Approve Budget Modification No. 24 in the amount of $16,735,288;
6. Adopt a Resolution declaring the intention to reimburse expenditures from the proceeds of solid waste revenue bonds to be issued by the Sunnyvale Financing Authority, and directing certain actions;
7. Authorize the City Manager to execute both agreements when all necessary conditions have been met; and
8. Authorize the City Manager to execute amendments to both contracts to incorporate the contingencies.
Levine Act
LEVINE ACT
The Levine Act (Gov. Code Section 84308) prohibits city officials from participating in certain decisions regarding licenses, permits, and other entitlements for use if the official has received a campaign contribution of more than $500 from a party, participant, or agent of a party or participant in the previous 12 months. The Levine Act is intended to prevent financial influence on decisions that affect specific, identifiable persons or participants. For more information see the Fair Political Practices Commission website: www.fppc.ca.gov/learn/pay-to-play-limits-and-prohibitions.html
An “X” in the checklist below indicates that the action being considered falls under a Levine Act category or exemption:
SUBJECT TO THE LEVINE ACT
___ Land development entitlements
___ Other permit, license, or entitlement for use
_X_ Contract or franchise
EXEMPT FROM THE LEVINE ACT
___ Competitively bid contract*
___ Labor or personal employment contract
___ Contract under $50,000 or non-fiscal
___ Contract between public agencies
___ General policy and legislative actions
* "Competitively bid" means a contract that must be awarded to the lowest responsive and responsible bidder.
Staff
Prepared by: David Battaglia, Purchasing Officer
Reviewed by: Matthew Paulin, Director of Finance
Reviewed by: Ramana Chinnakotla, Director of Environmental Services
Reviewed by: Sarah Johnson-Rios, Assistant City Manager
Approved by: Tim Kirby, City Manager
ATTACHMENTS
1. Draft Services Agreement
2. SSI Compactor Quote
3. SMaRT Station EIR Addendum #3 and Technical Memos
4. Budget Project Summary Sheet
5. Resolution