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Approved Minutes - 2024-01-30 0.*To p4 CITY COUNCIL SPECIAL MEETING 1 MINUTES January 30, 2024 aRrr�o� 1. CALL TO ORDER Mayor Buck called the special City Council meeting to order at 4:33 p.m. on Tuesday, January 30, 2024. The meeting was held both virtually via video conferencing and in- person in the Council Chamber at City Hall, 380 A Avenue. 2. ROLL CALL Present: Mayor Buck, Councilors Wendland, Verdick, Mboup, Rapf, Corrigan, and Afghan (via video conferencing) Staff Present: Martha Bennett, City Manager; Ellen Osoinach, City Attorney; Kari Linder, City Recorder; Anthony Hooper, Deputy City Manager; Stefan Broadus, Director of Special Projects Others Present: Kyle Rhorer, Vice President, Carollo; Jill Jamieson, President, Illuminati Infrastructure Advisors 3. PLEDGE OF ALLEGIANCE 4. COUNCIL BUSINESS 4.1 Wastewater Treatment Facility Project. Anthony Hooper, Deputy City Manager, introduced members of the team and the people who would take over from him after he departed to take a job with the City of San Diego. He presented the Council report and provided a brief overview of the history and the current stage of the project. Staff requested the Council approve a reimbursement of $7.2 million in Preliminary Services Costs to EPCOR, and recommended the City end its relationship with EPCOR to explore a competitive procurement process to look at possibly removing private finance portion of the project and do a design/build/operate/maintain (DBOM). Kyle Rhorer, Vice President, Carollo, reminded Councilors Carollo Engineers had worked with the City on the project since 2018 and thanked Deputy City Manager Hooper for his leadership on the project and discussed next steps. City Council Special Meeting Minutes Page 1 of 5 January 30, 2024 Item 3 in the Staff Recommendation discussed a competitive proposal method, but the Council was not making a decision tonight. There were two primary differences between the current approach and the DBOM method: • The DBOM method was absent of private financing. It would be financed using public instruments, which were generally a more cost-effective way to build infrastructure. • The current process with EPCOR was a collaborative or progressive delivery method, and the City worked with the design/build/finance entity on an open book basis to develop the price collaboratively, which was one reason it had taken time to get pricing. The DBOM model was a fixed price model. The City would get a guaranteed price for the remaining design and construction of the project as well as a guaranteed first year operations cost and some other financial promises. If the City chose to go with the DBOM model, there would be pricing immediately after the next procurement as opposed to another collaborative process. It was the team's hope that much of the $7 million already spent on design could be used. Most RFP solicitations and technical bridging documents were designed to around 30 percent under a DBOM process. The DBOM team would finish the design enough to provide guaranteed pricing. In this case, the design was developed to almost 90 percent—more than what was needed to do a DBOM. Reuse of the design was contingent on the ability to reuse the technology and approach proposed by EPCOR. Carollo was confident that, with the technical bridging documents, it could promote the AquaNereda technical approach as something that was suitable for the compact footprint on the site. Carollo's national wastewater expert agreed it was a good application and the company was hopeful the market felt the same way. However, if the new DBOM team did not favor the AquaNereda approach, there was a chance some redesign would have to be done. There was a market for the DBOM approach. The model had been in place for a long time and the market knew and was comfortable with the model. There were two types of competitors that were likely to make proposals for the project. A handful of international companies could propose to do everything under their own umbrella or, since this was a smaller project, teams of companies could come together as a single contracting entity to bid. Part of the effort to explore the process would include a market sounding, and when the Carollo came before Council again it could offer information on what the market looked like. It was an attractive project, so there were no concerns about interest. Deputy City Manager Hooper introduced Stefan Broadus, Director of Special Projects, who would take over the project. Director Broadus stated it has been an honor and a privilege to manage the City's capital program and he was excited to take on the wastewater project. Councilors unanimously expressed gratitude to Deputy City Manager Hooper for his work in Lake Oswego and wished him well in his new position in San Diego. Comments from Councilors and clarifying responses from Staff and consultants continued as follows: Mr. Rhorer clarified he believed international firms would be interested because there were very large international design/build/operate integrators, including one in the United States. There were not a lot of turnkey greenfield opportunities like this in the market, but it was a popular model in Europe. It made sense for smaller communities to think of this turnkey process so they did not have to start their own wastewater utility to build a single-purpose wastewater plant. It was an City Council Special Meeting Minutes Page 2 of 5 January 30, 2024 attractive, marquee project with an interesting environmental and city planning element. The market sounding would reflect whether the project was as attractive as he believed. Councilor Wendland wished to make it clear the City had a good relationship with EPCOR but the Council wished to change directions because EPCOR had asked for an unreasonable return on its money at the expense of Lake Oswego and Portland ratepayers. The City's Assistant Attorney Evan Boone had ensured the contract signed with EPCOR offered offramps that allowed the City to depart with EPCOR in a dignified way without risk of future litigation. The Council was ending the relationship with EPCOR to ensure the City achieved the best value for its ratepayers and servicing, and to make sure the project worked well for the next 30, 40, or 50 years. The decision was not taken lightly, but both Lake Oswego and Portland were comfortable moving forward in breaking with EPCOR. Mr. Rhorer confirmed Lake Oswego could build and operate the facility. It could also seek proposals to bridge the completion of the design and the construction with an extended commissioning period or small operations period in order to train Staff. There were many models that would allow Lake Oswego to transition to a municipally operated facility. The DBOM model identified in the Staff report was just one of many variants open to the City. Deputy City Manager Anthony Hooper clarified the $7 million payment to EPCOR reflected the total amount due the company. Portland was responsible for 31 percent of that total, and Staff was currently in talks with Portland about the payment. Portland was on board with the decision to separate from EPCOR. Deputy City Manager Hooper noted that with the DBOM recommendation, the City would hire firms to finish the design from 90 to 100 percent. Owning the design going forward to construction was important for accountability purposes. If the market was not responsive, the City could potentially contract to finish the design with the existing architecture and engineering firm and then bid it out in any number of ways, including in house operating maintenance. Mr. Rhorer added that if the City did select the DBOM approach, there was more than enough design for the technical bridging documents that would enable completion of the RFP solicitation. The proposals the City received would include a price for the construction and a price to finish the design. While there were some DBO projects that went all the way through without 100 percent designs, he did not recommend the City do that; the design should be finished to 100 percent. Deputy City Manager Hooper stated that Staff's request tonight was to authorize a payment to EPCOR of about $7.2 million and then give direction to Staff to start exploring options for the next phase. Staff would return to the Council with those options for further discussion. Jill Jamieson, President, Illuminati Infrastructure Advisors, confirmed that the City had all the rights conceived of to access the subcontractors and use them under the existing terms and conditions. The team would return to Council to discuss the pros and cons of the different approaches such as future risk and future budgeting, but that would happen at a later date. Mr. Rhorer clarified that all of the present design was centered around AquaNereda technology. There were some parts of the site development that were reusable, but the progression of design had started with AquaNereda because of the site's footprint considerations. The other option was MBR (membrane bioreactor), but the design had considered early on where the tanks would go. AquaNereda was not EPCOR's technology; it was a licensed and proprietary technology that EPCOR needed approval for to use as an application on the Lake Oswego project. Another firm could use the technology as well. City Council Special Meeting Minutes Page 3 of 5 January 30, 2024 Deputy City Manager Hooper noted EPCOR had not operated AquaNereda before; this would have been the first time for them. The company did have demonstration plans and training programs. There were five existing plants in the United States; it was an emerging market. There were a lot in the development right now in the U.S. Mr. Rhorer noted that the solicitation document and the technical bridging documents would be strongly voiced, without being biased, to express the City's expectation that AquaNereda was advantageous for the City and a company's DBOM solution was expected to involve the efforts done to date. Carollo did not believe that was unreasonable, and the market would have the opportunity to be responsive or offer an alternative. An alternative may include MBR, which would leave the DBOM only performance requirements for the facility and they would have to design the facility on their own dime to cost it. Deputy City Manager Hooper added that the team would do market sounding to inquire as to whether or not they would use AquaNereda as their proposed technology. The 90 percent design had already been basically approved by Oregon's Department of Environmental Quality (DEQ). For a team coming in, the innovative design with technology already approved by DEQ meant a lot of the project had been de-risked. Deputy City Manager Hooper confirmed AquaNereda was an energy efficient option. MBR used four times as much energy AquaNereda. Mr. Rohrer agreed with the Deputy City Manager's comments regarding DEQ's approval. AquaNereda could handle the city's peak flows and had the ability to treat everything with secondary standards. The City would not have to build select treatment or anything like that for storm events. Ms. Jamieson noted the City could establish a baseline for AquaNereda in any procurement document. The document could allow for alternative technical concepts, but companies had to make the case the alternatives were in the City's best interest. If no one could do AquaNereda, then the City may wish to consider design/bid/build. Lake Oswego had detailed designs and access to the designers, and the process was laid out to give the City that flexibility. The market would respond if they were willing and able to do AquaNereda, but if not and no alternative technology made sense, the City still had the opportunity to go back to design/bid/build. Mr. Rhorer acknowledged the unprecedented high inflation over the past three years had escalated costs, but Carollo's construction group had observed prices softening to more reasonable levels for raw materials, trade labor, steel, cement, and concrete. However, the City did have the ability through the solicitation document when requesting pricing to have a shared risk profile on inflators for the design/build cost. If the City pursued a DBOM, its proposals would have two elements. The first was a fixed design/build price which would be a guaranteed price to finish design and construct the facility. The risk of inflation from the time the proposal was submitted to the time the facility was constructed was on the bidder, unless the City wanted to share that risk which may be advantageous because it prevented pricing of risk. For the second element, operations and maintenance agreement, the City would request the first-year fee and ask the bidder to guarantee an annual inflation number. The company could propose to adjust the fee based on the CPI and the Portland Metropolitan Area or propose charging the CPI unless the CPI delta became more than five percent, in which case it would ask the City to share it. There were many ways to share the risk transfer of inflation. While there was no way to insulate the City from the risk completely, a two-year period for the contract meant the exposure for construction commodities and trade labor was somewhat limited just by the duration of the construction. There were ways to mitigate that exposure. Ms. Jamieson noted there was always some level of possibility for price increases. The real question was whether there was a value offset. As noted earlier, one of the driving forces behind City Council Special Meeting Minutes Page 4 of 5 January 30, 2024 separating EPCOR was that the cost of private finance added about $82 million to the overall price tag. The team felt going out with a new procurement would secure a cost that was less than $82 million on a facility that cost $168 million overall. The lifecycle cost on the facility was not just inflation—it was offsetting the private financing costs in part through the use of public financing. The buffer offered by private financing would ensure that even if prices go up three percent, the City's overall costs would still be reduced versus the original approach with EPCOR. Under a competitive environment, there were opportunities to reduce some of the other elements such as markups on design/build costs and maintenance and operating costs that were bid a long time ago. Putting the project back out to market meant there was a possibility of savings that would result in a lower overall project cost going forward. Mr. Rhorer added that the open book collaborative, progressive process with EPCOR was a great model, but inherently weak in terms of getting cost/price competition.. The procurement process was very transparent, but the actually competitive nature of it did not exist as it did in a DBOM model. With fixed pricing, the industry expected a solicitation document to ask bidders for a guaranteed, fix/design/build price to finish the design and construct the facility. The City would make an adjustment based on CPI, which was fair and reasonable. He cautioned owners to ask for a price without inflators because they would pay irrespective of what happened with inflation. Deputy City Manager Hooper commented that under the current negotiation, it was difficult to know whether the City had the best possible deal. If market forces were introduced, the City would know what the market would bear and would have a price tag. There was some certainty introduced through the proposed procurement process that could be good for the City. Mayor Buck moved to Authorize the City Manager to provide notice to EPCOR Foothills Water Project (EFWP) that the term of the preliminary services agreement has been completed, and approve reimbursement to the EFWP for $7,171,092.12; and Direct staff to explore competitive procurement methods, including special procurement and alternative contracting methods for final design, construction, operation and maintenance of a new wastewater treatment facility. Councilor Wendland seconded the motion. A voice vote was held, and the motion passed, with Mayor Buck and Councilors Wendland, Verdick, Mboup, Rapf, Corrigan, and Afghan voting `aye', (7-0). 5. ADJOURNMENT Mayor Buck adjourned the City Council special meeting at 5:23 p.m. Respectfully submitted, k / l / Kari Linder, City Recorder Approved by the City Council on March 5, 2024. ( Joseph M. Buck, Mayor 't Counci Special Meeting Minutes Page 5 of 5 Jan .- !, 2024