Title
Central Utility Plant to Support the New Shands Hospital Complex (B)
GRU has been selected by Shands Teaching Hospital and Clinics, Inc. (Shands) to design, finance, construct, own and operate a central utility plant on a portion of the new Shands medical complex. The Central Utility Plant (CUP) will efficiently provide chilled water, process steam, emergency and standby power generation, and medical gases to serve the first hospital tower and will be expanded to serve future phases of the project. Staff recommends approval of a Memorandum of Understanding (MOU) with Shands to allow design and equipment procurement to proceed, authorize funding for GRU's Engineer, Procure, Construct, (EPC) contractor to provide design services, and to authorize the Interim General Manager to negotiate and execute final agreements and procurement contracts to complete the project.
Explanation
Shands is developing a new hospital complex south of its existing facility on Archer Road. The Utility responded to a Request for Qualifications (RFQ) / Request for Proposals (RFP) issued by Shands for a long-term agreement to become the utility provider, to design, finance, construct, own, operate and maintain a CUP plant on a portion of the new Shands campus for a 50 year term. The proposed CUP will provide emergency/stand-by power, chilled water, steam, and facilities for medical gases to support Shands' currently proposed and anticipated future expansions on the new hospital complex campus. The services required by this agreement are anticipated to be required by the end of 2008.
On August 29, 2006, the Commission awarded a contract to Burns & McDonnell for EPC engineering services for Phase 1, which included preliminary design development and proposal development services in an amount not-to-exceed $250,000. Those services included preliminary design sufficient to develop cost estimates for several project alternatives and assisting in the development of pricing strategies to support the Utility's proposal to Shands. At that time staff indicated if the Utility was selected as the long term energy partner for Shands, staff would seek approval from the City Commission to enter into another agreement with the same EPC firm (Burns & McDonnell) for services required for additional phases of the project.
The Utility was notified on November 18, 2006 that it was selected to serve as Shands' long term energy partner. Staff's proposal was to enter an open-book partnership with pre-arranged capital, operation, and maintenance mark-ups, performance guarantees, and budgetary gain-sharing as described in the attached transmittal letter from the Interim General Manager dated October 5, 2006. Part of the proposal was to provide retail electric services on the new medical campus at the most favorable rates enjoyed by other, similarly situated retail electric customers. One design option that will be evaluated is to incorporate distributed generation to allow chilled water and steam to be made from waste heat. The estimated initial capital cost for the CPU is $25 to $35 million depending upon whether or not the combined heat and power option is selected.
The MOU with Shands has been negotiated and will form the basis for developing and negotiating the final agreements. These agreements are rather involved and are expected to take 2 to 3 months to develop and negotiate. In order to meet Shands' schedule requirements it may be necessary to order critical pieces of equipment and material before these final agreements are likely to be in place. The procurement process will by the EPC contractor with oversight by GRU's Division of Purchasing. All State laws, City policies and GRU procedures regarding procurement shall be followed. The MOU is binding in that should the final agreements not be successfully negotiated, Shands will reimburse GRU for any funds expended on their behalf.
Recommendations
The City Commission: 1) receive a presentation from staff summarizing the proposed project; 2) approve a MOU with Shands substantially in the form as attached and subject to approval as to form and legality by the City Attorney; 3) authorize the Interim General Manager or her designee to execute a change order to the existing Shands project development task agreement with Burns & McDonnell, Inc. for an additional amount not to exceed $300,000 to allow design development to proceed pending the execution of final agreements; 4) authorize the Interim General Manager or her designee to negotiate and execute contracts and/or issue purchase orders for procurement of long lead time items and other GRU direct equipment and services purchases such as electrical switch gear, engine generators, gas turbines, structural steel, and pre-cast concrete, subject to approval by the City Attorney as to form and legality; and 5) authorize the Interim General Manager or her designee to negotiate and execute final agreements with Shands and Burns & McDonnell, Inc. for the design, finance, construction, operation, maintenance and future expansion of the CUP required to serve the new medical complex at an initial cost not to exceed $35 million and for a term of 50 years, subject to approval by the City Attorney as to form and legality.
Fiscal Note
The proposal mitigates GRU's financial risks in that all costs are passed through with pre-arranged mark-ups. GRU does assume financial risks should the facility not be operated efficiently or if budget targets are not met. The CUP design is currently estimated to cost $25 million to construct the first phase in exchange for which GRU is estimated to receive in excess of $7 million of fees per year for capital recovery, operation and maintenance, electricity, water, and natural gas. A budget amendment may be required to accommodate the financial and staffing needs of the project. Margins have been set to assure that the utility earns a 14% internal rate of return and a 16% markup on variable operating costs, after the application of usual and customary overhead margins. A combined heat and power design could cost up to $35 million but would earn similar rates of return after adjusting for the value of the additional base load capacity that would be added to the utilities generation fleet.
Drafter
Prepared by Ed Regan, P.E., Assistant General Manager for Strategic Planning
Submitted by Karen S. Johnson, Interim General Manager