Staff Report #3
June 27, 2018
To All Commissioners
Re: Specialized Services Contract Renewal
Recommendation
That the Commission APPROVE:
- exercising the two year renewal option for the Primary Service Contract for the delivery of specialized services with Voyageur Transportation Services for the period of August 1, 2018 – July 31, 2020 inclusive of a 12% increase in hourly rate (from $46.68 to $52.28) effective August 1, 2018; and
- a 12% increase to the hourly rate (from $45.25 to $50.68) of the Secondary Service Contract effective August 1, 2018, noting the initial five year period of the contract is scheduled to end August 31, 2019 and the contract includes the provision for a two year renewal period at the agreement of the parties.
Background
The Commission currently holds two contracts with Voyageur Transportation Services, both relating to the delivery of specialized transit services. The contracts provide for the supply of both vehicles (including all maintenance and operating costs as well as the capital cost of the vehicles) and drivers for the delivery of the specialized service. A summary of the contract provisions is set out below.
Primary Service Contract:
- Five year term ending July 31, 2018 with an option for a two year renewal at the agreement of the parties
- Built-in annual price escalation clauses based on the change year over year in the Canadian Consumer Price Index – All Items
- Built-in fuel price fluctuation provision which provides for additional payments or refunds dependent upon fuel price trends in each year
Secondary Service Contract:
- Five year term ending August 31, 2019 with an option for a two year renewal at the agreement of the parties
- Built-in annual price escalation clauses based on the change year over year in the Canadian Consumer Price Index – All Items
- Built-in fuel price fluctuation provision which provides for additional payments or refunds dependent upon fuel price trends in each year
On January 1, 2018, legislative changes to the Employment Standards Act resulted in an increase to Ontario’s minimum wage from $11.60 to $14.00 per hour. As a result of this change, the Commission approved a 10% increase in the hourly rate for both the Primary and Secondary contracts for the delivery of specialized transit services. The rationale for this increase was to provide Voyageur with the ability to continue to attract and maintain qualified drivers.
In discussion regarding the two year renewal option for the primary service contract, Voyageur representatives raised a number of concerns with respect to challenges they face in continuing to provide the service at the current hourly rate. The labour market response to the increase in minimum wage has resulted in significant competition between job markets paying minimum wage, making it more difficult for some employers to attract and retain employees. This response has made it necessary for some sectors to pay more than minimum wage, given the jobs in that sector may be viewed as more difficult or demanding than other jobs that potential employees could get for the same rate of pay.
Over the period of both the primary and secondary contracts, Voyageur has accommodated requests for fleet expansions without any request for increases in rates, notwithstanding the initial hourly rates provided for in the bid submission accounted for only the capital costs associated with the base fleet size as prescribed in the request for proposal. The move to the new scheduling system has also required that driver units be installed on all vehicles providing specialized service, which has limited Voyageur’s agility with respect to shuffling vehicles around in their fleet to ensure vehicle availability.
Given the above, Voyageur has requested that a 12% increase be applied to the current hourly rates effective August 1, 2018 with a further opportunity to review should the next planned increase in minimum wage for January 1, 2019 also be approved. The August 1, 2018 increase as set out in the report recommendation, should it be approved, would be inclusive of the annual CPI adjustment set out in the contract for August 1, 2018 (currently estimated to be between 2% and 3%). The estimated impact on the 2018 Specialized Service operating budget should this increase be applied, would be an increase in expenditure of approximately $200,000 which would be funded by an increase in use of Provincial Gas Tax. The adjusted rates, should they be approved, will be utilized in the preparation of the 2019 operating budget, scheduled for approval by the Commission at the August 2018 meeting.
In addition to the request for a rate increase, Voyageur has requested consideration for a further contract extension for vehicles that were purchased during the first five year period of the contract. Administration is reviewing options for future contracts which will provide for a smoother transition between contract periods going forward, rather than the current approach which results in a complete fleet turn-over every seven years. The results of this review will be reflected in future requests for proposal relating to the delivery of specialized transit services.
Enclosure
Recommended by:
Mike Gregor, Director of Finance
Concurred in by:
Kelly S. Paleczny, General Manager