DATE: June 4, 2024
TO: Board of Supervisors
SUBMITTED BY: Edward Hill, Chief Operating Officer/ Interim Director of Internal Services/ Chief Information Officer
SUBJECT: Master Equity Lease Agreement with Enterprise Fleet Management, Inc.
RECOMMENDED ACTION(S):
TITLE
1. Approve and authorize the Chairman to execute a Master Equity Lease Agreement with Enterprise Fleet Management, Inc., effective June 10, 2024, not to exceed three consecutive years, which includes a two-year base contract and one optional one-year extension; and
2. Authorize the Director of Internal Services/Chief Information officer or their designee to authorize and execute documents associated with the day-to-day activities of the Enterprise Master Equity Lease Agreement.
REPORT
There is no additional Net County Cost associated with the recommended actions, which will allow the Internal Services Department - Fleet Services Division (ISD-Fleet) to execute a Master Equity Lease Agreement (MELA) with Enterprise Fleet Management, Inc. (Enterprise), to continue to provide an alternative method for County departments to procure vehicles through an open-end leasing model that allows departments to replace aged vehicles without requiring high up-front costs. The proposed MELA will not replace the current County ownership and acquisition of vehicles. Instead, this will supplement the County’s existing fleet ownership. This item is countywide.
ALTERNATIVE ACTION(S):
Your Board could choose to not approve the recommended actions, and ISD-Fleet would have to revert to its original method of procuring vehicles for County departments. Alternatively, your Board may direct ISD-Fleet to seek alternative methods to supplement the procurement of vehicles.
FISCAL IMPACT:
There is no increase in Net County Cost associated with the recommended actions. The MELA does not create any financial obligation on the part of the County. Once the MELA is executed, it will allow the County to enter into lease schedules which will incorporate the terms of the MELA by reference. The MELA allows a department to add vehicles or replace aged vehicles without requiring high up-front costs, by replacing depreciation and inflation costs with lower initial chargers and monthly lease payments. Sufficient appropriations and estimated revenues for the costs associated with the anticipated lease schedules are included in the ISD-Fleet Services Org 8910 FY 2023-2024 Adopted budget and will be included in future budget requests. Ongoing costs related to vehicle leases will also be appropriated in requesting departments’ budget.
DISCUSSION:
On July 9, 2019, your Board approved Agreement No. 19-315 (Current Agreement) with Enterprise for the procurement of vehicles through Enterprise’s open-end lease model and as a result user departments have reduced maintenance costs and improved fuel efficiency. This methodology has allowed user departments to add vehicles or replace aged vehicles and preserve cash flow as the open-ended leases are written to a residual balance. This has given the County flexibility of ownership, as well as net equity from sale at the time of the vehicle disposal.
The Enterprise program has provided the County with an Enterprise Account Manager to assist with ongoing analysis of maximizing department’s fleet objectives. ISD-Fleet has full access to the Enterprise data warehouse fleet management system, which captures and maintains all vehicle history information, and generates reports as needed. Enterprise has obtained pricing quotes from multiple manufacturers, using discounts where available, based on the classification of vehicles needed. User departments have been able to select the model and trim package that best suits their needs and at the end of the lease term, the vehicles are remarketed through Enterprise, at which point any net equity in the resale is returned to the County. The Current Agreement is set to expire on June 9, 2024 and ISD-Fleet wants to ensure the continuance of this methodology, as such new piggyback options have been researched and a viable option has been found and approved by the Purchasing Division.
Pursuant to Chapter 4 of the County’s Purchasing Manual, the County is able to join other public entities in the collective preparation of specifications and requests for quotations or proposals, and in making an award to a bidder in compliance with the requirements of the Purchasing Manual. On March 1, 2022, Sourcewell, a state of Minnesota local government unit and service cooperative, issued a Request for Proposals (RFP) No. 030122 for Fleet Management Services which include but are not limited to services for the acquisition by Sourcewell participating entities, whether by lease or financing, of on-road vehicles, of all types or classifications, all weight classes, and all engine types, which was awarded to Enterprise on April 8, 2022. The Internal Services Department, Purchasing Division reviewed the Sourcewell RFP process and determined their procedures were consistent with the County’s RFP process.
The recommended agreement before your Board is a new MELA. It does not create any financial obligation on the part of the County. Once the MELA is executed, it will allow the County to continue to enter into lease schedules that incorporate the terms of the MELA by reference. Each schedule will be for a specific vehicle for a specific term (typically 60 months). The lease schedule includes the total capitalized price of the vehicle at delivery and an initial delivery fee depreciated at 1.35% plus interested and sales tax. The County is exempt from paying license and registration fees. A sample lease schedule is included in Attachment A.
The MELA contains a provision that after the term for a vehicle ends, there is a calculation based on the “book value” of the vehicle in relation to the “market value” of the vehicle, which could result in either the County paying an amount to Enterprise or Enterprise paying an amount to the County. If the “book value” is greater than the “market value”, the County may be required to pay an amount to Enterprise. If the “market value” is greater than the “book value”, Enterprise may be required to pay an amount to the County. Historically this has resulted in a refund to the County due to use. An example of this provision is included in Attachment B.
If the County funds out of the recommended MELA early through the non-appropriations clause, the County would be responsible for the losses incurred by Enterprise for having to sell the vehicles on the open used car market prior to the end of the scheduled term. These damages could be in the range of $500-$2,500 per leased vehicle returned. However, the County’s fleet needs are continual, and operational provisions have been established such that the County funding out of this MELA early is highly unlikely.
The MELA deviates from the County’s model contract. It contains an indemnification clause in favor of Enterprise, and an 18% annual interest rate (or 1.5% monthly) for late payments by the County. However, the late interest rate will not be applied until the 46th day after the invoice due date. The department believes the benefits of this MELA outweigh the risks involved. This MELA has been reviewed and approved by the Department of Human Resources - Risk Management Division.
The first recommended action approves a MELA with Enterprise, based on the terms outlined in the cooperative agreement No. 030122-EFM through Sourcewell, with a potential two-year initial term and one optional one-year extension, and will allow the County to acquire vehicles from Enterprise, whether by lease or financing, of on-road vehicles, of all types or classifications, all weight classes, and all engine types for user departments countywide.
The second recommended action authorizes the Director of Internal Services/ Chief Information Officer, or their designee, to have the authority to authorize and execute documents associated with the day-to-day activities of the Enterprise MELA.
REFERENCE MATERIAL:
BAI #50, July 9, 2019
ATTACHMENTS INCLUDED AND/OR ON FILE:
Attachment A
Attachment B
On file with Clerk - Agreement with Enterprise Fleet Management, Inc.
CAO ANALYST:
Ahla Yang