COUNTY OF SIMCOE
ITEM FOR: PERFORMANCE MANAGEMENT COMMITTEE
SECTION: Finance: Purchasing
ITEM NO. PM 05-111
MEETING DATE: November 10, 2005
SUBJECT: Fuel Surcharge Policy
RECOMMENDATION:
THAT Item PM 05-111 outlining the County of Simcoe’s proposed temporary policy with regard
to fuel surcharges be approved.
BACKGROUND:
In late August 2005, the Environmental Services division was approached by several of their pre-
qualified trucking suppliers with regard to the rising cost of fuel. When these firms quoted their
original hourly rates in late May 2005, the average price for diesel fuel was $.83 per litre.
Although some room for fuel increases was built into their pricing, there was no indication at the
time that fuel prices would climb to the record levels they have reached since August. This has had
a hugely negative impact on our providers who quoted a fixed price for the first two years of a
three year agreement.
One of these providers advised that they may be applying a 12% fuel surcharge to their hourly rate
to account for the rising costs of fuel. Having a 12% increase calculated on the entire hourly rate
was noted by staff as inappropriate as fuel only comprises a portion of the rate charged. Other
trucking providers indicated that they were also considering fuel surcharges and were seeking
guidance from County staff as to what was acceptable in this regard.
In early September as the fuel price situation worsened, Environmental Services staff expressed
concern that many trucking providers may accept the business of their customers who have a
policy on fuel charges over the business of the County where no policy exists. This could cause a
shortage of trucking providers in the Environmental Services area, and that could impact their
ability to maintain service levels.
In an effort to provide clear and fair guidelines on fuel surcharges that would assist both service
providers and staff, the following policy on fuel surcharges was devised:
The County would accept a fuel surcharge effective September 1, 2005 from inquiring firms based on
the following formula:
The surcharge would be calculated using the Ontario Average for diesel fuel on the Ontario
Ministry of Energy fuel price index that is available to the public via the web at
http://www.energy.gov.on.ca (click Oil & Gas - Fuel Prices - Diesel), and attached as Schedule
2.
November 10, 2005 Performance Management PM 05-111 Page 2
Retroactive surcharges will not be accepted. They will need to be applied to current invoices
based on originally tendered rates.
The surcharge would only be applied to one third of the service rate that is reasonably assumed
to be the fuel component.
The formula would include $0.90 per litre as the base per litre price. (This we believe is a
realistic amount that the bidders should have "cushioned" their rates to when bidding.)
On the first Monday of each month starting in September, the acceptable surcharge for that
month based on the index rate would be calculated.
The accepted fuel surcharge percentage for the month will be the percentage difference between
the first Monday of the month’s price and the $.90 base.
Example: September 6, 2005 price is $1.02 per litre or a 13% increase over the $.90 per litre base.
Firm A charges $44 per hour for a tandem truck. 1/3 of that rate is for fuel, or $14.67. 13% of $14.67 is
$1.91. So the County will accept an hourly increase of $1.91 or 4.3% on their overall rate for this
vehicle or $45.91 per hour for the month of September.
The County will not be doing these calculations but will be verifying the calculations of the
transportation based contractors when and if claimed.
This surcharge process is a temporary measure and will only remain in place until December 31, 2005.
During the month of November fuel prices will be evaluated, and if there is no sign of price averages
returning to the $.90 per litre or lower range, bidders may be asked to resubmit their pricing in
December for the 2006 period. If necessary, all new bids will have the above formula built in to
accommodate fuel fluctuations over the course of the remaining years of the contract. Further, some
provision for significant decreases in fuel costs will be incorporated so the County will benefit in the
event of windfall to supplier beyond a reasonable range.
This fuel surcharge position will only be communicated to firms that inquire to the County and indicate
their intention to implement fuel surcharges or that indicate that their pricing is no longer profitable and
as such they are refusing our calls for service.
A service provider has requested an increase in contracted rate due to increases in fuel costs.
At the time this report was drafted, fuel prices have been dropping closer to $.90 per litre.
FINANCIAL ANALYSIS:
Financial implications of paying a surcharge for fuel to inquiring service providers for the remainder of
2005 are negligible. Costs for fuel and related increases have been included in the 2006 budget.
SCHEDULES: The following schedules are attached hereto and form part of this item:
November 10, 2005 Performance Management PM 05-111 Page 3
Schedule 1 – Letter to inquiring providers
Schedule 2 – Webpage for Ontario Fuel Price Averages
PREPARED BY: Dawn Hipwell
APPROVALS: Date:
Tom Evans, General Manager of Finance & Admin. November 1, 2005
Mark Aitken, Chief Administrative Officer November 3, 2005