Report to/Rapport au :


Transit Committee

Comité du transport en commun


and Council / et au Conseil

21 April 2010 / le 21 avril 2010


Submitted by/Soumis par : Nancy Schepers, Deputy City Manager/Directrice municipale adjointe, Infrastructure Services and Community Sustainability/Services d 'infrastructure et Viabilité des collectivités


Contact Person/Personne ressource : Larry Atkinson, Chief Transit Maintenance

Transit Services/Service de transports en commun

(613) 842-3636 ext. 2160,


City Wide/à l'échelle de la Ville

Ref N°: ACS2010-ICS-TRA-0005













That Transit Committee recommend Council approve:


1.         The purchase of 226 New Flyer buses (model D60LFR) from New Flyer under the existing agreement, as outlined in this report;


2.         Delegate authority to the General Manager, Transit Services, to amend the current warranty support agreement with New Flyer to incorporate the new vendor support agreement; and


3.         Delegate Finance the authority to seek alternative funding sources and report back to Council with the results.




Que le Comité du transport en commun recommande au Conseil d’approuver :


1.         l’achat de 226 autobus New Flyer (modèle D60LFR) de la société New Flyer en vertu de l’accord existant, comme l’explique le présent rapport;


2.         la délégation de l’autorité au directeur général des Services de transport en commun, afin qu’il puisse modifier l’entente de soutien garantie avec la société New Flyer en vue d’incorporer la nouvelle entente de soutien du fournisseur;


3.         la délégation de l’autorité au Service des finances afin qu’il recherche de nouvelles sources de financement et qu’il présente les résultats au Conseil sous forme de rapport.





In 2001, 226 New Flyer (DE60) articulated buses were purchased after the Transition Board set in motion an aggressive direction to purchase buses to reduce the average age of the fleet and increase the number of accessible low-floor models.


The City's investment in the bus fleet has resulted in lowering the fleet age from 14.7 years to approximately seven.  Low-floor designs now comprise over 75 per cent of the bus fleet.


However, as detailed in Review of Bus Fleet Maintenance Standards and Process (ACS2009-ICS-TRA-0001) in March 2009, the rapid renewal of the fleet has brought some unintended consequences arising from more complex designs.  As a result, Transit Services has seen lower fleet availability for service than would have been expected from a newer fleet.


Transit Services entered into an agreement with New Flyer in 2009 to address warranty repairs and maintenance management support on all delivered New Flyer products.  This resulted in New Flyer establishing a service centre in Arnprior, Ontario.


Transit Maintenance currently has a large backlog of work due to major repairs required on a number of buses, including the 226 New Flyer DE60 models that were purchased between 2001 and 2004, in accordance with the direction of the Transition Board, which are due for mid-life overhauls.


Transit Services has a Council approved mandate to increase bus availability to 90 per cent, which will provide more reliable service for customers.  Transit Services has also committed to reducing its environmental footprint and improving its revenue/cost ratio.

Due to current market forces in the North American transit industry, an opportunity has arisen for Transit Services to make great strides towards Council’s goals by replacing the 226 New Flyer DE60 Models, purchased between 2001 and 2004, with brand new buses - with nil impact to City’s tax base.


The total cost of this Fleet Acquisition Strategy would be $155.7 million, with $142 million financed through debt. However, this cost will be more than offset by savings created by replacing the aging fleet of 2001–2004 models with new, fuel-efficient models.


For instance, by taking advantage of this opportunity, Transit will avoid spending $66 million on needed overhauls to the older models, and save $6 million per year for nine years on fuel and maintenance, in addition to several other efficiencies and savings this opportunity presents. In total, a financial analysis shows a savings of $156.9 million as a result of the recommended Fleet Acquisition Strategy for a net present value of $1.2 million.


The Strategy would also produce benefits that are not included in the net present value calculation. These include reducing the maintenance risk of continuing to run the older buses, and the risk that the parts to keep them on the road will become obsolete. The Strategy will also allow Transit Services to defer the purchase of buses in the short term and potentially the long term.


In short, the Strategy will allow for the replacement of the City’s 2001 to 2004 articulated bus models with new buses for the same cost as it would take to keep the older buses on the road, while improving customer service.


The body of this report sets out the details of this Fleet Management Strategy.




The Proposal


New Flyer approached the City of Ottawa to purchase additional new articulated buses at a significantly reduced cost as the economic conditions in the U.S have significantly reduced demand for transit in 2010. With this discounted pricing as a precursor, Transit Services reviewed the economic viability of refurbishing its existing articulated bus fleet and came to the conclusion that the proposal submitted by New Flyer was worth pursuing further.  As secondary market for used transit buses is not prevalent, Transit Services considers the proposal a unique and unprecedented offer to improve the OC Transpo fleet and solidify the relationship with New Flyer through new service and warranty agreements.


The City of Ottawa has an existing contract with New Flyer, resulting from a 2006 competitive Request for Proposal, which provides Transit Services the authority to purchase additional articulated buses in quantities to be determined “based on available funding and updated bus growth/replacement projections.” Transit Services has previously obtained budget approval to purchase 80 high capacity buses this year.


The City’s contract with New Flyer is open ended as to the number of buses to be purchased in 2010, and the contract requires that all articulated buses purchased by the City in 2010 must be purchased from New Flyer.


As a result, the proposed Fleet Acquisition Strategy is within the existing contract between the City and New Flyer. The Strategy does not require a new agreement, and could not be executed with any other company as the City is contractually bound to buy articulated buses from New Flyer only (in 2010).


In practice, the City would be adding to its plan to purchase 80 articulated buses from New Flyer in 2010.


The strategy proposed in this report would see this purchase expanded to take advantage of New Flyer’s offer and meet the City’s goals and needs, in accordance with the existing contract.


The proposed agreement between the City of Ottawa and New Flyer includes:


  Ottawa will receive a 19 per cent discount on 226 buses (including trade-in credit for the 2001 to 2004 New Flyer DE60 Models) on the previously tendered price;

• Ottawa will receive a 10 per cent discount on the scheduled purchase of 80 buses in 2010;

New Flyer will purchase 226 of Ottawa’s old buses (DE60), which is an unprecedented trade-in opportunity to replace the older buses with the new model;

Delivery will begin in August 2010, with New Flyer committing to provide all 306 buses by Q1, 2011; and,

  New Flyer will provide a strong partnership for future maintenance and warranty solutions, including a five-year bumper-to-bumper warranty (longer than industry standard).


Council Direction


Transit Services has been directed by Council to achieve a 90 per cent bus availability rate (ACS2009-ICS-TRA-0001).  As part of that commitment, Transit Services is obligated to reduce the number of models in its fleet from the its current level of 14.  The goal is to reach three or four models by 2011 through the re-fleeting plan, which will reduce inventory, the amount training needed and improve quality of maintenance. 


Council also directed Transit Services to improve its environmental footprint and revenue/cost ratio.


The environmental benefits of purchasing the New Flyer D60LFR are significant.  It is estimated that the new model will require 26 per cent less fuel and reduce emissions of Nitrogen Oxides (NOX) by 1.98 million kilograms (1,400%) and Particulate Matter by 51,400 kilograms (1,000%) over the next 9 years.


The purchase of 306 new buses will also improve the revenue/cost ratio by:


Reducing the costs of maintaining and/or overhauling the 226 New Flyer DE60 purchased between 2001 and 2004;

Improve bus reliability, which will improve service;

Reduce inventory;

Integrating 5-year bumper-to-bumper warranty;

Integrating new Grafitti Management package; and

Continuing the long-term maintenance support agreement with New Flyer.




New maintenance planning initiatives uncovered issues surrounding the older buses that will result in significant overhauls or obsolescence of the 226 New Flyer articulated buses.


Transit Services’ analysis concluded that it is more cost effective to purchase new buses instead of overhauling and maintaining the old buses.


New buses provide significant savings through:

  26 per cent reduction in fuel consumption;

  15 per cent maintenance cost reduction; and,

  Will result in lower inventory.


As the result of increasing bus availability, estimated at 34 buses on average over the period from 2011 to 2013, Transit Services will be able to defer, and possibly avoid, new bus purchases in future years.


Benefits of the D60LFR


Transit Services identified five sub-systems of the New Flyer articulated buses (purchased in 2001 through 2004) that had a history of maintenance difficulties, including:




Articulated Joint

Rear Axle

• Air Dryer


Transit Services has concluded that significant improvements have been made to these sub-systems in the new model. Transit Services currently has 53 of the New Flyer model D60FLR in the fleet, which have been performing very well.  


In addition to the re-design of the five sub-systems, the new model will be delivered with a number of value-added features, including:


Anti-Graffiti Configuration;

Modern Styling;

Maintenance Program Review;

Onsite Representative; and,

Kitted and consigned parts technology.


Financial Evaluation


Financial analysis of this proposed agreement with New Flyer shows good value, and that this arrangement will pay for itself.


Finance staff completed a net present value analysis of the investment, which indicated that future cash flows from savings and cost avoidance exceeded the initial cost of the investment, including financing costs over a 15-year period at the City’s estimated financing rate of 5.5 per cent. 


Savings resulting from the 226 new bus purchases were estimated.  These included costs that would form part of the City’s current operating budget, such as fuel and repairs.  Ongoing savings of $6M per year are expected. 


Cost avoidance resulting from the investment was also considered.  This included costs such as upcoming bus refurbishments, major engine and transmission overhauls, which are required given the advanced age of the articulated buses (i.e. 50 – 75% of what the standard life of transit buses), and amounting to $66M which would have been included in future budgets.  Warranty savings, and the New Flyer credit for parts, which are directly related to the new bus purchases, and which provide savings over a limited timeframe were also taken into account. 


Savings and cost avoidance estimates used in the analysis were compared to both external sources and the City’s own experience from the newer articulated buses in service. These comparisons found the estimates used in the evaluation to be conservative.  A sensitivity analysis was also conducted that continued to show a positive value even if interest rates were to increase, or if major savings from fuel or refurbishments were decreased.


The financial analysis was also reviewed by an external consultant who found the approach taken to be appropriate and the stated results to be conservative in nature.


It should also be noted that this analysis excluded the added benefit of deferring $20M and avoiding $20M of additional future bus purchases.  The buy-back provision offered by New Flyer results in the older buses being traded in, eliminating the six-month refurbishing period that would have been required for each of the older articulated buses over the next three years and effectively increasing the number of buses available on a daily basis.


As a result of this analysis we are confident that the benefits exceed the cost of investment and also eliminates the risks associated with retaining the older articulated buses.




Transit Services across the City, including service to rural areas, will be provided in a more cost-effective and efficient manner with improved customer service as a result of the recommendations contained in this report.




No public consultation was required.








Memo from City Clerk and Solicitor to be issued separately to committee.




• Achieve a 30 per cent modal split by 2021.

• Realize 100 per cent accessible transit fleet by 2017.

• Achieve a state-of-the-art fuel and environmental efficiency 2017.








A financial analysis of net present value indicates that this deal has financial merit for the City.  No pressure will be placed on the tax base from renewing all 226 of the older articulated buses.


Benefits and cost avoidance will result from reduced repair and fuel costs given newer, more efficient buses and the five-year warranty period that is included in this agreement.   New Flyer has also offered the City a $16M credit on parts that will be received over a three-year period.  Additionally, the City will avoid costs of refurbishing the older articulated buses over the next four years.  The articulated bus renewal will reduce the City’s need to carry inventory.  Currently, the City holds approximately $2M in New Flyer parts in inventory at any point in time.  As part of the new arrangement with New Flyer these will now be held on a consignment basis with the City paying New Flyer only as parts are used for repairs, effectively freeing up cash over the next two years. 


The total investment for replacement of the 2001-2004 articulated buses is $155.7M.  This is net of an initial purchase discount of approximately $16M in the form of a parts credit that will reduce the operating budget and offset debt-servicing costs. 


Debt financing of $142M will be required by the City in regards to this investment.  This amount is after savings of $5M from the 80 planned bus purchases for 2010 and $9M in funds from the province.


The debt will be issued over the 2010 and 2011 calendar years.  Debt serving costs will increase by $6.9M in 2011 that will be offset from operating budget reductions for fuel and repairs attributed to the articulated bus renewal.  Debt servicing costs will increase by a further $6.9M in 2012 that will be covered by debt servicing for revolving debt that will drop off by $4M and by the reduced 2011 capital program requires as a result of the increased service availability of the articulated bus fleet.  Debt service costs are based on a 15-year term and an estimated interest rate of 5.5 oer cent. 


Finally, the debt financing resulting from this investment will continue to be within the 7.5 per cent debt service limit of own source revenues.  The current limit in 2010 allows for $26M in debt for Transit.  The current debt level for Transit is $9.8M that will increase to $17M in 2011.  The debt level for Transit will remain at $17M in 2012.




Due to the time sensivity of the New Flyer discounted pricing offer, staff require this report to proceed to the Council meeting of April 28, 2010.  Upon Council approval, staff will proceed with the contract negotiations with New Flyer.