Minutes - Council Work Session - 06/19/2012

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Finance Director Lund confirmed the overhead cost is 20% and if the work is not done in- house, the City would be paying out to a consultant. For a $1 million project, the in -house savings would be $200,000. She explained how the funds would be transferred from the Water Fund to the General Fund to pay back in -house engineers for their time. Councilmember McGlone disagreed that it is cheaper because government does it and asked who paid for staff's mistake on the water tower. He stated the Council needs to factor in the real cost of employees. Mayor Ramsey stated he has never heard about the burden of 1.75 to 2.5 times the cost but thinks that needs to be considered. City Administrator Ulrich noted the overhead cost is fixed whether the City has 5 or 50 people. Councilmember McGlone stated he has no problem with the private sector charging overhead and profit but the government should not be doing so. Finance Director Lund explained that .15 or .20 is the standard engineering overhead fee and if bidding out a project, it will include a percentage of the total construction cost. Councilmember McGlone asked whether the consideration was to hire someone because the City needs them or hiring someone to make money on them. Finance Director Lund noted with the Riverdale project, if the City hires out the entire project, the consultant will bill the City 20% overhead. So, the City can pay the consultant or have in- house staff do it and recoup the costs to the General Fund. Councilmember McGlone asked if that is legal. Councilmember Elvig stated there is a difference between profit and overhead, and the difference is scale. He stated the City has the amount of scale needed to support the City and wants to push spreading the burden, not push it to the private sector and raise the cost of doing businesses internally. Councilmember Backous stated the City is charging taxpayers for overhead. Mayor Ramsey stated the cost is paid regardless so the only question is whether to do it internally and keep the money inside or send it to the consultant. He agreed there is a cost if staff screws up that has to be factored into the equation since the contractor fixes it for free. The Council discussed recent road projects that resulted in additional costs to make corrections due to lack of and/or inadequate inspection. Councilmember Elvig asked staff to identify the cost per mile and first five reconstruction projects for additional discussion. City Council Work Session / June 19, 2012 Page 13 of 15