HomeMy WebLinkAboutA001 - Council Action Form dated September 22, 2026ITEM #:30
DEPT:ELEC
September 22, 2026
Staff Report
RECIPROCATING INTERNAL COMBUSTION ENGINES FOR AMES MUNICIPAL ENERGY
CENTER: CHANGE ORDER NO. 1 & 2
BACKGROUND:
The Ames Municipal Energy Center (AMEC) project involves the design and construction of a
new energy generation facility at the former coal yard site south of the existing Power Plant.
On July 28, 2026, City Council awarded a contract to Wärtsilä North America Inc., of
Houston, TX, in the amount of $76,789,739.52, for the purchase of three Reciprocating
Internal Combustion Engines and auxiliary equipment. Of this amount, $70,127,616 was
for equipment and services provided by Wärtsilä, while the remaining $6,662,123.52
reflected pass-through expenses for taxes, duties, and tariffs.
25% Initial
Payment (excludes
Tariffs)
Total Contract
Amount
Equipment and Services provided by Wärtsilä $ 17,531,904.00 $ 70,127,616.00
7% State of Iowa Tax 1,227,233.28*4,908,933.12**
Estimated Duties & Tariffs -- 1,753,190.40
Council-approved Contract Amount $ 18,759,137.28 $ 76,789,739.52
*the amount being refunded in Change Order No. 1
**the amount being reduced from the overall contract value in Change Order No. 2
The Council should note that the total contract amount was subject to adjustments to
price based on changes to the U.S. Dollar-Euro exchange rate in effect on the date of
the initial payment. The Council's approval of the contract amount on July 28 included
approval of any applicable exchange rate fluctuation that the City may be liable for
between the time the contract was approved by Council and the time the initial payment
was made, when the exchange rate risk was "locked in."
The figures presented to the Council on July 28 and in this Council Action Form do not
include the exchange rate fluctuation adjustment that the City will need to pay in the
form of one or more increased payments to Wärtsilä later in the project to account for
this. Therefore, the Council should take care when comparing budget and payment
figures presented early in the project to those figures to be presented later in the
project timeline.
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THIS ACTION:
Change Order No. 1 (Refund of taxes previously paid):
The original contract with Wärtsilä required the City to pay 25% of the total contract price
within seven days of the contract approval. The original contract's total price was $70,127,616.
This makes the initial 25% payment $17,531,904 (excluding taxes). At the time, it was
understood by staff that 7% taxes needed to be added to this amount because taxes
were to be included in the contract as a "pass through," allowing Wärtsilä to pay taxes
owed to the state of Iowa. Tariffs were not to be paid in the 25% initial payment.
The total tax amount paid in the initial payment was $1,227,233.28, making the total initial
payment $18,759,137.28. After making the initial payment, City staff and Wärtsilä
determined it would be best if the City paid the taxes on Wärtsilä's behalf, using the
City's permit from the state. This approach, rather than relying on Wärtsilä to pay the
taxes to the state, allows Ames to scrutinize each component of the payments to
Wärtsilä to ensure taxes are only paid on portions of the contract which are subject to
Iowa taxes rather than paying a blanket 7% across the entire contract. Through this
change in approach, Wärtsilä needs to refund the $1,227,233.28 the City has already paid
Wärtsilä towards taxes in the initial payment. The City will then determine the appropriate
amount of taxes due to the state and make a payment.
Staff is requesting that City Council approve the refund of $1,227,233.28 previously paid
to Wärtsilä, and allow the City to pay the taxes directly to the state.
Change Order No. 2 (Reduction in contract amount for all state taxes owed):
As stated above, the original award amount of $76,789,739.52 includes the base contract,
tariffs in place at this time, and the 7% sales tax. Going forward, City staff and Wärtsilä
determined it would be best if the City paid the remaining taxes on Wärtsilä's behalf in addition
to paying the amount of taxes Wärtsilä is refunding the City in Change Order No. 1.
To accomplish this, the contract amount needs to be adjusted to reflect only the amount owed
to Wärtsilä in the base contract ($70,127,616) and the applicable tariffs in effect at this time
(which Wärtsilä will pay as a pass-through cost of $1,753,190.40). The updated Wärtsilä
contract total equals $71,880,806.40. The total contract reduction amount will be
$4,908,933.12.
Staff is requesting that the City Council approve the deduction of the 7% sales tax from
the total contract amount.
OPTIONS:
1. Approve:
a. Resolution approving Change Order No. 1 to Wartsila North America, Inc., of Houston,
TX, for the refund of tax to the City, in the amount of $1,227,233.28.
b. Resolution approving Change Order No. 2 to Wartsila North America, Inc., of Houston,
TX, for the deduction of 7% sales tax totaling $4,908,933.12 from the total contract
amount for a revised total contract amount of $71,880,806.40.
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2. Do not approve the change orders.
3. Refer this item to staff for further information.
STAFF COMMENTS:
City staff and Wärtsilä have determined it would be best if the City paid the taxes on
Wärtsilä's behalf, using a direct pay permit from the state. Therefore, the tax amount
already paid by the City needs to be refunded and the total tax amount needs to be
deducted from the total contract price. Therefore, it is the recommendation of the City
Manager that the City Council adopt Alternative No. 1a and 1b as stated above.
ATTACHMENT(S):
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