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.
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.
1. Approve:
- 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.
- 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.
2. Do not approve the change orders.
3. Refer this item to staff for further information.
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.