Effective municipal service contracts begin by clearly identifying the responsibilities of the contractor and the municipality.
Sometimes, the relationship between solid waste districts and the haulers and processors that win service contracts must seem like an arranged marriage between strangers. Both parties certainly want the future to be bright; but, with solid waste contracts, potential conflicts go beyond living with someone who squeezes the toothpaste from the wrong end of the tube.
“Responsibilities of both the contractor and the municipality need to be clearly delineated,” says Louis J. Vetrone, deputy commissioner with the Westchester County Department of Environmental Facilities (WCDEF), New Rochelle, New York. However, he adds, “It’s impossible to plan for every contingency.”
Vetrone says, “We’ve ended relationships with contractors that have failed to address the county’s concerns in a timely and efficient manner. Thankfully, this has been a rare occurrence.”
Kevin McCarthy, executive director of ReThink Waste, San Carlos, California, says that in his experience with municipal contracts, working as a service provider and as a municipal contract manager, contracts often are not extended because of lack of trust.
“There seems to be a point in time in which the municipal customer doesn’t have confidence that their service provider can deliver services in the manner that they want,” he explains. This could have resulted from repeat service lapses, repeat reporting inaccuracies, continued failure to provide requested information or a belief that the provider is overcharging, he says.
“There is usually some seminal event that opens the door for mistrust, at which point any other failings by the service provider seem to fit some narrative that is forming in the minds of the municipal customer,” McCarthy says.
Tips for improvement
“I can say from my experiences over the past 22 years in the solid waste industry that there are a few best practices that are not deployed enough,” Kevin McCarthy, executive director of ReThink Waste, San Carlos, California, says of contracts between municipalities and service providers.
Included on his list of best practices are:
- engaging potential proposers in reviewing draft procurement documents;
- incorporating performance incentives and disincentives in municipal contracts; and
- defining performance standards and outcomes as opposed to prescriptive operational specifications.
McCarthy adds that the focus of the contracting process should be on all of the stakeholders contributing their best talents and knowledge without one party (often government) trying to act as if it knows best.
Harvey Gershman, a principal of Gershman, Brickner and Bratton (GBB), Fairfax, Virginia, sees two potential tipping points when it comes to municipal contracts: contract length relative to equipment investment and escalation clauses.
He says contract length can affect the performance of the service provider. “Short-term agreements cause high prices and result in lousy equipment,” Gershman says. “You can’t expect to invest in good equipment if contracts are short.”
When it comes to escalation clauses, energy and fuel clauses are reasonable. However, beware of automatic CPI (Consumer Price Index) adjustments that rocket up the costs, Gershman says. “There is always a portion of the charge that does not need to escalate.”
WCDEF has a contract with City Carting, Stamford, Connecticut, to operate three transfer stations, a material recovery facility (MRF) and a recyclables transfer station as well as to transport solid waste from the transfer stations to a waste-to-energy facility in Westchester County. The contract also requires City Carting to haul yard waste to compost facilities outside of the county and to market recyclables processed at the MRF.
Keys to success
Gershman says a good contract should be long-term enough to allow the service provider to amortize equipment over the life of the contract. Collection trucks, for example, should be amortized over 10 years, matching tax allowances. If the contract is for a shorter time, it should allow used trucks to run on the routes, he suggests.
If new facilities are involved, the contract probably should run 20 years to allow amortization of the investment in the facility and equipment, Gershman adds.
McCarthy says he likes to see contracts that have “meet and confer” provisions as well as detailed reporting requirements. “This establishes a clear expectation and requirement about meeting and for the type of information to be communicated on a regular basis,” he says.
“Rumpke prides itself on keeping the lines of communication open,” says Amanda Pratt, director of corporate communications for Rumpke Waste & Recycling, Cincinnati. “We work with our municipal customers to introduce programs and service guidelines to citizens. Programs are customized to meet customers’ needs and exceed their service and participation expectations.”
Vetrone says, “Look at the big picture.” For example, WCDEF requires proposers to include a detailed operations and maintenance (O&M) plan as part of their proposals. “We’re very careful to scrutinize the O&M plan for provisions that will have an effect on the county’s bottom line,” he says.
“Our most successful operators have developed a comprehensive O&M plan incorporating a preventative maintenance schedule with subcontracts in place for professional services as required,” Vetrone adds. “When the facility is down and the equipment is not running optimally, everyone loses.”
Of course, proposed processing and transportation fees need to be evaluated and compared, but failure to maintain facilities and equipment in optimal condition has the potential to eliminate possible savings in a hurry.
“Experience comes into play here,” Vetrone says. “You want to select a vendor with a proven track record of managing and maintaining successful facilities.”
Because Westchester’s vendor is responsible for marketing recyclables (revenues split 80 percent to the county and 20 percent to the vendor), the county requires experience in recyclables marketing.
“Every proposer will tell you that they will get top market prices, so you need to look at who has done it successfully in the past,” Vetrone says.
McCarthy says RFP (request for proposal) documents should be clear about service expectations and contract terms. An RFP can simply state its goals (e.g., excellent customer service, high recycling rates, cost effectiveness, etc.), but it is important to reinforce those RFP goals through performance incentives and disincentives, he continues. “There’s no clearer way to reinforce what’s important to the agency (and its customers) than to provide financial signals to reward or penalize the service provider,” he says.
What if nobody competes?
Sometimes, an RFP (request for proposal) attracts only one bidder. Can that situation still turn out well for the community, or should the community consider issuing a revised RFP?
Kevin McCarthy, executive director of ReThink Waste, San Carlos, California, says the situation can turn out well if the one proposal meets the community’s stated goals for its RFP.
“Stated another way, a community should have a clear understanding of the desired outcomes from their RFP, including benchmarking their current services relative to other agencies,” he says. “If the one proposal does not meet their goals, then the expense (cost, political, etc.) and time of conducting another procurement needs to be weighed against the potential benefit of receiving additional proposals.”
If you are trying to get competitive bids and do not, “You probably designed a bad RFP,” Harvey Gershman of Gershman, Brickner and Bratton, Fairfax, Virginia, says.
An RFP that is too limiting or that favors one vendor creates a bad smell. “If you can cancel it and start over, ask the nonbidders why they did not participate,” Gershman advises.
“It’s possible to only get one or say two proposals and still end up with a good financial result (relative to what the municipality or JPA [joint powers authority] expected), but you have missed that opportunity to review multiple proposals and the range of creative ideas and experience that come from that,” McCarthy says.
Westchester County, New York, has faced that very situation. In 2009, the lone proposer to an RFP for a final waste disposal site was Wheelabrator, which was the current contractor handling this service. “Based on past experience with Wheelabrator, the county was familiar with the company, satisfied with their performance and comfortable going forward even though no other proposers stepped forward,” says Louis J. Vetrone, deputy commissioner with the Westchester County Department of Environmental Facilities (WCDEF), New Rochelle, New York.
In certain cases, particularly when you are not opening a new facility or introducing a new service, a one-bidder situation can work out, he adds. “The key is having a sufficient level of familiarity with the lone proposer and having enough experience with the service for which you are contracting so that you are comfortable with the pricing, O&M (operations and maintenance) and other aspects of the proposal.”
Broadly, McCarthy says, the degree of risk involved with the procurement and the level of competition for the contract largely can affect the financial outcome of the process. More risk for the proposer can mean added costs for the proposal and/or additional contract exceptions. Less competition (i.e., few proposers) can mean higher costs or, at a minimum, fewer options to consider.
Getting the attorneys to draft a good contract from the beginning is important, sources say.
Among the critical aspects of a procurement, according to McCarthy, are that potential proposers have a clear understanding of the goals of the procurement, the scope of work and the key baseline data so cost proposals are comparable, well-defined evaluation criteria, allowances for proposer creativity and a sample contract with the RFP documents.
“It’s critical to remember that you are developing a partnership with a service provider and as such potential proposers should be viewed as a customer,” McCarthy says. “You are building trust during a procurement effort that will hopefully serve as a strong foundation going forward into a contractual relationship.”
Building trust, revenue
Just as in a marriage, much emphasis is on trust when establishing a contract.
“A good example of how to build trust with potential proposers is to have them review a draft of your procurement documents,” McCarthy recommends. “Not only will you get some good feedback to incorporate into your final procurement documents, you are also enhancing the proposers’ knowledge of your procurement goals and scope of work.”
Rumpke’s Pratt says haulers and processors have learned how to better collaborate to ultimately put their customers first. “It’s a partnership, and communication and cooperation is a must. We must rely on one another to ensure excellent service.”
Another approach to use in a processing procurement, for example, is not to be overly prescriptive in defining the scope of work. “You may own a facility or want to develop a facility, and it’s important to engage the potential proposer in the facility and equipment design,” McCarthy says.
However, he says he finds that many municipalities go out and hire expensive consulting firms and come back with overly detailed plans that really prevent operators from sharing their best practices and operational experience.
A thorough knowledge of the recyclables market and relationships with recyclables vendors goes a long way toward maximizing recycling revenue, Vetrone adds.
Westchester County requires every hauler or processor it contracts with, whether public or private, to emphasize community outreach. A prime example of this effort is the county’s e-scrap recycling program, which diverted 1,700 tons of e-scrap in 2013.
No contract is perfect; situations change. Both parties need to anticipate and accommodate changes.
“There should be provisions for changing the scope of the contract,” Gershman says. This can include changes in services or reasonable changes in fees, he offers.
When a community wants to add recycling, for example, it most likely will need to work through its existing contractual mechanism (i.e., franchise agreement) with its service provider to alter the scope of work to include collecting recyclables.
Such a negotiation could include asking the hauler to arrange for the processing of the recyclables, or the community could conduct a separate procurement for such services, sources say.
“Recycling service would need to be outlined in the bid specs, including collection equipment specs, types of container provided to each household, communication/marketing efforts to introduce the program, timelines, any incentive programs for participation and household counts,” Pratt says.
Gershman notes that states that require bids cannot change the terms of the bid. States that allow RFPs, however, will have a bit more flexibility.
Like many municipalities, Westchester County continually finds ways to add recyclables to divert more material from the waste stream.
“Something as simple as the county collecting boat wrap from local marinas and harbors, for example, created a need for the MRF contractor to market a new recyclable material,” Vetrone says.
On a greater level in 2011, Westchester County Executive Rob Astorino signed into law a bill expanding the county’s list of mandatory curbside recyclables to include all plastics coded Nos. 1 through 7; previously the law required recycling of only those plastics coded Nos. 1 and 2.
Changes have an impact on the community as well as on the hauler.
“The most important component of any recycling expansion initiative is education … education for both the haulers and the community,” Vetrone says. “In our case, we notified residents and businesses of the change in law by issuing press releases, sending out mailers, appearing on radio and television broadcasts and coordinating with our municipalities to include notices in local mailings and on municipal government websites.”
In addition, the county conducted training seminars for the municipal sanitation departments within the refuse disposal district instructing crews to leave behind improperly separated garbage and recyclables, he says.
Vetrone adds, “We instructed them to tag anything left behind with an ‘Oops!’ sticker, which notified the resident or business of the change in law and explained why their trash or recyclables were not picked up.”
In addition, the county sent recycling inspectors out to businesses, specifically targeting food establishments, to notify them of the change in law.
“Education is not only the most important factor when expanding recycling, but it is ongoing,” Vetrone states. “Residents and businesses [also] need to be periodically reminded of their recycling responsibilities, while new residents and businesses are constantly coming into the county.”
“A reoccurring complaint I have heard from fellow municipal officials is a lack of operational data or information from their service provider,” McCarthy says. “This can be mitigated by taking the time to clearly think through what information you really need and requiring the service provider to report such information.”
He says a municipality can avoid, though not entirely eliminate, many conflicts by providing a sample contract agreement with the RFP documents.
“This provides the potential proposer the opportunity to accept such contract terms and/or take exceptions in a transparent way,” McCarthy says.
He continues, “There’s nothing more powerful than a municipal customer being able to point back to the original contract that its service provider had reviewed and state, ‘You took no exceptions then so why should we accept a change now?’”
“All municipal administrators have been in a position where an issue has arisen and it’s unclear if the responsibility to deal with it resides with the contractor or the municipality,” Vetrone says. “The more you can explicitly assign responsibility in the RFP, the better. The RFP must clearly convey what is expected of the contractor, not just for major aspects of the contract, say hours of operation, but [also for] the smaller aspects, such as cleaning the office facilities, maintaining the break rooms, sweeping the roadways, landscaping, etc.”
Pratt says, “Offering exceptional service, innovative technology and fair pricing are key to maintaining contracts.”
Like a marriage, it is a team effort. “It’s important for a municipality to maintain a cooperative relationship with its contractors,” Vetrone says.
The county’s Department of Environmental Facilities holds regularly scheduled meetings with the solid waste facility operator to ensure lines of communication remain open and concerns are addressed in a timely fashion.
Keeping this advice in mind, municipalities and service providers can create service contracts with mutual benefit.
The author is a contributing editor to Recycling Today and can be contacted via email at firstname.lastname@example.org.