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transcript
2014 Missouri Control Coalition Conference
After the Market Crash: Procuring Recycling Processing Agreements
Presented By: Laura Drescher
July 1, 2014
Presentation Overview
• Importance of Recycling Processing Procurements to Communities
• Procurement Experience
• Procurement/Bid Process
• Case Studies
• Best Practices
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Recycling in Missouri
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• In 1990, Senate Bill 530 established a statewide goal of reducing waste by 40 percent.
• Each year, our state landfills over 4 million tons of materials which could have been diverted.
• “Waste and Scrap are one of Missouri’s top ten exports totaling $451 million dollars in 2012.” – Missouri Department of Economic Development
• $2,000,000+ has been saved by Missouri State Government on waste hauling services as a direct result of recycling from 2007-2012. – MO State Recycling Program, 2013
Effects of the Crash
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After the 2008 market crash, communities faced: • Significant revenue decreases; • Requests from processors to
renegotiate agreements; • Termination of existing
agreements; and • Uncertainty concerning terms
and financial commitments that processors would be willing to include in new agreements.
Solid Waste Services
Burns & McDonnell provides a variety of solid waste services
ranging from comprehensive technical design and construction to long-range planning and procurement services.
Procurement Staff
Scott Pasternak spasternak@burnsmcd.com
Veronica Roof vtroof@burnsmcd.com
Bob Craggs rwcraggs@burnsmcd.com
Extensive Procurement Experience Provides Understanding of Key Issues
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Procurement Expertise • Multiple procurements,
negotiations and evaluations • Range of services: collection
processing, disposal and conversion technology
• Authored best management practice manual for solid waste and recycling procurement
• Published articles and conducted workshops on procurements
Solid Waste and Recycling Procurement Experience
Sampling of Procurement Projects City of Little Rock, AR Citrus County, FL City of Cedar Park, TX
City of Coolidge, AZ City of Hollywood, FL City of El Paso, TX
City of Phoenix, AZ Sarasota County, FL City of Fort Worth, TX
City of Nogales, AZ City of Olathe, KS City of Georgetown, TX
Town of Queen Creek, AZ Cities in Ramsey County, MN City of San Antonio, TX
City of Tempe, AZ City of Minneapolis, MN City of Victoria, TX
City of Tucson, AZ City of Oklahoma, OK City of Waco, TX
City of San Jose, CA City of Tulsa, OK H-GAC, TX
Broward County, FL Beaufort County, SC NCTCOG, TX
Charlotte County, FL City of Austin, TX The Woodlands, TX
NCTCOG Recycling Contract Negotiation Guidebook: Comprehensive Guide for Local Governments and Private
Companies
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Topics include – Procurement process
description – Processing and collection
contract provisions – Commodity price discussion – Detailed financial explanations – Sample contract language – Case studies from cities within
region and outside of region – Available at www.nctcog.org
Procurement Process Overview
• Select a procurement approach; • Define the scope of services; • Develop the procurement documents; • Issue the procurement documents; • Evaluate the proposals; and • Negotiate and award the contract.
Contract Length Factors to consider when determining contract length: • Municipal bylaws; • Amortizing equipment and facility costs; • Change in law provision; and • Contractor service and responsiveness. • Collection: 7 years • Disposal/Recycling Processing: 5-20
years Options for contract renewal at the end of the term.
Performance Specifications
Examples: • The timeframe in which trash/
recycling should be collected (i.e. 7 a.m. to 5 p.m.);
• Procedures for the municipality to communicate with the drivers regarding daily problems;
• Procedures for weather emergencies and road access issues; and
• Procedures for residents to use to communicate problems or complaints.
A contract should not specify means and methods, but instead specify the desired outcome or performance specifications.
Liquidated Damages and Penalties
• Liquidated damages or administrative fees are not punitive, but reflect the actual costs incurred by the municipality as a result of the vendor’s failure to perform.
• Contract penalty is a specific amount set forth in the contract as a disincentive for the vendor to violate a performance standard.
Pricing Structure • Collection – monthly per household amount
• Processing/disposal – fee per ton
• Additional services, such as collection or processing of yard waste, bulky waste, CRTs or appliances, may be priced separately.
Selection Criteria
• Price;
• Company stability and finances;
• History and relationship with the
city;
• References;
• Proposal service plan; and
• Location of processing facility.
Procurement Challenges
• Unfamiliarity with procurement for processing services.
• Unfamiliarity with open-ended procurement.
• Analyzing financial proposals.
• Lack of staff with procurement expertise.
Role of Outside Advisors
• Since contracts are typically long term, a professional with 20 years of experience may conduct one or two procurements in his or her career.
• Outside advisors are typically attorneys and consultants.
• Cost of advisors much lower than the cost of an unfavorable contract.
• Some communities require the selected contractor embed the cost of outside advisors into the contract fees.
Case Study Overview
• City of Olathe, Kansas • City of Tucson, Arizona • Broward County, Florida • City of Hypothetical, Texas • City of Sample, Hawaii • City of Moscow, Idaho
Olathe, Kansas
• Population of 125,000 • Located in the greater Kansas City metropolitan area in
Johnson County. • In January 2010, transition from a subscription, curbside-
sort recycling program to an every other week single-stream recycling program for all single-family residential customers using 65-gallon carts.
• 500-600 tons per month of collected single-stream material. • Prior to 2010, no formal agreement in place with a recycling
processor.
Olathe, Kansas
City of Olathe Recyclable Revenue Share Blended Value Rebate $0.00 to $49.99 $0.00 $50.00 to $74.99 $5.00 to $11.00 $75.00 to $99.99 $11.75 to $29.75
$100.00 to $124.99 $30.67 to $52.75 Over $150.00 $79.79 and up
Tucson, Arizona
• Population of 525,000. • Located in Southern Arizona. • Weekly single-stream recycling using 96-gallon carts since
2002. • From its residential, neighborhood drop-off and commercial
front-end recycling programs, Tucson collects approximately • 48,000 tons of single-stream material annually from
residential, neighborhood drop-off and commercial front-end recycling programs.
• Contract expiration in 2012.
Tucson, Arizona
Estimated Annual Tonnage of Recyclables Collected by the City of Tucson Program Tons Percent of Total
Residential Collection 41,200 85.7% Commercial Collection 4,000 8.3%
Neighborhood Recycling Centers
2,900 6.0%
Total 48,100 100.00%
City of Olathe and City of Tucson: Consider Multiple Processing locations and Options
Issue: Balance facility location with capital cost impact
Olathe Solution: Provided option for vendors to utilize facilities considered by the City for a City operated MRF
Tucson Solution: Allow vendors to propose use of MRF or transfer station to access the Phoenix market
City of Olathe and City of Tucson: Create Win-Win Financial Incentives
Issue: Minimize cost of facility and equipment requirements
Tucson Solution: 15 year contract with 5 year option to allow for full depreciation Olathe Solution: 5 year contract, with three 5 year extensions
Issue: Maximize facility throughout to decrease per ton costs
Solution: Exclusively commit all tons collected by the City and contract provision for cooperative purchasing
Issue: How to minimize contract provisions that increase costs
Example: Require MRF to process 95% of program materials, but operator has flexibility on technical approach providing a performance-based contract terms
Broward County: Regional Procurement Increased Competition and Financial Benefit to Local Governments
• 27 communities conducted a joint procurement for recycling processing
• Annual tonnage per community varied:
– Minimum: 38 tons – Maximum: 8,416 tons
• Regional procurement resulted in award of processing agreement for approximately 63,000 tons annually
Structure Contracts to Share Market Risk
• Cyclical nature of pricing in the past reflects variable commodity pricing in the future
• Critical to develop financial terms that are fair in “good” and “bad” markets
• Consider financial terms that include a processing fee and revenue share • Processing fee: compensate processors for cost to
provide service, typical range of $30–70 per ton • Revenue share: Based on market prices for recyclable
materials, typical range of 40–70 percent
City of Hypothetical, Texas: Pricing Submitted in Response to RFP
Company A Company B Company C
Per Ton Processing Fee $25 $40 $75
Revenue Share Percentage to City 25%
35% and when average revenue per ton is greater than $100, 75%
share to the City
75%
Hypothetical Example
$(3,000,000)
$(2,000,000)
$(1,000,000)
$-‐
$1,000,000
$2,000,000
$3,000,000
$4,000,000
$5,000,000
$70 $80 $90 $100 $110 $120 $130 $140
Pay
men
t / (C
ost)
to th
e C
ity
Weighted Average Market Rate ($/Ton)
Comparison of Results
Company B
Company A
Company C
Factors to Consider for Revenue Sharing
• Publicity potential. Municipalities may be able to generate additional public interest in recycling by publicizing that “the more that’s recycled, the more the municipality earns”.
• Variability in budgets. Most municipalities want to know the fixed cost of their recycling program for budgeting purposes. If a contract includes revenue sharing, it might be better to exclude the revenue projections from your anticipated budget.
• Market index. It is common to use a market index such as the “Official Board Markets” when setting a price threshold above which revenue sharing will occur. For example, when the price for #8 newsprint exceeds $30/ton, the vendor and municipality will split 50/50 the proceeds above $30/ton.
Advantages and Disadvantages of Revenue Sharing
Advantages to Revenue Sharing: • provides a direct financial incentive for a city to increase the quantity of material
recycled due to increased revenues for city; • provides a financial incentive to educate residents on placing the correct
materials into the recycling stream due to increased revenues for city; • ensures that the city receives detailed data regarding the quantity and
composition of material recycled to calculate revenue sharing and assist with public education; and
• allows the municipality to reap the benefits of strong commodity markets and can provide a revenue stream to offset the costs of a program.
Disadvantages to Revenue Sharing: • it is based on market prices and the revenue stream can be unpredictable • the level of effort required for contract administration can be higher with revenue
sharing, which can make it challenging to manage, especially in smaller cities.
City of Moscow, Idaho: Contract Language can Substantially Impact Revenue Sharing
City of Moscow Formula Recommended Formula Commodity Volume
(example) 1,000 tons Commodity Volume (example) 1,000 tons
Weighted Commodity Sales Price
(Contract ceiling price) $115
Weighted Commodity Sales Price
(Contract ceiling price) $115
Revenue From Sale of Recyclables $115,000 Revenue From Sale of
Recyclables $115,000
City’s % of Revenue Share 60% Processing Cost ($60,000)
City’s Revenue Share $69,000 Net Recyclable Revenue $55,000
Processing Cost ($60,000) City’s % of Revenue Share 60%
City’s Net Revenue Share $9,000 City’s Net Revenue Share $33,000
Formula to Determine City’s Revenue Share
City of Sample, Hawaii: Understanding Local Market is Critical to Success
Processing Fees
Disposal Charges
Revenue Share
Education Fees
Net Revenue
Net Revenue per Ton
City A ($1,506,938) $0 $4,345,020 $42,750 $2,880,832 $67.39
City B ($1,371,420) ($154,381) $4,301,818 $51,300 $2,827,317 $66.14
City C ($1,710,000) ($58,193) $4,301,818 $75,000 $2,608,625 $61.02
City D ($1,496,250) ($58,193) $3,842,957 $42,750 $2,331,264 $54.53
City E ($1,150,000) $0 $3,154,667 $64,125 $2,068,792 $48.39
City F $0 ($45,000) $1,585,652 $1,000 $1,541,652 $36.06
City G $0 $0 $534,375 $34,200 $568,575 $13.30
Proper Planning Leads to a Successful Procurement
After contract award, may need 6-18 months before starting contract if there is a need to build a new facility.
Conduct a Procurement Workshop: Forum to Provide Key Decisions for Procurement Documents
Recycling Processing
Procurement Documents (RFP and Contract)
Evaluation Criteria
Selection Process
Scope of Services
Performance Standards
Initial and Renewal Terms
Education and Outreach
RFP vs. RFB
Proposal/Bid Format
Preparation of Procurement Documents
Recycling Processing
Procurement Documents
Procurement Process/
Proposal Format
Background Information Rate Structures and Administrative Fees
Disposal and Processing
Requirements
Equipment and Personnel Requirements
Facility Location, Capacity and Other Requirements
Material Acceptance /
Rejection Protocol
Public Education and Outreach Requirements