REPORT TO COUNCIL
SUBJECT
Title
Action on a Process to Develop New Exclusive Franchise Agreements for the Collection, Transportation, and Processing of Garbage, Organics, and Recyclables Materials and Direction to the City Manager to Enter into Negotiation with Existing Service Providers, and if Unsuccessful With Achieving Amended Exclusive Franchise Agreements(s), to Initiate a Request for Proposals Procurement Process for New Exclusive Franchise Agreements for the Collection, Transportation, and Processing of Garbage, Organics and Recyclables
Report
BACKGROUND
The City has exclusive franchise agreements in place with Recology and Mission Trail Waste Systems (MTWS) to provide solid waste collection services. The agreement with Recology to provide residential recycling services will expire on January 10, 2020. The agreement with MTWS to provide residential garbage and organics, and commercial garbage and recycling at all other properties not zoned for “Industrial” use will expire on December 31, 2021.
The City needs to begin working to get new agreements in place before the existing agreements expire. However, given the satisfaction with current service levels and current market conditions, it may be in the City’s best interest to directly negotiate for amended agreements prior to initiating a resource intensive competitive procurement process. As such, Staff proposes to first attempt to negotiate new agreements for these services, and if not successful, initiate a Request for Proposals (RFP) procurement for new agreements for these services.
Public Resources Code § 49300 provides that “a city may contract for the collection or disposal, or both, of garbage, waste, refuse, rubbish, offal, trimmings, or other refuse matter under the terms and conditions that are prescribed by the legislative body of the city by resolution or ordinance.” Section 1400 of the City’s Charter provisions on City franchises states that the City can establish a procedure for the granting of franchises by ordinance, or it can follow the procedure set forth in state law.
Chapter 8.25.200 of the Santa Clara City Code (SCCC) provides that the City may, but is not required to, periodically seek proposals from collectors for new contracts. The application process for waste haulers includes requirements for proposed costs, terms and conditions for the City’s review. The City must conduct a public hearing at least ten (10) days following a notice published in a newspaper of general circulation, at which the Council considers the hauler’s ability to carry out the service, their business and financial experience, and the public interest served before a new contract may be entered into.
DISCUSSION
As discussed below, based upon recent legislative action and changes in market conditions which are influencing a negotiation framework for new exclusive franchise agreement(s) for the collection, transportation, and processing of refuse, organics, and recyclable materials, staff is recommending a negotiation process with current providers rather than to engage in an RFP process.
Emission Reduction of Short-Lived Climate Pollutants (SLCP)
As presented at a Study Session on July 10, 2018, in September 2016, Governor Brown signed Senate Bill 1383 (SB 1383) establishing methane emissions reduction targets in a statewide effort to reduce emissions of SLCP in various sectors of California’s economy. SB 1383 establishes targets to achieve a 50 percent reduction in the level of the statewide disposal of organic waste from the 2014 level by 2020 and a 75 percent reduction by 2025. The law grants CalRecycle the regulatory authority required to achieve the organic waste disposal reduction targets.
Methane emissions resulting from the decomposition of organic waste in landfills are a significant source of greenhouse gas emissions contributing to global climate change. Organic materials (including waste that can be readily prevented, recycled, or composted) account for a significant portion of California’s overall waste stream. Food waste alone accounts for approximately 17-18 percent of total landfill disposal.
CalRecycle is developing SLCP regulations that will require jurisdictions to implement new organics recycling programs to achieve a 75 percent reduction in the level of the statewide disposal of organic waste from the 2014 level. The regulations will become enforceable on January 1, 2022 and give CalRecycle the authority to fine jurisdictions up to $10,000 per day for non-compliance.
Market Conditions for Recyclable Materials
Under the City’s current agreements with Recology and MTWS, the recyclables collected at the curb become the property of the hauler to market at their discretion. The value of recycling commodities has decreased by 50% since 2013 due to recent overseas import restrictions. Global market changes impact the ability to design program and services, within the context of the above stated evolving regulations, and this uncertainty may also impact pricing in the long-term.
Market Entry Conditions
The solid waste industry in the Bay Area has consolidated during the last decade. Additionally, the costs to enter the market is increasingly high for a changeover in haulers due to items such as the purchase of vehicles and containers, potential site availability for local operations, staff training, and deployment of containers. Zoned land for this allowable use is also limited and expensive given the region’s high cost per acre of land.
The current legislative and market conditions make going to competitive bid more challenging than it ordinarily would be under more stable factors. These factors, combined with adding new organics recycling programs and the uncertain commodity markets, may incentivize service providers to increase proposal pricing/amounts to cover the additional risk factors and long-term uncertainty (thus, increasing costs for users).
Therefore, staff recommends approval to proceed with negotiation of successor franchise agreements with the existing service providers guided by the negotiation framework outlined below:
1. Increase landfill diversion to a minimum of 75% waste diversion.
2. Ensure compliance with existing State law including the implementation of city-wide organics collection by January 1, 2022.
3. Minimize hauler profit.
4. Ensure annual price escalations are based on documentable costs and business industry best practices.
5. Align contract term to future expected conditions such as the amortization of equipment (e.g., hauling trucks), landfill disposal contract terms, and/or material recovery facility contract terms.
6. Develop a flexible revenue structure from recyclable materials to account for ever-changing market conditions.
7. Maximize franchise revenue benefitting the General Fund.
8. Include other key terms as proposed by the City’s expert in these agreements.
As already stated in the Background section of this report, the City has a unique opportunity to initiate direct negotiations with the current providers with the goal of service continuity, regulatory compliance, and to mitigate price escalation for users to the greatest extent. There is a brief window that is open right now to negotiate Amendments with the current service providers. Staff would need to move forward with a RFP process if negotiations are not concluded by: (1) February 28, 2019 for Recology and (2) May 31, 2019 for MTWS. Each service provider has a separate negotiation conclusion date because currently the expiration dates of the contracts do not align. The Recology Agreement expires on January 10, 2020 and the MTWS Agreement expires on December 31, 2021. The first step staff will be taking with Recolgy is to begin meeting with them in early November to negotiate an extension to the current agreement by mid-December 2018 so that the expiration date aligns with the MTWS Agreement. If the City is not successful with Recology in this approach, staff would then follow the process outlined in Section 8.25.200 to negotiate with any provider on a successor Agreement. If staff is also not successful in this approach by the end of February, staff will then release a RFP for this service.
Staff is in the process of reviewing proposals from consultants to help the City navigate the next iteration of franchise agreement(s). The consultant will assist the City with either negotiating Amendments with the current service providers or conduct a competitive RFP process. Additionally, the consultant will review the base exclusive franchise agreements to incorporate services desired by the City that will meet the new regulatory requirements, assist in the evaluation of potential mixed waste processing opportunities, and perform a rate analysis to be used to set future collection rates.
ENVIRONMENTAL REVIEW
The action being considered does not constitute a “project” within the meaning of the California Environmental Quality Act (“CEQA”) pursuant to CEQA Guidelines section 15378(a) as it has not potential for resulting in either a direct physical change in the environment, or as a reasonably foreseeable indirect physical change in the environment. The City will review the CEQA process and as necessary conduct an environmental review prior to awarding any new contracts if required.
FISCAL IMPACT
The value of a four-year agreement with a consultant to provide assistance with putting together the next exclusive franchise agreements is projected to be $300,000. The Public Works Department budgeted $175,000 in the Solid Waste Fund’s contractual services account to cover consultant assistance with developing a new exclusive franchise agreement in FY 2018/19. The additional $125,000 will be requested in the FY 2019-20 operating budget process.
COORDINATION
This report has been coordinated with the Finance Department and City Attorney’s Office.
PUBLIC CONTACT
Public contact was made by posting the Council agenda on the City’s official-notice bulletin board outside City Hall Council Chambers. A complete agenda packet is available on the City’s website and in the City Clerk’s Office at least 72 hours prior to a Regular Meeting and 24 hours prior to a Special Meeting. A hard copy of any agenda report may be requested by contacting the City Clerk’s Office at (408) 615-2220, email clerk@santaclaraca.gov <mailto:clerk@santaclaraca.gov> or at the public information desk at any City of Santa Clara public library.
ALTERNATIVES
Collectively, the alternatives below provide maximum opportunity to secure stable and cost effective services, while at the same time leaves sufficient time to conduct a competitive procurement process, if needed. Included in the alternatives is the authority to obtain the required consultant services for direct negotiations for these services or a competitive procurement process.
1. Direct staff to enter negotiations with Recology for an Amendment to the current agreement to provide residential recycling services through December 31, 2021. If negotiations are not complete by mid-December 2018, staff shall immediately enter into negotiation with any provider for a successor agreement in accordance with Chapter 8.25.200 of the Santa Clara City Code or release a RFP to procure residential recycling services by February 28, 2019.
2. Direct staff to enter negotiations for a successor agreement for residential garbage and organics, and commercial garbage and recycling at all other properties not zoned for “Industrial” use in accordance with Chapter 8.25.200 of the Santa Clara City Code or release a RFP to procure residential recycling services by May 31, 2019.
3. Direct staff to release a RFP to procure residential recycling services without utilizing the process outlined in Chapter 8.25.200 of the Santa Clara City Code.
4. Direct staff to release a RFP to procure residential garbage and organics, and commercial garbage and recycling services at all other properties not zoned for “Industrial” use without utilizing the process outlined in Chapter 8.25.200 of the Santa Clara City Code.
5. Approve and authorize the City Manager to execute an Agreement for Solid Waste Exclusive Franchise Agreement Assistance Services with a consultant following a RFP in an amount not to exceed $300,000 over the three-year term, subject to annual appropriation of funds.
6. Any other direction provided by the City Council.
7. Take no action.
RECOMMENDATION
Recommendation
Alternatives 1., 2., and 5.:
1. Direct staff to enter negotiations with Recology for an Amendment to the current agreement to provide residential recycling services through December 31, 2021. If negotiations are not complete by mid-December 2018, staff shall immediately enter into negotiation with any provider for a successor agreement in accordance with Chapter 8.25.200 of the Santa Clara City Code or release a RFP to procure residential recycling services by February 28, 2019.
2. Direct staff to enter negotiations for a successor agreement for residential garbage and organics, and commercial garbage and recycling at all other properties not zoned for “Industrial” use in accordance with Chapter 8.25.200 of the Santa Clara City Code or release a RFP to procure residential recycling services by May 31, 2019.
5. Approve and authorize the City Manager to execute an Agreement for Solid Waste Exclusive Franchise Agreement Assistance Services with a consultant following a RFP in an amount not to exceed $300,000 over the three-year term, subject to annual appropriation of funds.
Staff
Reviewed by: Craig Mobeck, Director of Public Works
Approved by: Deanna J. Santana, City Manager