Board of Directors Regular Meeting Agenda


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Meeting Date: 12/04/2019  

SUBJECT MATTER:
Receive, consider and act upon the proposed contract with Waste Management for Solid Waste Collection, Disposal and Recycling Collection Services (C-2018-0627);
FISCAL IMPACT:
Waste Management submitted a bid that included a base rate of $14.51 per month for services provided to a single-family residence. Based on that unit rate, the projected cost for all services to be provided under the service agreement for 2020 is $6,665,845.  Extended over the term of the agreement of eight years, including an annual maximum CPI increase of 3%, the projected total costs associated with the services is $61,008,033. 

In May 2019, the Board awarded the bid for Solid Waste Collection, Disposal and Recycling Collection Services to Waste Management, and directed staff and the Township's consultant to work with Waste Management to renegotiate the rate for residential unit per month to $14.15, the rate Waste Management proposed in their Renewal Proposal in August 2018, and rejected by the Township Board of Directors. 

Township staff and the consultant have met several times with representatives of Waste Management negotiating the rate and terms of the contract.  Waste Management now proposes a base rate of $14.46, with a fixed annual CPI increase of 4% and removing the donation of the 30 solar powered trash compactors.

Accepting the proposal would equate to a cost to the Township in 2020 for all services provided in the contract of $6,647,320.  Extended over the term of the eight-year contract would total $63,030,291.
BACKGROUND:
On April 19, 2018, the Board of Directors received information regarding contracted solid waste collection disposal and recycling services provided by Waste Management of Texas, Inc.  The Initial Term of the contract began February 1, 2012, and ends January 31, 2020.  The Agreement provides that on or before 180 days preceding the expiration of the Initial Term the Township may give written notice to the Contractor of its desire to renew the term of the Contract ("Extension Notice") for an additional five-year term up to two (2) such successive extensions of a minimum of one (1) year to a maximum of five (5) years extensions (the Renewal Term).

The Board approved the release of a Request for Proposals for Solid Waste and Recycling Consulting Services and on July 25, 2018, the Board of Directors selected Solid Waste Specialists (SWS) to work with Township staff to negotiate an extension agreement with Waste Management. If negotiations resulted in satisfactory changes and terms for services, then The Township could move forward with an extended contract with Waste Management. 

On September 20, 2018, the Board of Directors rejected the Renewal Proposal from Waste Management dated August 30, 2018, and directed Solid Waste Specialists to draft a Request for Proposals / Invitation for Bids. 
 
On December 5, 2018, the Board of Directors was presented the Invitation for Bids (IFB)  that continues the same level of services provided by the current contract and included various optional services and ability to submit proposals for alternative methods, service additions and modifications to the specifications. The IFB was approved and the solicitation of bids was released on January 17, 2019. 

On May 22, 2019, the Board considered three (3) bids for solid waste and recycling services. The Board awarded the bid for Solid Waste Collection, Disposal and Recycling Collection Services to Waste Management, and directed staff and Solid Waste Specialists to work with Waste Management to renegotiate the rate for residential unit per month to $14.15.
 
For the past several months staff and Solid Waste Specialists (SWS) have been meeting with representatives of Waste Management negotiating the terms and rates of the new agreement. A draft Solid Waste and Recyclables Collection, Transportation, Disposal, and Processing Agreement has been prepared (Attachment A). All terms set forth in the IFB have been satisfied with the following three exceptions proposed by Waste Management. These provisions have been highlighted in the draft contract and summarized below.
 
  1. Residential Single-Family Collection Rate — Waste Management submitted a Year 1 residential service rate of $14.51 per home per month in their bid.  Included in Waste Management’s bid was the donation of 30 Solar Powered Trash Compactor Units (these units were not requested through the IFB). Should The Woodlands wish to forgo the donation of the 30 Compactor Units and with other considerations (as described below), Waste Management will reduce their proposed residential service rate to $14.46 per home per month. This represents a $230,000 difference over the life of the contract.  The value of the trash compactors is $120,000.  The costs of the respective collection rates are outlined in Attachment B.
  2. Recyclables Contamination Threshold — The IFB specifications did not establish a threshold for a maximum contamination rate of recycling materials collected, nor did Waste Management submit a Recyclable Contamination Threshold in their bid submittal. Due to the international market conditions of recyclables, and the impact contamination rates have on servicing costs, Waste Management now proposes a 25% recyclables contamination threshold. This means that when, and if, any Township recyclable load exceeded a 25% contamination rate for every ton of single-stream materials delivered to the recycling facility that is over the 15% contamination threshold, Waste Management will calculate its increased costs to sort, process, transport and dispose of the contaminated materials and charge the Township for the additional charges. For example: Waste Management collected 505 tons of single stream recyclables in the month of September 2019.  Table Sort Audits for the previous quarter reflected the recyclables for that period averaged a 26.0% contamination level.  505 tons x 1% over the 25% threshold = 5.0 tons.  Based on Waste Management's proposed fee of $148 a per ton for processing, the Township would pay $740 for excess contamination. Based on the 2018 actual and year to date Township contamination level,  this could result in additional annual fees to the Township of approximately $65,000 per year. The current agreement does not have a threshold for contamination, nor a fee, if the contamination level would reach a certain threshold.  
  3. Modification of Rates/Adjustment Cap — The IFB provided the method to be used for an Annual Rate Adjustment and established a maximum annual increase of  3% with no potential for a decrease. The IFB stated that any rates submitted were to be based on this adjustment method. This section was addressed in the Pre-Bid meeting and was reinforced in the follow-up Addendum #2, which said “The Base Bid must be founded on page 44” (the rate modification section). Waste Management acknowledge the CPI rate in their bid submission, however in their exception section, they indicated “Waste Management requests the opportunity to negotiate the Rate Adjustment language on pages 44-45 of the Invitation to Bid.”   Through the negotiations, Waste Management proposes that the annual CPI and Natural Gas/Fuel adjustment cap stated in Section 10.03 of the draft contract be 5% in any one year.  As an alternative to Section 10.03 in its entirety, Waste Management proposes a flat 4% annual fixed rate increase - no CPI or Fuel based index adjustment formula. A flat rate increase is not common in the State and, where it is a part of the contract, it is based on a lower amount than 4%.  The City of Conroe recently entered into a contract at a fixed annual rate adjustment of 1.9%, which more closely resembles the 1.5  to 3% annual changes of the last decade.
There are six (6) Optional Additional Services that were included in the IFB, for which Waste Management responded. These options are being included as information and have not been factored into any financial projection. 
  1. Food Waste Collection —– This service would address the 20% of current landfill material that is compostable food waste (EPA). The rate is to be determined should this service be desired at a future point by the Township.
  2. Household Hazardous Waste (HHW) (unlimited, call-in basis) —–  Waste Management proposes a rate of $1.87 price per home per month. This equates to an average annual cost of $870,000; total contract cost is $3,400,000. Waste Management verbalized a willingness to negotiate this rate. Attachment C details additional options for HHW collection, including options for Creekside Park Village only as they currently do not enjoy the same level of disposal access as the rest of the Township.
  3. Drop-Off Center – Monday Operations —– A third day of operations allows for greater accessibility, especially for apartment dwellers, the majority of which do not have access to recycling at their complex. Waste Management proposes a rate of $895 per month. This equates to an annual cost of $11,000; total contract cost is $86,000.
  4. Green Tag Tracking and Reporting —– To support targeted education for non-compliant residential trash and recycling set-out’s. No rate increase.
  5. Recycling Audits — Increasing audits from two (2) per month to once per week to provide better insight on recycling contamination. No rate increase.
  6. Recycling Collection without Glass —– Removing glass from the list of acceptable recycling materials. The rate decrease is $.15 per household per month. This equates to an average annual cost reduction of $65,000 per year; total contract cost reduction is $515,000.
SWS’s recommendation is to authorize a contract:
  1. That allows for the suggested Waste Management wording changes/additions which were minor in nature and that do not have a material effect on the cost of the services to be rendered. Other suggested Waste Management wording changes/additions (addressed in items 2-4 that follow) significantly change the wording of the IFB and would have a material effect on the overall cost of the final agreement.
  2. That adds language regarding a recycling contamination threshold of 25%, a contamination maximum allowed before financial penalty to The Township. A threshold was not addressed in the IFB. However, staff, the Consultant and Waste Management recognize the significant changes that have occurred in the recycling marketplace arising from the difficulty in the resale of collected materials that are contaminated. Inserting new language that protects both parties is suggested to be reasonable and beneficial.  The suggested 25% percent of contamination is based on the analysis of past Township actual contamination rates and appears to be a satisfactory resolution to this contract issue.
  3. That accepts the original IFB submittal rate of $14.51 per single-family residential unit. 
  4. That accepts the Waste Management modified method of computing the annual rate adjustment, but that retains the 3% cap outlined in the IFB.The annual adjustment method in the IFB utilizes an index based on the Houston CPI without fuel, then adding a portion to reflect CNG cost changes. The verbiage in the IFB also included protection for the vendor in the event that the annual adjustment ever yields a negative result.
    Waste Management's suggested language uses their preferred Bureau of Labor Statistics (BLS) index for Water, Sewer and Trash, also with a component for changes in fuel cost. This method will likely produce an annual adjustment that will hit whatever cap is applied.  It is SWS's recommendation to accept the method proposed by Waste Management, but with a maximum increase cap of 3% per year, and the removal of the protection language in the event the adjustment ever produces a negative result.
The Board of Directors received a briefing on the status of the negotiations from SWS at the November 20, 2019, Board of Directors meeting.  The Board also heard from a representative from Waste Management explaining their reasons and needs for a contamination rate threshold and higher maximum cap on an annual rate adjustment. 

Waste Management indicated they submitted "exceptions" to their bid which conditioned their bid on the exceptions set forth in their Exceptions Tab.  The exceptions included, in part, requesting good faith negotiations for final contract language related to acceptable contamination percentage thresholds and the Rate Adjustment language.  Tab 10 - Exceptions from Waste Management's Bid Submission is provided (Attachment B).

The Board of Directors directed SWS and staff to continue to work with Waste Management in an effort to find a resolution to the final contract terms and return on December 4, 2019.
RECOMMENDATION:
Board to determine course of action.
 
Attachments
Attachment A - draft Waste Management Contract highlighted
Attachment B - Waste Managment Exceptions to IFB Tab 10
ADDITIONAL MATERIALS_WM _The Woodlands Contamination Charges Example and Two-year Audit Report 2017 to 2019
ADDITIONAL MATERIALS_Waste Management Contract Negotiations Annual Rate Adjustment CPI historical


    

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