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HomeMy WebLinkAbout7A Review the Recycling Contract with Eureka and Provide Direction to Staff on a Proper Course of Action Regarding the Payment Terms 7A Request for Council Action Prepared By: James Lehnhoff, Council Meeting Date: March 30, 2009 Community Development Director Review the recycling contract with Eureka and provide direction to staff on a proper course of action regarding the payment terms. Budgeted Amount: Actual Amount: Funding Source: $90,037 $Recycling Fund Recommendation: Review the recycling contract with Eureka and provide direction to staff on a 1. proper course of action regarding the payment terms. Supporting Documents: 1.March 30, 2009, Memo to the City Council 2.Contract Agreement between City of Arden Hills and Eureka Recycling for Recycling Servies 3.March 23, 2009, Letter from Eureka Recycling ~ ~~HILLS MEMORANDUM FROM: JamesLehnhoff, CommunityDevelopmentDirector ReviewtherecyclingcontractwithEurekaandprovidedirectiontostaffonapropercourseof actionregardingthepaymentterms. InJanuary2008,theCitysignedanewcontractwithEurekaRecyclingtoprovideresidential curbsiderecyclingservicesfromMarch1,2008,toMarch1,2011.Thepreviouscontractwith WasteManagementexpiredattheendofFebruary2008.ThecontractwithEurekaprovides residentialcurbsiderecyclingservicestoallsinglefamilyhomes(Hunter'sParkcondos, Parkshoreapartments,CottageVillas,andArdenManorcontractseparatelyforrecycling services).Theprogramisfundedthroughanannualfeeincludedwiththepropertytaxstatement andsupplementedbytheSCOREgrantfromRamseyCounty. Thecontractincludesprovisionsforamonthlyfeeperhouseholdandforrevenueshare.A recentandsteepdropinmarketpricesforrecyclablematerialshasbroughttolightadifference betweenEurekaandtheCityonthepaymenttermsinthecontract. Section6oftheEurekaContractdescribesthepaymentterms(page7ofAttachmentA).The paymenttermsaresubdividedintotwoparts:6.1CompensationtoContractorand6.2Materials SalesRevenueShare.Thefirstlineofsection6.1statesthe"CityAgreestopayContractor $2.95perresidentialdwellingunitpermonthin2008forweeklycurbsidecollection,processing CityofArdenHills CityCouncilMeetingforMarch30,2009 CC P:IPlanninglRecyciingGarbagel2009\033009-Report-EurekaContractDiscussion.doc Page1of4 andmarketingofrecyclables."Basedon2,560households,thetotalcostwas$86,518forthe firstfullyearofservice.Section6.1ofthecontractalsoincludesaprovisiontoadjusttheper householdservicefeeeachyearinaccordancewiththeconsumerpriceindexfortheUpper MidwestasdeterminedbytheFederalReserveBankofMinneapolis.Themonthlyfeeis adjustedontheanniversaryofthecontract.StartingonMarch1,2009,themonthlyper householdcostincreasedby3.8percentto$3.06.Thismonthlycostperhouseholdandthe annualincreasewasanticipatedinthe2009recyclingbudget. Section6.2describestherevenueshareportionofthecontract(page7ofAttachmentA).Under section6.2.1,AllPaperGrades,thecontractstates,"TheContractorshallpaytheCity50%of this[OfficialBoardMarkets]indexforallgradesofpapercollectedafteraprocessingfeeof$75 perton."Similarly,undersection6.2.2regardingaluminum,thecontractstates,"TheContractor shallpaytheCity50%ofthis[AmericanMetalMarket]aluminumindexafteraprocessingfee of$150perton."TheOBMandAMMarecommonsourcesforobtainingmarketpricesfor recyclingmaterials.StaffsandtheCityAttorney'sreadingofsection6.2.1ofthecontractis thatwhenthereisrevenuetoshare,Eurekaretainsa$75pertonprocessingfeeforpaperanda $150pertonprocessingfeeforaluminum.Theremainingrevenueissplitinhalfbetween EurekaandtheCity.Ifthereisnotsufficientrevenuetocovertheprocessingfee,theCitywould notreceiveanyrevenueshare.Inotherwords,papermustbemorethan$75pertonand aluminummorethan$150pertonbeforethereisrevenuetoshare. Forexample,ifthemarketpriceforpaperwas$100perton,a$75pertonprocessingfeewould bechargedandtheremaining$25pertonwouldbesplitbetweentheCityandEureka. However,ifpriceswere$50pertonforpaper,theCitywouldnotreceiveanyrevenueshare becausethe$75pertonpaperprocessingfeewouldnotbecovered.TheCitywasawarethat revenuesharingwasnotaguaranteeandsomemonthsmaynothaveanyrevenueshareifprices fellbelowtheprocessingfee.ItwasstaffsunderstandinganditwaspresentedtotheCouncilin December2007thatsomemonthsmaynothaveanyrevenuesharebutthemonthlypricewould notincrease. IntheproposalsubmittedbyEurekain2007,theyanticipatedarevenueshareof70centsper householdpermonthbasedoncollectionratesandmarketpricesin2007.However,inOctober 2008,themarketpriceforrecyclablesdroppedprecipitously.TheCitycollectedapproximately $16,800inrevenuesharebetweenMarchandOctober.BasedonEureka'scalculations,theCity hasnotreceivedanyrevenuesharesinceNovember.AccordingtoEureka,arecoveryinthe recyclingmarketisnotanticipatedthisyear. PriortoreceivingtheinvoiceforJanuaryrecyclingservices,EurekainformedtheCityofan errorontheDecemberinvoice.ByDecember2008,thepriceforpaperhaddroppedto$30/ton. Consequently,theCitydidnotreceiveanyrevenueshareforpapermaterials.TheCitywould havereceivedarebateof$510foraluminum;however,thatwasretainedtocovertheir processingcostsforpaper.Theerror,accordingtoEureka,isthattheCityshouldhavebeen chargedfortheremaining"processingfeegap"forpapermaterials.Sincepriceshadfallento CityofArdenHills CityCouncilMeetingforMarch30,2009 CC P:\PlanningIRecyclingGarbagel20091033009-Report-EureknContractDiscussion.doc Page2of4 $30perton,EurekaclaimstheCityisnowresponsibleforthe$45pertongaptocoverthe$75 pertonprocessingfee.Sincetherevenuefromaluminumwouldnotbesufficienttocoverthe gap,theCitywouldhaveowedanadditional$2,407.35inDecember2008.Eurekawaivedthe Decemberprocessingfeeduetotheirerrorontheinvoice. InJanuary,theadditionalprocessingfeewouldhaveadded$1,599totheinvoiceandinFebruary theprocessingfeewouldhaveadded$1,508.SinceEurekahasprovidedtherequiredrecycling services,theundisputedperhouseholdfeehasbeenpaid,whichis$7,552.Theseadditional processingfeeshavenotbeenpaid. Thebudgetedcostofthe2009recyclingprogramis$118,677,whichincludesthecurbside recyclingprogram,twocommunitycleanupevents,andadministrativeexpenses.Thisbudgetis fundedbytheannualrecyclingfee,theSCOREGrant,andanyrevenueshare.For2009,the annualfeeis$32perparticipatinghousehold,theSCOREgrantis$19,866,andtheestimated revenuesharewas$20,530.Thetotalbudgetedrevenuewas$119,404.Duetothedeclining recyclingmarket,therevenuesharewillbeshortin2009.However,inanticipationofapossible decline,therecyclingreservescancompensateforthelossofrevenueshare. Therecyclingbudgetisaself-fundingenterprisefund.Thebudgetdidnotanticipateadditional processingcostsin2009.Ifthisprocessingfeeweretocontinuethroughtheendof2009,the budgetcouldpotentiallybeshortby$20,000to$25,000dependingontherecyclingmarket. Thistranslatestoacostperhouseholdof$3.57-$3.91fromthebudgeted$3.06. Uponreviewingthecontract,staffandtheCityAttorneydonotagreewithEureka's interpretationofthecontract.Asnotedinthereport,staffhasnotauthorizedpaymentofthe "processingfeegap"requestedbyEureka,andwedonotrecommendpayingthe"processingfee gap"onpreviousorfutureinvoices.UsingEureka'sreadingofthecontract,muchoftherisk andunpredictabilityisplacedontheCity.TheCitychoseEurekadespitethelowermonthly pricefromthreeofthefourcompetingproposals.TherisktotheCitywasthepotentialforno revenueshareinanygivenmonth,whichwouldrequiretheCitytopaythefullmonthlyfee. IftheCitydoesnotpaytheprocessingfeethatEurekacontendsispartofthecontract,theydid indicateduringourmeetingonMarch13thattheywouldneedtopursuesection25ofthe contractthatallowsthemtodeclareamaterialeconomicallyunfeasibletocollect(seepage8of Attachment1formoredetailonthisprocess).Iftheypursuethisportionofthecontract, residentswouldnolongerbeabletorecyclepaperanditwouldbeleftbehindinthebins.It wouldbepossibletoreintroducepaperrecyclingifthemarketimprovedinthefuture;however, CityofArdenHills CityCouncilMeetingforMarch30,2009 CC P:\PlanningIRecyclingGarbage12009\033009-Report-EurekaContractDiscussion.doc Page3of4 publiceducationandcommunicationmaybeextremelydifficultaftermorethanadecadeof educationontheimportanceofrecyclingpaper.Eurekawouldberesponsiblefortheeducational materials,buttheCitywouldundoubtedlyreceiveconcernsfromresidents.Whilethiswould preservetherevenuesharefromaluminum,thelong-termimpactsmaynotoutweighthelossof paperrecyclingforresidents. InEureka'sMarch23,2009,lettertotheCity,theyproposedacontractamendmenttochange therevenueshareformula(AttachmentB).Therevisedformulaessentiallyeliminatestheir processingfeebutalsoeliminatestheCity'sabilitytocollectrevenueshareinthefuture.Based onEureka'sreadingofthecontract,thisoptionremovestheunpredictabilityandriskfromthe recyclingbudgetandprogram.Itistruethatthisoptionwouldaddpredictabilitytothebudget andcapexpensesattheagreeduponmonthlyfee.TheCityhas23monthsremainingonthis contract.Duetomarketconditions,itisquitepossiblethatrevenueshareforpaperwillnot returnin2009andaluminumwillcontinuetotrenddownward.Paperhasnotcontributedto revenuesharesinceNovember,andaluminumhasdroppedfromacontributionof$479in Novemberto$266inFebruary(whichwasappliedbyEurekatothecostsofprocessingpaper). Atthoseprices,therevenuesharecontributionperhouseholdwouldhaverangedfromtento20 cents.WhilestaffandtheCityAttorneycontinuetodisagreewithEureka'sreadingofthe contract,thismaybethemostviableoptiontocontinuethefullrecyclingservicethatresidents areaccustomedtoandtominimizebudgetimpacts. IftheCityandEurekacannotcometoanegotiatedconclusiononthisissue,Eurekawouldhave theoptionofusingarbitration. StaffcontactedthefourothersuburbancitiesthatcontractwithEureka:Roseville,Lauderdale, Maplewood,andSt.LouisPark.EachcityhasadifferentcontractwithEureka.Roseville's contractaddressesprocessingfeesinadifferentmannerandthisisnotanissueinRoseville. Lauderdale'scontractdoesnotincludeprocessingfees.St.LouisParkisinasubstantially similarsituationtoArdenHills,andtheyhavenotyetreachedaresolutionwithEureka. Maplewood'scontractpaymenttermsisstructuredquitedifferentlythanArdenHillsandisnota comparablesituation. A.ContractAgreementbetweenCityofArdenHillsandEurekaRecyclingforRecycling Services B.March23,2009,LetterfromEurekaRecycling CityofArdenHills CityCouncilMeetingforMarch30,2009 P:\PlanningIRecyclingGarbage\20091033009-Report-EurekaContractDiscussion.doc Page4of4 A Attachment ContractAgreementbetweenCityof ArdenHillsandEurekaRecyclingfor RecyclingServices CONTRACTAGREEMENTBETWEEN CITYOFARDENHILLSANDEUREKARECYCLING FORRECYCLINGSERVICES TableofContents 1.Definitions,3 2.Termofcontract6 3.AnnualWorkPlan,6 4.Annualperformancereviewmeetingtodiscussrecommendationsforcontinuous improvement.,6 5."DualStream,Plus"collectionprocessingsystem6 6.PaymentTerms7 7.RFPandContractor'sProposal..8 GENERALREQUIREMENTSFORALLCOLLECTIONS 8.Missedcollections8 9.Severeweather8 10.Collectionhoursanddays8 11.CustomerComplaints,9 12.Cityretainsrighttospecifyresidentpreparationinstructions9 13.CityshallapproveContractor'spubliceducationliterature9 14.OwnershipofWorkProduct9 15.Weighingofloads10 16.Monthlyandannualreports10 17.Ownershipofrecyclables,10 18.Scavengingprohibited10 19.Cleanupofspillageorblowinglitter11 20.Recyclablematerialsrequiredtobetransportedtomarkets;Disposalprohibited11 21.DesignatedprimaryglassmarkeL11 22.Processingfacilitiesmustbespecified11 23.Estimatingmaterialscompositionascollected11 24.Estimatingprocessresiduals12 25.Lackofadequatemarketdemand12 26.Vehiclerequirements12 27.PersonnelRequirements13 28.LicensesandPermits13 29.Performancemonitoring13 30.Liquidateddamages13 31.DamagetoProperty14 32.RecyclingCollection14 CURBSIDECOLLECTIONREQUIREMENTS 33.WeeklyCollection15 34.Pointofcollection15 35.Curbsidecollectionscheduledeadline15 36.Procedureforhandlingnon-targetedmaterials15 37.NewMaterialstobeAddedin200816 MULTIFAMILYCOLLECTION REQUiREMENTS•...•.....••.....•......•.......•••..•••..•...•...•••..•..•.16 38.ContractAmendmentforMulti-FamilyCollection16 INSURANCEANDOTHERLEGALREQUIREMENTS 39.Insurance16 40.Transferofinterest17 41.Non-AssignabilityandBankruptcy-17 42.Disputeresolutionandarbitrationprocedures18 43.Generalcompliance18 44.Independentcontractor18 45.Holdharmless18 46.Accountingstandards18 47.Retentionofrecords19 48.Datapractices19 49.Inspectionofrecords,19 50.Applicablelaw19 51.Contracttermination19 52.EmployeeworkingconditionsandContractor'ssafetyprocedures19 53.Contractamendments20