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 CITY COUNCIL AGENDA ITEM NO. 20

Meeting Date: March 11, 2008

Subject/Title: Adopt a Resolution approving and authorizing the City Manager or designee to execute an Agreement with the Keller Canyon Landfill Company for Solid Waste, Green Waste and Recyclable Materials Transport, Processing and Disposal Services and a Guaranty Agreement with Allied Waste Services of North America, LLC; and directing the City Clerk to record a Notice of Determination with the County Recorder.

Prepared by: Paul R. Eldredge, Assistant Director of Public Works/Assistant City Engineer

Submitted by: Bailey Grewal, Director of Public Works/City Engineer

RECOMMENDATION
Adopt a Resolution approving and authorizing the City Manager or designee to execute an Agreement with the Keller Canyon Landfill Company for Solid Waste, Green Waste and Recyclable Materials Transport, Processing and Disposal Services and a Guaranty Agreement with Allied Waste Services of North America, LLC., and directing the City Clerk to record a Notice of Determination with the County Recorder.

PREVIOUS ACTION
On March 13, 2001, by Resolution No. 2254, City Council approved a Solid Waste Disposal/Processing Pricing proposal by Allied Waste Systems of North America, LLC, operator of the Keller Canyon Landfill Company.

On February 26, 2008, City Council considered and continued to the March 11, 2008, Council meeting, a Resolution approving and authorizing the City Manager or designee to execute an Agreement with the Keller Canyon Landfill Company for Solid Waste, Green Waste and Recyclable Materials Transport, Processing and Disposal Services and a Guaranty Agreement with Allied Waste Services of North America, LLC.

BACKGROUND

A. History

Prior to 1994, Brentwood received solid waste collection and disposal services from a private service provider via a franchise agreement. The entity that originally provided this service was sold to another entity in 1985. The City transferred and renegotiated the terms of the franchise agreement with this new service provider for a term from January 1985 to April 1994. The franchise agreement allowed for annual rate increases; however, any increase greater than 10% required City Council approval.

Beginning in November 1987, the then service provider requested its first of several substantial rate increases. The service provider justified these increases by indicating that its landfill disposal costs had significantly increased, which it had no control of since it did not own or operate a landfill. These requested rate increases, subsequent interactions and correspondence appears to have strained working relations between the parties as the City opted to allow the franchise agreement to expire and in 1994, created the Solid Waste Enterprise that the City currently operates.

In 1998, the City opened its own Solid Waste Transfer Station and received transfer and disposal pricing proposals from Vasco Road Landfill and from Keller Canyon Landfill Company. These two entities provided the most favorable pricing as they were located closest to the City, as well as providing the stability of owning and operating their own landfill site. After considering both proposals, the City contracted with Vasco Road Landfill to provide transfer and disposal service from the City’s facility to their Livermore site for a period of three years. Upon the expiration of this contract, the City initiated contract extension discussions with Vasco Road Landfill, which had changed ownership during these three years (Republic Enterprises purchased the facility). Due to an increase in the transfer and disposal rates and an “out of county” fee burden, the Vasco Road Landfill was no longer cost-effective for the City.

In 2001, the City requested and received a price quote from Keller Canyon Landfill Company for purposes of comparison with Vasco Road landfill rates. At that time, no other landfills and/or contractors were contacted or price quotes received. The pricing received from the Keller Canyon Landfill Company was significantly lower than the Republic Enterprises’ proposal and the City entered into an agreement with Keller Canyon Landfill Company (“Contractor”) which is owned and operated by Allied Waste Services of North America, LLC (“Allied”).

B. Current Negotiations

Staff and the Contractor began negotiations for a new agreement in mid 2006, as the initial term of current pricing proposal was set to expire in March 2008; although, the pricing proposal provides for three additional one-year extensions upon mutual agreement by both parties. Staff was, and continues to be, of the opinion that it is critically important and highly recommended that the City only consider contracting with an entity that owns and operates a landfill as outlined further in this staff report.

When the City began negotiating with the Contractor in 2006, proposals were not solicited from Vasco Road and Altamont landfills, the two other entities within a reasonable proximity to the City. Their rates are in excess of the proposed rate by Keller Canyon Landfill Company, even excluding the “out of county” fee burden (the additional charge placed on garbage generated outside the county in which the landfill is located). It is also important to note that Contra Costa County receives a portion of the rate paid for every ton of garbage disposed of at Keller Canyon Landfill. These fees are used to fund programs such as countywide hazardous waste disposal and cleanup programs from which the City receives benefits.

C. Transport, Processing and Disposal Services Agreement Terms

The City initially requested an agreement term between 10 and 15 years while the Contractor desired a term between 5 and 7 years. The City was able to secure a contract term of 10 years which provides rate stability and protection from environmental liabilities over the long term. A variable inflation rate linked to various indices is the current standard in the solid waste industry. This blend consists of the inflationary factors associated with No. 2 diesel fuel, transportation equipment and the consumer price index (“CPI”) and was initially contemplated in this agreement. This blended inflationary factor was estimated to be approximately 5.5% over the life of this agreement. Thus, all parties agreed that an annual fixed inflation factor would simplify the calculation of rates, provide rate stability to the City and its customers and remove a degree of uncertainty associated with the proposed blended inflationary calculation.

The following represents a summary of the most notable terms of this agreement:

1. The agreement term is for 10 years.
2. Guaranteed fixed annual inflation factor of 3.95%.
3. Fuel adjustment factor for the transportation rates are reviewed and adjusted accordingly every two years.
4. The agreement provides a sliding scale for recycling, providing the City the opportunity to either reduce the amount paid or to receive revenue for the recycling material as the level of residue decreases.
5. Increases in transfer and disposal/processing costs were anticipated in the current rate study and operations budget; thus, it is not anticipated that there will be any user rate increases associated with these proposed rate increases.

The agreement clarifies and memorializes the obligations of both the City and the Contractor in a far more comprehensive manner than did the prior agreement. Along with terms listed above, new agreement terms include, but are not limited to, indemnification for pre and post landfill closure, insurance, records retention and maintenance, dispute resolution, definition of terms, determination of recyclable material residue and the survival of certain terms beyond the life of this agreement.

D. Guaranty Agreement Terms

Keller Canyon Landfill Company is a wholly-owned subsidiary of Allied Waste Services of North America, LLC. Under the Guaranty Agreement (“Guaranty”), Allied unconditionally, irrevocably and absolutely guaranties that Keller Canyon Landfill Company will fulfill all of its obligations to the City under the agreement. This Guaranty includes, but is not limited to, terms regarding payment of all monies, timely and full performance, governing law and consent to jurisdiction, assignment and reimbursement of all City enforcement costs in case of default by Allied on all or part of the Guaranty.

E. Rate Comparison

The following represents the City’s proposed disposal/processing rates for solid waste and green waste compared to other service providers in the area. Although the proposed rates have increased, they are still very competitive with the rates being charged to other providers. It is also important to note that many of the landfills shown below are facing capacity problems that will have a negative effect on the service providers the next time they negotiate their disposal contracts. Keller Canyon Landfill is currently not experiencing any capacity issues and is expected to have sufficient capacity well beyond the term of this proposed agreement.

F. Competitive Bid Issues

At the City Council meeting of February 26, 2008, several Council members expressed a concern that the agreement was not competitively bid. The City’s Purchasing Policy (“Policy”) governs contracts for goods and services. Section 6.3.3.2 of the Policy requires that “authorization to procure service items or goods costing more than $50,000 will be submitted to the City Council along with three (3) solicited quotes and a recommended vendor selection from staff.” However, the Policy also provides for a number of exceptions to the requirement to obtain three quotes. Based on the unique nature of the services contemplated under this agreement, Policy Section 6.7.4 allows for non-competitive negotiations for the “purchases of unique goods or services that are available from only one source.”

Here, the Contractor owns the only disposal and processing site in Contra Costa County. Although there are three landfills (Altamont, Vasco and Keller) within a reasonable distance to the City with sufficient capacity to accommodate the City’s current and future disposal needs, having a Contra Costa location is in the best interest of the City and its customers because it is reasonable to conclude that the Altamont and Vasco landfills could not compete with the Keller Canyon rates. This conclusion is based upon rates that were provided by each landfill to another public agency that recently received bids, as well as the additional “out of county” fee burden described above.

In addition to the disposal site location, the Contractor is the only local provider who can offer all three services that the City is seeking. Specifically, the Contractor can provide (1) a disposal site for garbage and green waste that is owned and operated by the Contractor; (2) the transportation of solid waste, green waste and recyclable materials; and (3) the processing of recyclable materials. This service arrangement is particularly important to the City because the Contractor owns and operates the landfill.

The landfill is the key component of the arrangement as sufficient disposal capacity is in short supply with no new capacity on the horizon. Based upon standard industry operating guidelines as well as the City’s prior experiences, it would not be in the best interest of the City or its customers to contract directly with an entity that does not own and operate a landfill. Ultimately the goal is to secure a long term disposal and processing arrangement at a reasonable rate that insulates the City and its customers from the risks and uncertainties associated with the solid waste industry. Additionally, staff would not recommend the City contract for these services individually due to the inefficiencies and costs associated with managing multiple contracts, the potential for finger pointing between the individual contractors should something go wrong, as well as diminished service levels.

The location of Contractor’s disposal site in Contra Costa County, the fact that they own their own disposal site and can offer disposal, transport and processing make the Contractor’s services sufficiently unique to allow the agreement to fall within the sole source/non-competitive negotiation terms of Policy Section 6.7.4. Given this, staff is of the opinion that the City has complied with applicable Council policies in negotiating this agreement.

G. Environmental Issues

Related to the potential environmental impact of the agreements, neither the Guaranty nor the transport, processing and disposal agreement will result in new changes to the environment. The City’s existing service levels will be maintained (and not expanded) under the new agreement and the landfill location has not changed. Thus the agreements would be considered exempt from environmental review under CEQA Guidelines section 15301. Moreover, as the agreements are either a financial guaranty or a continuation of an existing use there is no possibility that they will have significant effects on the environment and are therefore exempt under CEQA Guidelines section 15061.

FISCAL IMPACT
The approval of this agreement will increase the transfer, disposal and processing costs of the Solid Waste Enterprise by increasing the disposal and processing and transport rates for solid waste, green waste, mixed recyclables and transport rates for cardboard. These proposed rates are consistent with industry standards, were anticipated in the current rate study and, in staff’s opinion, are reasonable. The following table compares the proposed rates to the City’s existing rate structure:

The following table further expands upon the rate comparisons above by applying the existing and proposed rates against the 2008 estimated tonnages for garbage, recycling and green waste as well as the number of hauls for each:

Description 2008 Estimated Total Cost per Total Costs per Difference
Generation Rates Existing Rates 2008 Proposed Rates
Garbage - tons 26,531.36 $725,898.01 $789,307.96 $63,409.95
Recycling - tons 6,592.28 $169,289.75 $169,289.75 $0.00
Green Waste - tons 7,395.22 $97,321.10 $125,348.98 $28,027.88

Garbage - hauls 1,099.01 $163,093.08 $226,396.06 $63,302.98
Recycling - hauls 435.69 $74,611.91 $107,615.43 $33,003.52
Green Waste - hauls 297.67 $50,975.99 $61,320.02 $10,344.03
Cardboard - hauls 73.13 $16,954.46 $20,988.31 $4,033.85
Totals = $1,298,144.30 $1,500,266.51 $202,122.21

The annual operational cost increase due to these proposed rates is approximately $202,000 for 2008, for both the transfer and disposal/processing categories. This increased cost assumes the City is paying the maximum amount for mixed recyclables. Increases in transfer and disposal/processing costs were anticipated in the current rate study, as well as the 07/08 and 08/09 Operational Budget.

Baring any unforeseen circumstances it is not anticipated that the increase in transfer and disposal costs will necessitate any increases in user rates other than standard cost of living increases (“CPI”) or any modifications to the operational budgets for the next three to five years.

Attachments:
Resolution
Agreement

RESOLUTION NO.

A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF BRENTWOOD APPROVING AND AUTHORIZING THE CITY MANAGER OR DESIGNEE TO EXECUTE AN AGREEMENT WITH THE KELLER CANYON LANDFILL COMPANY FOR SOLID WASTE, GREEN WASTE AND RECYCLABLE MATERIALS TRANSPORT, PROCESSING AND DISPOSAL SERVICES AND A GUARANTY AGREEMENT WITH ALLIED WASTE SERVICES OF NORTH AMERICA, LLC; AND DIRECTING THE CITY CLERK TO RECORD A NOTICE OF DETERMINATION WITH THE COUNTY RECORDER.


WHEREAS, on March 13, 2001, by Resolution No. 2254, City Council approved a Solid Waste Disposal/Processing Pricing proposal by Allied Waste Systems of North America, LLC (“Allied”), operator of the Keller Canyon Landfill Company (“Contractor”); and

WHEREAS, the current contract expires on March 1, 2008, and City of Brentwood (“City”) staff has been working with the Contractor to prepare a new 10-year term agreement for transport, processing and disposal services (the “Agreement”); and

WHEREAS, the following represents a summary of the most notable terms of the Agreement:

1. The term is for 10 years.
2. Guaranteed fixed annual inflation factor of 3.95%.
3. Fuel adjustment factor for the transportation rates are reviewed and adjusted accordingly every two years.
4. The Agreement provides a sliding scale for recycling, providing the City the opportunity to either reduce the amount paid or to receive revenue for the recycling material as the level of residue decreases.
5. Increases in transfer and disposal/processing costs were anticipated in the current rate study and operations budget; thus, it is not anticipated that there will be any user rate increases associated with these proposed rate increases; and

WHEREAS, the Agreement clarifies and memorializes the obligations of both the City and the Contractor including but not limited to indemnification, insurance, records retention and maintenance, dispute resolution, definition of terms, determination of recyclable material residue and the survival of certain terms beyond the life of this agreement; and

WHEREAS, the Keller Canyon Landfill Company is a wholly owned subsidiary of Allied Waste Services of North America, LLC; and

WHEREAS, the location of Contractor’s disposal site in Contra Costa County, the fact that they own their own disposal site and can offer disposal, transport and processing make the Contractor’s services sufficiently unique to allow the agreement to fall within the sole source/non-competitive negotiation terms of the City’s Purchasing Policy (the “Policy”) section 6.7.4.; and

WHEREAS, the Policy governs contracts for goods and services; and

WHEREAS, while Section 6.3.3.2 of the Policy requires that “authorization to procure service items or goods costing more than $50,000 will be submitted to the City Council along with three (3) solicited quotes and a recommended vendor selection from staff,” Section 6.7.4 allows for non-competitive negotiations for the “purchases of unique goods or services that are available from only one source;” and

WHEREAS, the Contractor owns the only disposal and processing site in Contra Costa County; and

WHEREAS, although there are three landfills (Altamont, Vasco and Keller) within a reasonable distance to the City with sufficient capacity to accommodate the City’s current and future disposal needs, having a Contra Costa location is in the best interest of the City and its customers because it is reasonable to conclude that the Altamont and Vasco landfills could not compete with the Keller Canyon rates, based upon rates that were provided by each landfill to another public agency that recently received bids, as well as an additional “out of county” fee burden; and

WHEREAS, the Council finds and determines that the services to be provided under the proposed Agreement with the Keller Canyon Landfill Company are “unique” and “available from only one source” within the meaning and intention of Section 6.7.4 of the Policy for the reasons set forth in the staff report to the City Council and the recommendations of staff and the professional solid waste consultants engaged by the City; and

WHEREAS, the Council further finds and determines that the services to be provided under the proposed Agreement with the Keller Canyon Landfill Company are appropriately defined and bundled; and

WHEREAS, the Council further finds and determines that unbundling such services to create separate contracts and responsibilities would be contrary to the best interest of the City because, based on the experiences and recommendations of staff and the professional solid waste consultants engaged by the City, doing so would create fragmented and unresponsive service and lack of coordination and responsiveness; and

WHEREAS, under the Guaranty Agreement (“Guaranty”), Allied unconditionally, irrevocably and absolutely guaranties that the Contractor will fulfill all of its obligations to the City under the Agreement; and

WHEREAS, this Guaranty includes but is not limited to, terms regarding payment of all moneys, timely and full performance, governing law and consent to jurisdiction, assignment and reimbursement of all City enforcement costs in case of default by Allied on all or part of this Guaranty; and

WHEREAS, the Council further finds that related to the potential environmental impact of the agreements, neither the Guaranty nor the transport, processing and disposal agreement will result in new changes to the environment. The City’s existing service levels will be maintained (and not expanded) under the new agreement and the landfill location has not changed. Thus the agreements would be considered exempt from environmental review under CEQA Guidelines section 15301.

WHEREAS, the Council further finds that as the agreements are either a financial guaranty or a continuation of an existing use there is no possibility that they will have significant effects on the environment and are therefore exempt under CEQA Guidelines section 15061.

NOW, THEREFORE BE IT RESOLVED that the City Council of the City of Brentwood does hereby:

1. Incorporate the recitals and findings herein.

2. Approve and authorize the City Manager or designee to execute an Agreement with the Keller Canyon Landfill Company for Solid Waste, Green Waste and Recyclable Materials Transport, Processing and Disposal Services and a Guaranty Agreement with Allied Waste Services of North America, LLC.

3. Direct the City Clerk to file and record a Notice of Determination with the County Recorder.

PASSED, APPROVED AND ADOPTED by the City Council of the City of Brentwood at a regular meeting held on the 11th day of March 2008 by the following vote:

 
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