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HomeMy WebLinkAbout9.F.1. Discussion-City Ownership of Garbage/Recycling Carts General Business 9. F. 1. �� r:r�:c}���:t- TO: Mayor and City Council FROM: Mark McNeill, City Administrator DATE: OS/07/2013 SUBJECT: Discussion--City Ownership of Garbage/Recycling Carts (C) Action Sought The Council should discuss and give direction on whether it wishes to purchase and own the garbage and recycling carts for the new garbage/recycling contract. Background One of the recommendations of the garbage/recycling review committee committee will be that Shakopee go to a "single-sort" recycling system when the new contract starts June 1, 2014--none of tlie six respondents provided for the continuation of the current dual-sort system employed by the City. One important policy decision for which the committee requests direction from the City Council is the ownership of the garbage and recycling carts. Traditionally, ownership has been that of the contractor. However, it would be a cost savings to the residents for the City to be owner. The attached analysis from Dan Krivit of Foth Engineering,the City's consultant,outlines in more detail the pluses and minuses of such a system. There is a short-term, and a long-tenn advantage to the City to be the owner. Currently,as there is no assurance that the hauler's contract will be renewed beyond the initial five year term,the cost of the carts must be amortized during that contract term. Because the estimated life cycle of the carts is usually 15 years, city ownership would allow an amortization of the cost of the carts over a longer period of time. A "cart fee° line item would be added to repay the City's investment, but that would be less than the difference cited by the RFP respondents, resulting in a short term savings.The City would also own the asset once the carts are paid off; therefore,there would be a more significant savings at the end of the recommended 10 year amortization term. The RFP was set up so that the contractor would responsible for all aspects of the cart(other than initial purchase)--the company would be responsible for delivering and servicing the carts. So as to maintain the greatest degree of flexibility, an adhesive identification sticker would be placed on the carts, which could be changed in the future if the hauler is changed--the current practice is for the ownership to be permanently "hot-stamped" into the plastic. If the Council chooses to pursue this,the City would need to commence a competitive bid process for the acquisition of these carts. That should not be a problem--staff has been contacted by several vendors already, and there would be about a year's advance notice. Recommendation Council direction on this issue is requested. Cart ownership will make a difference in the recommendation of the committee as to which of the six haulers should be awarded the contract. That discussion will take place on May 21 st. Staff s recommendation is for the City to purchase and assume ownership of the carts with the next garbage and recycling co�itract to commence June 1, 2014. Budget Impact The estimated cost of 22,000 carts is approximately$1.5 million. If the Council chooses to pursue this option,the Finance Director recommends that the money be fronted through an interfund loan, which would be repaid(at 4% interest) by charging a line item on each garbage bill. Those charges would be collected by the hauler, and sent to the City each quarter to repay the interfund loan. Relationship To Visioning This supports Goal C, "Maintain the City's financial health.° Requested Action If Council concurs with the recommendation, it should give to direction as to ownership of the garbage and recycling carts. Based on that decision, a recommendation to negotiate with the leading respondent for award of the RFP will be made at the May 21 st City Council meeting. The actual award would take place following negotiations with the leading vendor, and would be on a City Council agenda in June. Attachments: Foth Cart Memo ->�� Memorandum �� Foth Infraslructure&Environment,LLC Eagle Point II•8550 Hudson Bivd.Nortl1,Suite 105 Lake Elmo,MN 55042 (651)288-8550•�ax:(651)288-8551 www.foth.can May 1, 2013 TO: Mark McNeill, City Administrator(Shakopee) CC: Jamie Polley (Shakopee); Bruce Loney (Shakopee); Mike Hullander (Shakopee); Steve Steuber(Scott County); Warren Shuros (Foth) FR: Dan Krivit(Foth) Tracy Schaefer(Schaefer Consulting) RE: City of Shakopee's Request for Proposals for Refuse and Recycling Services— Discussion of"City Owned Carts" vs. "Contractor Owned Carts" Introduction The City of Shakopee released its request for proposals (RFP) for residential refuse, recycling, and yard waste collection services on February 12, 2013. This RFP process was initiated by the City to modernize the contract terms, enhance recycling technologies, and to help assure competitive pricing. By March 27, 2013, six proposals were received: Allied Waste Services; Buckingham Companies; Dick's Sanitation; Elite Waste Disposal; Red River Service Corporation; and Waste Management. The proposals have gone through a preliminary review by the City's proposal review committee. This memo is a summary of preliminary results to date and recommends that the City Council discuss and finalize a policy on the issue of City-owned carts vs. Contractor- owned carts. The proposal review committee recommends that this decision be made first, before further evaluation and analysis ofthe proposals submitted. Cart Ownership - Specifications in the RFP The RFP contained two options for ownership of the refuse and recycling carts: ♦ City ownership ♦ Contractor ownership �he rnfoi mation rontuined in this memorandant is ronsrdered privileged and confidential and is tntended only for[he use of recipients and Foth. C:\Windows\TEMP\BCL Technologies\easyPDF 7\«BCL@FC10920E\@BCL@FC10920E.doc I The RFP specified that a final decision would depend in part on the prices proposed in response to the RFP, preferred financing mechanism if the City owns the carts, and further policy direction from City Council. It is important to note that under either cart ownership option, it would still be the responsibility of the hauler to manage the inventory, deliver and maintain the refuse and recycling carts. The RFP specified that yard waste service should continue as it exists today as a subscription service with only minor modifications. The contractor will own the yard waste carts in the new Contract as per current yard waste collection operations under the existing contract. Organic waste (e.g., food waste) collection was an option in the RFP. Respondents were allowed to specify their own, preferred method of organic waste collection. Most of the respondents proposed organic waste should be commingled with yard waste. Organic waste collection service was specified as a"subscription"option for residents (similar to yard waste service) and not required for all residents on a city-wide basis. Only subscribers should be required to pay for the additional service and then receive a yard waste+organics cart. The RFP specified that the contractor would own the organic waste carts. Details of any organics program will be discussed at the next phase of proposal review. Cart Ownership - Preliminary Results of Proposals Submitted Each of the six proposers submitted different base collection fees for"City-owned carts" vs. "Contractor-owned carts". The following summarizes the difference in prices between these two options: Refuse carts (for regular"weekly"refuse collection): Average price difference= $1.44 per household per month Recycling carts: Average price difference = $0.84 per household per month Average total of refuse+ recycling carts: Average total price difference = $2.28 per household per month When the six proposals are analyzed on a five-year basis (incorporating RFP-allowed, proposed CPI and fuel adjustments), the difference between the least cost"City-owned carts" proposal and least cost"Contractor-owned carts" proposal is about $1.2 million over the five-year Contract period. z A comparative analysis was conducted to determine the City's costs if it were to purchase and own the refuse and recycling carts based on the following assumptions: ♦ Only refuse and recycling carts. (No yard waste carts or"organic waste" carts.) ♦ All eligible residential households would receive new refuse and single-stream recycling carts. ♦ As per the requirements in the RFP, all cart inventory and management activities and tasks (e.g., roll-out of new carts to residents, repairs, replacements, inventory, etc.) would be the responsibility of the Contractor and clearly specified in the new Contract. ♦ Assumed City-purchase price of$65 per cart, including shipping from the cart manufacturer to Shakopee. ♦ 10-year amortization schedule. ♦ City would purchase 4% extra carts for excess inventory (e.g., for cart replacements, switches, and as a contingency). These assumptions above result in a total capital cost of about $1.4 million. The per household per month cost, using an interest rate of 4%to represent the City's cost of financing, equals about$1.38 per household per month. This is about $0.90 cheaper than the average total price difference in proposals ($2.28 per household per month). When calculated on a dollar per household per month basis, the City-owned carts option is cheaper in part because the City-owned carts option cost was based on a 10 year financing schedule. The Proposers most likely use a five-year period to amortize the cost of their carts to coincide with the minimum Contract period. (On a five year, City-owned financing schedule, the equivalent City cost for two carts would be about $2.50 per household per month, or about $0.22 more than the average total Contractor-owned costs from the proposals.) For purposes of this analysis and discussion, the City-owned cost estimate of$1.50 per household per month can be assumed to be the monthly cart fee (total cost for both refuse and recycling carts)that would be charged by the City, collected by the Contractor as part of their regular trash bill, and cart fee payments reimbursed back to the City on a monthly or quarterly schedule. After 10 years, the City may wish to continue charging this cart fee to provide a cart replacement fund or it could be sunset(i.e., no longer charged to residents) or reduced. The life expectancy of premium grade carts should be about 15 years with proper care and maintenance. � Analysis of Advantages and Disadvantages The advantages of the"City-owned carts" option include: ♦ The City owns an asset at the end of the Contract term. ♦ The City may get more competitive prices in the next round of contracting/ procurement by removing the issue of cart ownership from the RFP equation. This cart-purchasing advantage of larger haulers is neutralized to some extent by City-ownership ofthe carts. ♦ The City can more easily specify the cart labeling (e.g., City logo, resident instructions, etc.). ♦ The City-imposed cart fee could also include some minor compensation for City administrative costs. The disadvantages of"City-owned carts" include: ♦ The high capital cost of carts (estimated at $1.4 million for purchasing two carts, refuse and recycling, for all eligible residential households in the City). ♦ The one-time administrative costs of a cart purchase through competitive bid process. The advantages of the "Contractor-owned carts" option include: ♦ The City avoids a significant capital expenditure. The $1.4 million can be used for other capital purchases. ♦ There are no one time administrative costs of a City cart purchase. The disadvantages of"Contractor-owned carts" carts include: ♦ Residents have "paid for" the carts as part of their service fees, but there is no tangible asset at the end of the Contract term. ♦ When the City goes out for RFP in the next round, the City may not know exactly how much the price of carts are affecting the proposed service prices. ♦ Changing to a different contractor can be more problematic for residents and city staff given that the carts need to be switched. ♦ The one-time administrative costs of a cart purchase through competitive bid process. 4 ♦ There would be no City-imposed cart fee to help recoup some ofthe City's administrative costs for managing the solid waste and recycling system. Recommendations The City should purchase and own the refuse and recycling carts. This is a long-term strategy to improve the competitive procurement process for the next round RFP and contracting. Refuse/recycling carts typically last up to 15 years or more. The City and Shakopee residents should benefit from the value of these capital assets rather than paying for the same carts multiple times over. The City-owned carts options should further help"level the playing field" such that the City's Contract is more attractive to smaller and independent hauling companies. This recommendation to move to City-owned carts is based on the assumption that the City would use all means to keep cart purchase price to a minimum while at the same time seeking the highest value (e.g., most durable, long-lasting) carts possible. s