City Council Pauses $35 Million Recycling Contract, City Auditor's Investigation of RFP Process

StockPhotoRecycling

Stock photo of a recycling truck. File photo. 

A multi-million dollar recycling contract that was poised to be re-awarded to Waste Management of Long Beach was put on hold last night, after the Long Beach City Council voted unanimously to table the issue, while simultaneously opting to delay an initiative that would involve the city auditor’s services to explore if there were any discrepancies in the request for proposal process.

The contract in question is for 10 years and would pay Waste Management a base payment of $3.5 million annually, with an additional rate tied to the consumer price index (CPI) that could reach upward of four percent for every year of the contract. In total, the contract is estimated to reach the neighborhood of $40 million once the contract reaches maturity.

Waste Management currently services about 118,000 active accounts in the city, and the sale of over 27,500 tons of residential recycling during the 2015 fiscal year amounted to about $605,900 in revenue for the city.

The motion to stall the vote came after the two other vendors that submitted bids alleged city staff misrepresented figures they submitted. In their collective opinions, the vendors asserted the staff did not execute the RFP process in good faith.

An independent firm hired by the city to verify the process tabbed EDCO Waste and Recycling Services as an alternate vendor to Waste Management because of its lower first-year cost to the city, but the staff stuck with its recommendation to award the contract to Waste Management, noting that because it wasn’t a bid, but an RFP, the city was not required to go with the lowest proposed price.

The original motion to award the contract was pulled from an agenda last month to allow for further deliberation, which preceded the move by Third District Councilwoman Suzie Price last night to call for the city auditor’s office to explore the issue. Price was so adamant to seek clarity on the RFP process that she stated she would’ve recused herself from the vote had it taken place last night.

“I have no doubt that city staff did excellent work, but in light of the recommendation that was just put up on the last slide from the consultant, it appears to me that there were at least two vendors that were recommended by that consultant,” Price said. “Based on conversations I’ve had during this process, I want to make sure that both of these candidates are qualified, both of the numbers are accurate and they involve all the different price points included in the RFP.”

City Auditor Laura Doud said an audit of this scope—which will include a review of the bid responses, evaluation of cost, recycling revenue, environmental benefits, qualifications and compliance with the bid process—could take upward of four to six months.

“I will put two staff members on this as quickly as I can,” Doud said. “We have no idea what we will find when we get in there, so I wanted to allow enough time for a worst-case scenario. We will do everything we can to speed this along.” 

The time window for the audit will eclipse the shelf life of the proposals that expire next month, which will leave the city in a position where it will ask but not require (as it is illegal to do so), the groups to stick to their current proposals and price points for the duration of the audit. The current month-to-month contract with Waste Management expires in June and the city attorney advised the council that delaying action on the item could eventually end up with the need for another RFP process, which could amount to an additional $100,000 charge to the city.

Not all members of the council were on board with a decision to involve the city auditor’s office. Although the vote was unanimous, Seventh District Councilman Roberto Uranga was highly critical of the notion that a RFP would be subject to audit before it was awarded, stating that it could lead to an unfortunate precedent, where any future contract could end up on the city auditor’s desk if a business that lost out on the contract claimed irregularities during the process.

“I’m just concerned if we open a Pandora’s box to a certain extent, if we’re going to review this huge contract, that’s what I’m hearing that it’s too big to have just one set of eyes that we need two sets of eyes, why don’t we do this with all of our contracts of this nature?” Uranga said.

Recycling The City of Long Beach started its recycling program in 1993 after a series of legislation articles passed at the state level made it mandatory. Since then, Waste Management has been the primary provider of recycling services for the city. In fact, last April marked the first time that a request for proposal process was undertaken since the program was initiated. A total of four entities (Athens Services, EDCO Waste and Recycling Services, Republic Services and Waste Management) submitted proposals to the city.

Jason MacDonald, the city’s purchasing and business services manager, said the contract would not only result in a first-year savings of about $387,000, but would also shave off $394,000 annually when compared to the current recycling contract’s cost. He said it would also have the added bonus of avoiding any kind of disruption in service to rate payers. He characterized the deal as being in the best interest of Long Beach residents.

“There is no transition plan, as Waste Management is the current provider; there is no disruption of service to residences,” MacDonald said. “Waste Management has a record of 22 years of quality prior service in Long Beach and Waste Management maintains the best safety record when compared to the industry and the other proposers.”

However, representatives on hand from the two other companies expressed views in which that assertion, and the methods in which it was reached, were placed into doubt. This narrative seemingly matched a comment made by Fifth District Councilwoman Stacy Mungo, who said that discussions between city staff and some of the recycling companies may have taken place before the RFPs were submitted. Mungo wouldn’t commit to whether or not that constituted foul play, but said that with a contract of this size facing these kinds of allegations, a second pair of eyes would be a good thing.

"After tonight's robust discussion about this significant contract worth millions of taxpayers' dollars, I am pleased that my colleagues agreed to revisit this matter again in two weeks,” Mungo said. "Making a decision that will have long-term implications for a vital municipal service warrants informed analysis and a fair, transparent process especially at a time when we are working hard to become more business friendly as a city."

The allegations ranged from misrepresenting figures in the final calculation of costs and the conversations hinted at by Mungo, to cost-saving measures like companies’ willingness to cover the cost of container replacement—estimated to amount to nearly $5 million, according to an EDCO representative—and city staff neglecting to visit sites of those that submitted proposals.

MacDonald replied to these allegations, stating it was “the city’s prerogative” to visit or not visit the site of a business that submitted a proposal.

"I’ve never been part of a municipal RFP where the evaluation committee didn’t come out and do site visits," said Jeff Snow who was on hand to represent Republic Services. "We don’t buy homes or buy cars without test driving them. We never had a site visit to evaluate the strengths of our technology, our workforce development and diversity and our entire approach to sustainability for our community partners."

Travon Grant, a municipal relationship manager with Republic, added that his group’s prices were misinterpreted due in part to the city asking each participant to submit seven and 10-year plans, since it was determined that a 10-year contract was cheaper after the initial submissions. He also noted that the city staff ignored the fact that Republic offered a 40 percent higher recycling revenue than its competitor, before stating his support of the council’s move to seek an audit of the process, adding that he felt Republic’s was the only ethical one submitted.

“There were four different cost proposals that were submitted,” Grant said. “Requesting for multiple bids can be perceived as price shopping. In my industry, that’s considered unfair. In fact, we believe the only bid that has any integrity was the first bid, which was [within] a sealed box that was hand delivered to this building personally by me.”

Grant’s point about recycling revenue is important, given the falling price of oil and that plastics are a petroleum-based product. A New York Times article last month examined how the free-fall of the price for a barrel of crude oil (currently about $37) has led to a drop in recycling revenues for some cities. And, as recycling businesses like Waste Management struggle with smaller margins, as it has become cheaper to make new plastics than to buy recycled goods to create recycled products.

A bale of plastic that used to fetch in the neighborhood of $230 per bale now only nets about $110, according to the article. The sudden drop in selling power brought about by low global oil prices has led to some recycling businesses filing for bankruptcy and, in some cases, has flipped the script on cities that were used to selling recycled goods to recyclers but are now paying companies like Waste Management to accept recycled goods.

“Our recycling business has dramatically changed, from a business we thought was going to grow very fast and [be] very profitable, to one that is not growing at all and not profitable,” said David Steiner, chief executive of Waste Management told the Times. “High commodity prices aren’t coming back anytime soon. This may be the new normal.”

The council’s vote will postpone any movement on the contract until its March 22 meeting, at the earliest. The city attorney’s office was directed to request the four bidders to stick to their current proposals while the audit is undertaken, but it’s unclear how many, if any, will be willing to enter into a holding pattern of sorts, for what could be a 12-month process or longer.

[Editors Note: The story was updated to reflect that the cost of the contract at the end of ten years would be close to $40 million, not the $70 million figure included in a document on the city's website. This story was also updated to reflect the fact that the council voted to postpone both motions including any potential involvement by the city auditor's office. The number of complainants who spoke during last night's meeting was also updated to reflect that only EDCO and Republic commented on the item and that Athens did not.]



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