Third-Party Review Places Long Beach Recycling Contract on Hold Again

File photo. 

The awarding of Long Beach’s recycling contract will be put on hold again as a third-party review of the request for proposal process is executed by an independent firm, with oversight provided by the city attorney’s office.

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The vote came after over an hour of discussion between members of the council, who were divided on whether an audit was necessary, or if the initial process was enough to award the contract to Waste Management—actions the council had been scheduled to take this month. Third District Councilwoman Suzie Price and Ninth District Councilman Rex Richardson proposed the amendment that included the review (estimated to take 30-60 days) that will be presented to the council in mid-June before the current contract with Waste Management expires June 30.  At that point, the council will have the opportunity to award the contract to the company that’s found to be the best suitor for the city, or restart the RFP process all over again.

“I think if they’re willing to be a 10-year partner with the city, an additional 30 to 60 days is not too much to ask in terms of an investment,” Price said of the additional time the council has requested for a review. “I think everyone we’re working with is patient enough to understand that process.”


The future of the city’s recycling service, and which company would be awarded the 10-year contract that could approach $40 million after annual consumer price index adjustments, appeared to be up in the air going into Tuesday night’s meeting. The process had taken another unexpected turn earlier in the week, following the city council’s decision earlier this month to hold off on the award, as City Manager Pat West had requested that the city council reject the four current proposals to allow for a new request for proposal process to be undertaken. The new process would include a review of the current process with any improvements cited being incorporated into the rebid process.

Jason MacDonald, the city’s purchasing and business services manager said that he was unclear how the city manager arrived at the decision to start the RFP process again and added that’s unclear to say if a new RFP process could be damaging to the city regard to future bids or RFPs. He noted that, for the vendor, the protest and investigation of one costs nothing “maybe just raising the question accomplishes the objective” for firms not selected by city staff.

“Would I be reluctant if I were on the other side of that, maybe,” MacDonald said. “But I would also argue that in this process where anyone that has participated is able to protest that award is that it almost becomes part of the process, especially when it comes to the size and the scale of these contracts.”

West’s memo came two weeks after the council originally heard the item at its March 8 meeting, where concerns were raised about the process by representatives of two of the four companies that had submitted proposals to the city. The awarding of the contract, which was scheduled to be given to Waste Management at the meeting, was postponed after questions about the transparency and fairness of the RFP led some members of the council to request the services of the city auditor’s office to review the RFP process and ask for additional time to weigh the item.


 

It acknowledged those concerns as well as those raised in a letter from City Auditor Laura Doud that listed initial points of concern following the council’s discussion earlier this month.

“While not implying that inappropriate activity occurred, the City Auditor stated that after listening to the issues discussed at the March 8th City Council meeting, she has concerns regarding the recycling procurement process based on the information available to her at this time,” West wrote.

In her preliminary letter addressed to Mayor Robert Garcia and the council, City Auditor Laura Doud noted a few areas of concern regarding the recycling RFP. Doud said that the clarity and inclusiveness of the RFP may need exploration given the range of proposals submitted and that revisions were requested on four separate occasions according to one party. The first-year cost proposals for the seven-year and 10-year models ($6.22 million and $6.15 million) have a gap of about $3 million dollars between the highest and lowest ($3.48 million and $3.33 million) proposals when compared.

“While I understand that this was an RFP process rather than a sealed-bid process, there was a very wide disparity in proposed pricing among the top four proposers, which raises the question of whether there was clarity in the requested services to be performed,” Doud wrote.

She also said that some of the reasons given by city staff for its decision to decide on Waste Management—the company that has served the city for the past 22 years—were not outlined in the RFP. There not being a transition plan required, no disruption in service and its long tenure as the city’s recycle service provider appeared to be the result of it being the incumbent, which Doud said, “creates a potential barrier for other companies to do business with the city” if too much weight is awarded for experience.

Waste Management was slated to be awarded the contract with a projected annual cost of $3.5 million to city while providing it with about $605,000 in annual recycling revenue according to a presentation given to the council March 8.

Doud was careful not to imply any wrongdoing or inappropriate activity undertaken by city staff, but said it was understandable to see why concerns regarding fairness and transparency were raised during the March 8 meeting. She also reiterated her stance that her office is willing to take up the matter—a process that would’ve taken between four to six months had the council approved the audit.

There were two companies that expressed issues with the procurement process, one, a letter of concern from EDCO Waste and Recycling Services—the company with the lowest annual cost and recognized as alternate to Waste Management by the independent firm hired by the city to review the process—and a formal protest from Republic Services.

The protest letter submitted by Republic in February alleged that city staff misrepresented the figures in their proposals for first-year costs by “several million dollars” with city documents listing it at $6.7 million when the number was actually closer to $4.1 million.

Rick Davis, a consultant for Republic, said part of the confusion stemmed from the RFP documents asking for “all compensation” to be listed, which Republic added recycling revenues it takes from the city as the contract is set up on a 50/50 basis. If you were to subtract the $741,000 in annual revenue that Republic listed in its proposal its first year cost would drop to about $3.3 million, a smaller figure than all but one company, including Waste Management.

Davis further explained that Republic has been fighting since the letter of award was drafted in late January to “get back in the game” as the city staff’s ongoing inclusion of the $6.7 million figure has damaged its competitiveness.

He pointed out other concerns Republic has with the report, like Republic’s estimated annual revenue to the city of over $740,000, which represents an over 40 percent mark-up from Waste Management’s figure, and one that would only grow as the price of oil trends up. He added that the figure of $605,000 annual revenue received from Waste Management by the city was inflated as the number included in the RFP was listed at $514,000 for “current annual recyclables to the city.”

Laith Ezzet, a consultant with HF&H, which was hired by the city to review the original process, weighed in on this issue when asked by Fifth District Councilwoman Stacy Mungo about concerns regarding projected commodity prices and how any vendor could assure a certain price point. Ezzet said that because the ability to project commodities is about as difficult to predict the stock market, therefore numbers provided about projected revenue should be weighed carefully when accounting for overall cost.

“Vendors do the best they can but they may make very different assumptions about what those commodity markets are going to look like,” Ezzet said. “It wouldn’t make any sense for the city in evaluating the proposals to put as an offset to their cost evaluation what different proposers are projecting the commodities markets because they all make different assumptions but in the end they’re all selling to the same commodity market.”

Ezzet also said that the third-review of his firms work would be the first time he’s seen it done since he started working for HF&H in 1991.

Republic also took issue with the lack of a weighted point system being utilized in the grading of proposals, stating that it opened the process to a more subjective decision than a merit-based one. The failure by city staff to even visit their facilities, ones that he described as “state of the art” and allows for Republic to recycle 13 more types of materials was not only vital to the RFP process, but to the core of the conversation at hand.

“We are going to keep a lot more commodities out of the landfills and recycle them which is the whole point of this contract, recycling,” Davis said.

Davis also said one potentially problematic aspect of the procurement process, and the main reason why Republic has contended that the only valid proposal was the first one submitted by any party, was that the last request for revision was not received from the authorized city contact, Michelle King, but from the Environmental Services Bureau (ESB).

The bureau was headed by Jim Kuhl up until his retirement in December. He was hired in wake of the state legislature passing Assembly Bill 939, which set benchmarks for city refuse recycling—25 percent by 1995 and 50 percent by 2000. Kuhl is credited with creating the city’s existing recycling program with its initial contract being awarded to Waste Management in 1992.

Up until his retirement, Kuhl also served on the Southern California chapter of the Solid Waste Association of North America (SWANA), a nationwide organization of public and private sector professionals dedicated to solid waste management. Kuhl served on the board with Susan Moulton, a national chapter director for Waste Management, Diko Melkonian, general superintendent for Long Beach ESB and Ezzet.

While Republic has no proof of any wrongdoing regarding the correspondences with ESB, because there were no control factors like the ones in place with the city’s authorized contact, the only valid proposals were the ones first submitted by the four companies.

All four companies have agreed to extend their proposals for sixth months while a potential audit or extension of the RFP plays out. However, Davis said that it’s Republic’s hope that West’s request for a new RFP process not be approved because of the cost associated with another RFP process for all parties involved, but also because it would be unfair to the four companies included in this current RFP which all have had their numbers reviewed publicly.

During the March 8 meeting, the city attorney’s office advised the council that the cost for an additional RFP process was estimated to be in the neighborhood of about $100,000, but Davis said that number could easily be eclipsed for Republic or any other company that would potentially be part of the new process, if the council chooses to restart the RFP process when the review is presented to it in June.

How that could impact business in the future has concerned not only the vendors, but city staff and the Long Beach Area Chamber of Commerce as well. The chamber’s Senior Vice President Jeremy Harris spoke before the council last night to voice support of the third party review, noting that it’s important to know that these processes are working properly, given the chamber’s promotion of them to interested parties looking to do business with Long Beach.

“Time and time again members and non members have contacted the chamber regarding the city’s RFP and bid process and each time we’ve ensured these businesses that staff has provided the utmost care and diligence to the process,” Harris said. “That is why we’re here tonight—to ensure that when the process is further put under the microscope, which has been made apparent in this particular bid, that we take notice with these concerns so we may appropriately educate our members about the process of the city.”

 



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