1 MATERIAL RECOVERY FACILITY OPERATING CONTRACT GARFIELD WRIGHT (BALES) DRIVE

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1 1 MATERIAL RECOVERY FACILITY OPERATING CONTRACT GARFIELD WRIGHT (BALES) DRIVE The Solid Waste Management Committee recommends the adoption of the recommendations contained in the following report, January 25, 2005, from the Commissioner of Transportation and Works: 1. RECOMMENDATIONS It is recommended that: 1. The Regional Chair and Clerk be authorized to execute an agreement with Miller Waste Systems for the operation of the Region s Material Recovery Facility located on Garfield Wright Drive in the Town of East Gwillimbury as outlined in this report. The annual estimated cost of this contract is $4.63 million. 2. A purchase order be issued to Miller Waste Systems for the transfer of blue box material from July 2005 to the opening of the Southern Transfer Station at an upset cost of $34.90 per tonne with an estimated annual cost of $1.4 million. 2. PURPOSE The purpose of this report is to obtain approval to execute an agreement with Miller Waste Systems for the operation of the Region s Material Recovery Facility (MRF) on Garfield Wright Drive (previously Bales Drive) in East Gwillimbury. In addition, the contract provides for the transfer of blue box material from Miller s Markham facility to the new MRF. 3. BACKGROUND Council adopted Report No. 3 of the Commissioner of Transportation and Works on February 28, 2002 for the design, construction and operation of a new MRF and transfer station to process up to 90,000 tonnes per year of blue box material and to transfer organic and residual waste. The Region owns the facility and it is currently under construction. The facility is scheduled to open in July 2005 and the operating agreement with Miller Waste Systems (Miller) needs to be completed.

2 4. ANALYSIS AND OPTIONS Regional staff, with the assistance of McCarthy Tetrault and Gartner Lee Limited, have negotiated a proposed agreement with Miller for the operation of the MRF. The following sections of this report present the key terms and conditions of the proposed agreement. 4.1 General Conditions The agreement is to provide labour and management service for the operation of the MRF and transfer station for an initial contract period of five years with a provision for two additional five-year extensions. The service fees are listed in Tables 1 and 2. In addition to these fees, there is an annual administration fee starting at $413,000 per year. The Region is responsible for the payment of all property taxes or payments in lieu of property taxes. For 2005, the transfer fee and MRF fees will be $22.43/tonne and $63.89/tonne based on our tonnage estimates. Under the terms of the proposed agreement, Miller is responsible for: Weighing all inbound and outbound loads. Providing all rolling stock such as front-end loaders and sweepers and bins. Scheduling the transportation of all outbound material. Building maintenance and grounds keeping. The maintenance of all equipment including the necessary parts and replacement parts. Marketing of all recovered material. Miller to retain 5% of all sales. Inspecting all inbound and outbound loads to ensure acceptable quality and enforcement of material bans. Provision of performance securities and insurance to the Region s standards. Payment of all utilities. In addition, the Region requires that Miller provide a transfer facility for blue box material from July 4, 2005 until Miller s Southern transfer station opens in January The service fee for this service is a maximum of $34.90/tonne (excluding GST) based on twelve tonnes per load. Staff have requested that Miller reduce the transportation portion of this fee ($21.25 /tonne) proportionately as they increase load weights to an average greater than 20 tonnes which is comparable with transfer weights achieved by the City of Toronto. Council also approved the addition of Number 3 to 7 plastic containers in June 2004 which adds an additional $2.50/tonne to the fees in Table 2.

3 Table 1 Transfer Station Service Fee Annual Tonnage Price (excluding GST) Less than 20,000 Contract termination option 20,001 to 25,000 $ ,001 to 30, ,001 to 37, ,501 to 50, ,001 to 62, ,501 to 75, ,001 to 87, ,501 to 100, Note: Fees are increased by 90% CPI (Toronto, all items) on an annual basis. Table 2 Material Recovery Facility Service Fee Annual Tonnage Price (excluding GST) Less than 20,000 Contract termination option 20,001 to 25,000 $ ,001 to 30, ,001 to 35, ,001 to 40, ,001 to 45, ,001 to 50, ,001 to 55, ,001 to 60, ,001 to 65, ,001 to 70, ,001 to 75, ,001 to 80, Note: Fees are increased by 90% CPI (Toronto, all items) on an annual basis. Processing cost for No. 3-7 plastics not included. Baled newsprint is an additional $3.75 /tonne. 4.2 Change of Law It is proposed that if either the Region or Miller believes a change of law directly causes an increase or decrease in Miller s capital or operating cost, the parties will enter into negotiations to adjust the service fees accordingly. If an agreement cannot be reached, the issue will go to arbitration. 4.3 Price Re-negotiation / Recalibration The MRF service fee was a substantial issue during negotiations. Regional staff believed that Miller s price should be similar to the City of Toronto s MRF contract as Toronto s program is identical to York Region s. Miller s original proposal was more than 100% higher than Toronto s. The final negotiated fees listed in Table 2 represent costs that are

4 thirteen percent higher than similar operations in Toronto. The outcome of the negotiations with Miller was presented to Council in January Although the final negotiated price was higher than Toronto s, it was deemed acceptable and that the contract price would be renegotiated every five years. This renegotiation would require Miller to submit a new price for the subsequent five-year term(s) of the contract and this price would be compared to the current market price for similar MRF services. If the price is not competitive with the market price Miller would lose the contract and the Region would issue a public tender to find another service provider. The following are the specific terms for price recalibration: (a) (b) (c) (d) (e) The Parties shall negotiate the potential extension of the Term in accordance with the provisions of this Section 5.10 prior to end of year five and if the Term is extended, year ten of the Term. The terms of any extension must be agreed to 180 days before the end of the Term period. Prior to end of year four and, if applicable, year nine of the Term, the Region shall commission a consultant from a major accounting or audit firm who is qualified, independent, objective, free of conflicts and acceptable to Miller, acting reasonably to determine the market price for operating comparable Canadian facilities, with a particular emphasis on Southern Ontario (the Benchmark Price ). If Miller and the Region are unable to select a consultant owing to Miller s failure to act reasonably, this Agreement shall terminate. In determining the Benchmark Price, the consultant shall have reference to relevant comparators including: (i) duration and any other material terms of operating contracts; (ii) composition of waste stream, annual tonnage, inclusion or exclusion of ICI waste; (iii) collection systems, processing technology and equipment; (iv) capital attributable to building, equipment and rolling stock if applicable; (v) location of facility and impacts upon operations including availability and cost of labour; (vi) differences in applicable laws, regulations and policies; (vii) any tax advantages structure. Miller shall concurrently propose prices for five-year extensions for the Region s consideration at the end of year four and if applicable year nine of the Term ( Miller s Initial Proposal ). Miller s Initial Proposal, and any subsequent proposals contemplated by this section, shall include the proposed TS Services Fee, MRF Services Fee and the Administration Fee and any proposed changes to the Region s share from the sale of recovered Recyclable Materials.

5 (f) (g) If Miller s Initial Proposal does not exceed the Benchmark Price plus four (4%) percent, this Agreement shall be extended for an additional five years provided the terms (other than price) are consistent with this Agreement or, if altered are otherwise acceptable to the Region. Miller will be offered the opportunity to adjust its price to correct any errors or omissions. If this Agreement if not extended pursuant to paragraph (f) because Miller s Initial Proposal exceeds the Benchmark Price by more than four percent but Miller s Initial Proposal is no more than eleven and one half (11.5%) percent above the Benchmark Price, Miller shall have the opportunity to resubmit its proposal within 15 days. If Miller s revised proposal does not exceed the Benchmark Price plus four (4%) percent, this Agreement shall be extended for an additional five years provided the terms (other than price) are consistent with this Agreement, or if altered are otherwise acceptable to the Region. (h) If Miller s revised proposal is more than the Benchmark Price plus four (4%) percent but less than eleven and one-half (11.5%) percent above the Benchmark Price, the Region and Miller shall jointly promptly establish an independent panel of experts ( Experts Panel ) to review Miller s proposal. The Experts Panel shall within 60 days provide its report attempting to reconcile the differences between Miller s proposal and the Benchmark Price. (i) (j) (k) (l) (m) The Experts Panel report will set out its conclusions and the reasons therefore. The Experts Panel will then allow the parties 15 days to make submissions and may alter its conclusions if persuaded that it is reasonable to do so. If the differences are reconciled by the Expert Panel to the satisfaction of the Region, acting reasonably, this Agreement shall be extended for an additional five years, provided the terms (other than price) are consistent with this Agreement, or if altered are otherwise acceptable to the Region. If the differences cannot be reconciled to the satisfaction of the Region, Miller shall be permitted an opportunity to re-evaluate its proposal and make a best and final offer to the Region within 15 days of being so advised by the Region. If the best and final offer is not acceptable to the Region, having regard to the Benchmark Price, the Region shall have the right to request proposals for competitive operation of the Garfield Wright Facility. Miller shall have the right to participate in any such competitive process. If Miller s Initial Proposal is more than eleven and one half (11.5%) percent above the Benchmark Price, Miller shall be permitted the opportunity to review and resubmit its proposal. If the revised proposal is no more than

6 eleven and one half (11.5%) percent above the Benchmark Price, steps (g) through (l) above will be followed. (n) Miller and the Region shall maintain all information generated and exchanged within the process contemplated by this section 5.10 in confidence, recognizing that any release of such information could prejudice the fairness of any competitive process. In summary, staff are satisfied with the terms and conditions negotiated with Miller within the process described above. It represents a fair commercial agreement; therefore, it is recommended that the Regional Chair and Clerk be authorized to execute the agreement. 5. FINANCIAL IMPLICATIONS The service fees for this contract are detailed in Section 4.1 of this report. All prices would be adjusted based on the Consumer Price Index starting September The total cost for the transfer station, MRF and blue box material transfer services for the first 12 months of operation are detailed in Table 3. Sufficient funds have been included in the draft 2005 operating budget. Table 3 Estimated Operating Cost For the First Twelve Months of Operation (Excluding GST) $/Tonne Total MRF (55,001 tonnes) $63.89 $3,514, plastics ,500 Transfer Station (25,001 tonnes) ,800 Administration 413,000 Payment in lieu of taxes 130,000 Blue Box Transfer (40,000 tonnes) ,396,000 Sub total Less Revenue from sale of recovered material $6,151,300 (6,057,000) Net Cost $94, LOCAL MUNICIPAL IMPACT The operation of the new MRF will allow the collection of blue box material to be changed to a commingled stream whereby residents will no longer be required to sort material at the curb. In addition, Regional Council has agreed to expand the list of

7 acceptable blue box material to include No. 3 to 7 plastic containers. Therefore, residents will need to be informed and educated on the changes to the blue box program. The local municipalities will have the ability to change the type of collection vehicles that can be utilized for blue box material and need to consider the use of compaction vehicles to increase collection efficiency. The opening of the transfer station in East Gwillimbury will also allow collection trucks to be rerouted to this new facility instead of having to drive to the transfer station in Markham. Regional staff will work with the local municipalities to ensure that trucks can be rerouted to minimize travel time. 7. CONCLUSION Staff have negotiated a contract with Miller Waste Systems for the operation of the Region s new transfer station and MRF in East Gwillimbury. This new facility is scheduled to open in July Staff recommend that Council authorize execution of the agreement. The Senior Management Group has reviewed this report.