Managed Competition's Brave New World

Mark Urquhart, John Abernethy and Jeremy O'Brien

In late 1997, Sacramento County, Calif.'s Waste Management and Recycling Division (WMRD) faced losing a chunk of its business. When the county's Citrus Heights area - 22,000 of its 165,000 households - incorporated into a city, its solid waste business suddenly was up for grabs.

Like its private counterparts, WMRD, which had been providing solid waste services for the past 30 years, received a request for proposals (RFP) for solid waste collection, processing and disposal.

The RFP was a new experience for WMRD. Could it successfully bid against private haulers to keep Citrus Heights customers? It had the experience: WMRD historically had provided the community with automated refuse collection, automated bi-weekly green waste collection, bi-weekly three-bin recycling collection and neighborhood clean-up collection.

The RFP called for curbside collection under a variable rate structure. The bids were to include processing and marketing of green waste and recyclables, as well as refuse disposal.

The city specified automated, weekly refuse collection and automated, bi-weekly green waste collection. Weekly recyclables collection was required, and while the method was left open, the RFP asked bidders to demonstrate how they would assure that the city met the state's 50 percent diversion mandate. It described the city's interest in two areas:

*source separated and

*commingled collection and processing [sending refuse and recyclables to a wet material recovery facility (MRF)].

In addition, the city requested proposals with special pickups for bulky items and Christmas trees, backyard service for a fee or free to disabled customers, billing and collection, periodic AB 939 reporting and a customer service center. The bidders were given only six weeks to submit their proposals - a timeframe that sent Sacramento County staff scrambling to "think private" as they reached for the golden ring: a 7-year contract with an option for three 1-year extensions.

Designing a Winning Proposal WMRD developed a bid team that included three staff groups and Omaha, Neb.-based HDR Engineering Inc. consultants. In developing its proposal, WMRD looked at other municipalities that successfully bid against the private sector, such as the city of Charlotte, N.C., which bid under managed competition for collection services in 1996. (See "Governments Winning the Bidding War," World Wastes, July 1997, page 72.)

Citrus Heights' proposal evaluation criteria had two major thrusts: *Use an efficient, proven approach for a low-cost bid to garner technical and cost evaluation points.

*Provide a comprehensive presentaStion to gain points for the other evaluation criteria.

Based on this, WMRD formed strategic, technical and policy groups to review the RFP and develop its submission:

*The technical group researched the strategies needed for the winning bid, identified any resulting policy changes that needed approval and developed the proposal.

*The strategic and policy groups dealt with issues involving the general approach toward preparing the bid, the approval of any required policy decisions and handled communications with the county board of supervisors.

The board of supervisors approved a policy allowing WMRD to set up a separate Citrus Height Service Group (CHSG) for the bid - an entity that was consistent with the separate accounting required in the RFP.

It enabled CHSG to use unit pricing for the area - distinct from the county system - that was below the current rates throughout the county and in Citrus Heights.

This "unit pricing," which was possible due to Citrus Heights' proximity to the county's North Area transfer station, placed WMRD on equal footing with the private companies.

The board also approved a policy that said the public sector bid should include only variable ("go-away") indirect and overhead costs. These are the costs that would "go away" should the county lose Citrus Height's business.

The county first evaluated whether the second RFP methodology, commingling recyclables and yard waste, even made sense. Based on past evaluations, WMRD believed this approach was neither economical nor practical.

However, the costs of both methods were calculated and compared to ensure that separate collection of recyclables was the most economical.

The analysis showed that the RFP "wet MRF" approach was more expensive because the high MRF costs for the commingled waste stream far exceeded the reduction in collection costs from single cans.

In addition, at the time of Citrus Heights' RFP, WMRD was receiving bids or implementing recycling and green waste programs with contractors for the entire unincorporated county area.

Anticipating the Citrus Heights competition, WMRD asked for committed separate unit costs from the successful private bidders for these services.

Assessing the Competition In managed competition, bidders must determine what strategies and costs the competition will use and assess what the winning costs need to be. The Sacramento bid team anticipated competitors' costs based on knowledge of the Citrus Heights system and of the facilities and strategies that the competition would use.

For example, although the county's Kiefer Landfill is closest to the collection area, using cheaper regional landfills and other processing facilities also were evaluated. This assessment was performed before any optimization strategies were used and knowing that the RFP-specified cost to provide service in Citrus Heights with the existing county-wide system configuration would be approximately $14.80 per household.

The county's analysis predicted that private bidding would be competitive with the county's current system and that optimization to trim costs in Citrus eights would be critical to submitting a successful bid.

When developing a proposal, bidders should know collection route productivity and other system costs in detail. From its history serving Citrus Heights, Sacramento County already had time measurements from routes in that area. Using software manufactured by RouteSmart, Columbia, Md., the county compared routing scenarios. The bid team used this data to compare different work shifts and routing.

The county decided to "direct dump" Citrus Heights' refuse, greenwaste and recyclables. The North Area Transfer Station (NATS), which serves the public and commercial haulers in addition to WMRD collection trucks, is only three miles from Citrus Heights and uses an AMFAB compactor for roughly 400 tons per day.

The facility has an open-top transfer chute in the back. The team determined that the Citrus Heights system would be most competitive if the gravity chute was used for direct dumping of targeted loads rather than dealing with processing through the station with the rest of the public and commercial users.

Optimizing Citrus Heights' System The bid team's optimization strategies included:

*Changing to four 10-hour workdays for the CHSG.

*Establishing minimum productivity (higher than average) for service area.

*Using temporary employees during peak demand periods.

*Using reserve labor as needed. *Cross-training operators.

*Using NATS to maximize on-route time.

*Establishing driver safety incentives.

*Using only one supervisor per service area for all collection services.

*Minimizing backyard pickups, overtime and lost time due to equipment downtime. The equipment optimization strategies included:

*Using other trucks in county system for backup.

*Crediting truck salvage values annually.

*Getting guaranteed maintenance costs and fleet availability from a maintenance service provider.

WMRD, satisfied with the Heil 7000, 26-cubic-yard, Peterbilt chassis trucks, had ordered seven new units. These trucks were to be delivered around the bid time, fulfilling the RFP's new truck requirement.

Public Sector Contracts In managed competition, it is important to establish subcontracts, or Memorandum of Understanding (MOU), with private subcontractors and internal working groups.

These contracts hold the bidders/ groups to the performance terms and agreed-to costs. Internal providers should share the responsibility to the proposed budget.

In the CHSG's case, the group intends to establish the MOU internally with the county for:

*county equipment;

*maintenance group for vehicle maintenance services;

*county utility billing services;

*public education; and

*transfer (reload) services for refuse, recyclables and greenwaste.

Equipment maintenance, utility billing and support groups in the WMRD for public education and transfer services were key bid elements.

During bid development, the county submitted cost proposals for the services and worked directly with the bid team to develop strategies and sell the services in the proposal.

The county also established agreements with subcontractors for transfer hauling, processing and marketing mixed recyclable and green waste. The contracts were competitively bid, which enhanced CHSG's proposal.

The county was able to start this process before the Citrus Heights bid because it already was implementing green waste programs and planned to change the curbside program from using three bins to a commingled, automated collection can system.

This additional step meant securing bids from the subcontractors to supply the transfer haul services using the county's North Area Station. The bids from subcontractors for transfer were less than the WMRD transfer haul costs, and therefore, the cost of direct dumping into subcontractor transfer trucks at NATS for greenwaste and recyclables was used in the bid.

Bid Proposal and Presentation The bid proposal and presentation included graphics and a detailed description of the services provided. The strong points included:

*Service satisfaction. According to surveys, 88.9 percent of Citrus Heights residences rated its current WMRD service as "good" or "excellent" - which exceeded a national survey indicating 77 percent customer satisfaction.

*Proven programs. The processing and marketing strategies for recycling were presented by the subcontractors and based on existing proven and competitively bid programs.

*Community involvement. If the city contracted with CHSG, it would retain jobs for its residents in the CHSG and with the can supplier.

*Low-cost options. The bid proposal contained lower cost options for used containers and bi-weekly recyclable collection.

*Convenient, efficient integrated billing. The county utility billing section proposed one bill that included other county services and presented a comprehensive quality-monitoring program.

*Education programs. WMRD proposed award-winning education programs with a detailed program description and schedule.

*Diversion. CHSG detailed how the 50 percent diversion goal would be exceeded.

The Results Come In Out of the three bids Citrus Heights received, CHSG's proposal offered the best quality at the lowest price. CHSG's bid was approximately 10 percent less than the next lowest bidder for the 60-gallon container. The CHSG also was the lowest of all four RFP cases comparing the 7-year present values of the bids.

The major optimization strategies taken when developing the bid became the winning factor: Switching from five 8-hour days to four 10-hour days, which eliminated one route, and using NATS in the resulting routing yielded savings of approximately $1.30 per household per month.

Other factors that made CHSG's bid leader of the pack included:

*minimal transition (since CHSG was the current provider);

*assistance in preparing AB 939 documents;

*two additional lower-cost options; and

*use of the county household hazardous waste drop-off facilities. In March 1998, the Citrus Heights city council awarded its solid waste contract to CHSG.

Sacramento County's bid in Citrus Heights is another addition to the growing list of public entities that have faced managed competition and have come out on top.

By using a detailed approach to making systems efficient, benchmarking against the competition and preparing a professional, comprehensive proposal, the public sector can compete - and win - in this ever-increasing competitive industry.

CHSG = Citrus Heights Service Group WMRD = County system as a whole

Refuse trucks *CHSG: 8 refuse fully automated Heil 7000, 26 cubic yard. Recyclables: same (5 trucks) green (3 trucks).

*WMRD: 112 full automated refuse vehicles. It uses a variety of other vehicles including rear loaders, claws and light vehicles.

Containers *CHSG: 74,000 38/60/90 fully automated carts (RRS Industries).

*WMRD: 420,000 38/60/90 automated carts (RRS Industries).

Customers *CHSG: 22,000 residential; 4,000 multi-family. *WMRD: 138,000 residential; 16,000 multi-family.

Services CHSG: Residential refuse/ recyclable/green waste collection processing and disposal.

WMRD: residential refuse/recycling/green waste collection. The county also owns and operates a 4,000 ton-per-day landfill (Kiefer Rd.) and two transfer stations. Commercial refuse collection is provided by 12 permitted commercial haulers.

Employees CHSG: 16 full time. WMRD: 303 full time - 203 in collection operation.

Service area *CHSG: 13 square miles. *WMRD: 866 square miles.

Local tipping fee rates: $28.05/ton. 60 gallon rate = $12.90/household/month. WMRD: $14.50/household/month.