Meeting the Challenge, Competing to Win

Robert B. Gardner and Fred Blakeley

Here's the million-dollar question: Can private companies operate solid waste facilities more cost effectively than governments? The answer is as varied as the operations and regions up for grabs.

However, during the past two years, the Florida counties of Desoto and Seminole considered privatizing their solid waste management operations and discovered that status quo was the way to go.

The impetus to privatize often blossoms from a war of opinions: While the private contractor focuses its attention on the city or county board and solid waste management employees fight for their jobs, paid lobbyists, political agendas, animosities between commissioners and various technical, accounting and management consultants complicate the decision- making process.

The stakes are significant: Contract terms typically are for five- to 10-years, with millions of dollars in annual revenue. However, the spin that each competing party puts on its proposal or bid can mean the difference between success and failure.

Duking it out in Desoto Predominantly rural Desoto County (population 26,000) generates approximately 17,000 tons per year (tpy) of municipal solid waste (MSW).

It owns and operates a Class I landfill, recycling facility, household hazardous waste (HHW) facility, scalehouse, waste tire processing facility, C&D disposal facility, yard waste collection area and an air curtain incinerator.

In 1995, Desoto received an unsolicited proposal from Pittsburgh, Pa.-based Chambers Development Corp. to construct a transfer station at the county landfill and move the county's Class I waste to its out-of-county landfill. Its argument was that Desoto could not operate its 50 tons-per-day facility as economically.

With the help of SCS Engineers, Tampa, Desoto evaluated the proposal and the county's two options:

* Stay in the Landfill Business. Develop all six landfill zones, build and operate the facility to maximize the available air space or build and operate a material recovery facility.

* Get Out of the Landfill Business. Contract with Chambers and close its landfill.

Chambers proposed a $39-per-ton charge for waste hauling and disposal for the agreement's first year. This charge would be increased annually using the Consumer Pricing Index (CPI), up to a maximum of 7 percent for the first five years. Then, charges would increase annually based on the CPI with no ceiling.

The engineering firm projected the full cost for the county operations at $66.47 per ton compared to $73.10 per ton with the private contractor. (This is the total cost of the solid waste management system divided by the total solid waste managed at the landfill.)

If it contracted, the county would also pay for landfill closure, provide post-closure care maintenance and monitoring and continue to operate its recycling, tire processing, yard waste processing and HHW facilities.

By mid-1997, Desoto had constructed a new, six-acre, Class I landfill cell, made improvements to its leachate storage facilities and closed portions of the landfill that had reached final grades.

However, since the county needed to balance its overall budget, it decided to sell its entire solid waste system. A request for proposals (RFP) was issued in August 1997.

Later in the fall, the county decided to withdraw the RFP. The county's new six-acre landfill cell is scheduled to open in March 1998.

Wake-Up Call in Seminole County Seminole County's 324,000 residents generate 384,500 tpy of MSW, of which approximately 280,000 tons is disposed of in the county's landfill.

The Seminole County Solid Waste Management Department (SCSWD) operates the solid waste management system and is responsible for:

* Managing solid waste collection and residential recycling. The county uses a franchise system with private contractors.

* Operating the county's solid waste and recycling disposal facilities and its transfer station and waste hauling fleet.

* Operating a HHW storage facility at the landfill.

During the last 12 years, the rates for these services only increased twice, both of which funded mandated improvements. In addition, the county's tipping fee is 21.5 percent below the state average of $45.86 perton.

Over the last several years, however, the county commission has considered privatization through its Program Review Committee (PRC).

Spurred by a local hauler, the county commission issued an RFP in early 1996 to operate the county's solid waste system.

Proposals included an "Option B" price if they planned to manage marketing the county's recycling program. BFI, Chambers Development Corp., SCSWD and WMI all responded.

The total bid prices for Option A ranged from a low of $3,354,706 annually (SCSWD) to $4,997,937 (Chambers). The Option B proposals resulted in the same price ranking.

Some private firms claimed that the county was not playing fair with its proposed use of capital reserves to purchase new transfer trailers, allocation of overhead expenses from other county departments, and use of interest income, grants and proceeds from selling recyclables to reduce operational costs.

SCSWD countered that private enterprise can use equipment and financing advantages as well as other resources.

The PRC removed the interest, grant, recyclable income and related operational costs from SCSWD's bid, which resulted in a net $700,000 increase to the county's bid proposal.

Still, even adjusted, SCSWD's bid was lowest. The county hired Deloitte & Touche which confirmed the accuracy of SCSWD's proposal.

The final cost proposals were:

* SCSWD: $4,130,363

* WMI: $4,482,698

* BFI: $4,508,467

* Chambers: $4,798,587

The county commission accept SCSWD's bid in August 1997. The decision is effective for five years. If SCSWD does not meet its commitment to operate the system within the proposed price, the board will either issue another RFP or negotiate with the second lowest bidder.

After the end of the five-year period, the board will decide to continue with SCSWD or pursue other alternatives.

The process each of these counties went through serves as a wake-up call for public sector management to continue to pursue cost savings.

Keep in mind that while these counties found it more cost-effective to keep operations public, others have found success by contracting part or all of their solid waste operations.