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Title:
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Materials Recovery Facility Operations and Materials Marketing (North Gateway and 27th Avenue Transfer Stations) Requirements Contract Amendment (Ordinance S-45781)
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Title
Materials Recovery Facility Operations and Materials Marketing (North Gateway and 27th Avenue Transfer Stations) Requirements Contract Amendment (Ordinance S-45781)
Description
Request to authorize the City Manager, or his designee, to amend Contract 131492, Materials Recovery Facility (MRF) Operations and Materials Marketing (North Gateway and 27th Avenue Transfer Stations) between the City of Phoenix and ReCommunity (now Republic Services). Further request authorization for the City Treasurer to accept, and for the City Controller to disburse, all funds related to this item.
Report
Summary
The contract was approved by City Council on June 8, 2011, for a 10-year contract term with three one-year options to extend. On Sept. 30, 2015, the contract was amended by Council to modify the revenue share percentage to the Contractor from a flat 10 percent to a tiered scale from 9 to 23 percent depending on commodity values. This amendment was completed in response to depressed commodity sales values and increased processing expenses. In March of 2018, China announced a policy known as the National Sword, which has restricted the sale of recyclables to China and has impacted processing costs and commodity prices industrywide. This has particularly impacted newspaper and cardboard, as a company in China was the primary purchaser of these commodities from the Phoenix recycling facilities. This policy change has impacted Phoenix with reduced revenue from commodity sales. It has also impacted Republic Services, which acquired ReCommunity in 2017, with increased processing expenses and reduced revenues from commodity sales.
Republic Services/ReCommunity operates the City's two materials recovery facilities. The option of an early contract cancellation and a rebid is not recommended as the recycling industry is under extreme financial pressure and a rebid is likely to result in less-favorable contract conditions for the City.
The contract amendment includes the following components:
Retroactive to Jan. 1, 2019 and remaining in effect through Dec. 31, 2019, the City of Phoenix will add $15.00 per ton to all recycle tons processed, resulting in a processing fee of $54.17 per ton for the first 100,000 tons processed and a processing fee of $47.12 per ton for each ton thereafter.
Remove the guaranteed minimum floor prices for all commodities and set all floors to zero effective June 1, 2019 through Dec. 31, 2019. If market prices for the commodities have a negative sale value, material may be landfilled at the approval of the City working in consultation with the Contractor.
Modify the revenue share to a fixed amount of an 85 percent share to the City and 15 percent share to the Contractor effective June 1, 2019 through Dec. 31, 2019. This maintains the City's partnership with Republic Services and continues to incentivize Republic Services to maximize recovery of recyclables, quality and revenue generation.
Additionally, request authorization for the City Manager or his designee for approval of two optional six-month amendments applying the same above-stated terms.
Contract Term
Contract 131492 was approved by City Council on June 8, 2011, for a 10-year term with three one-year options to extend. This amendment applies to calendar year 2019, with two six-month options to extend the amendment.
Financial Impact
This amendment is estimated to add $2.5 million in processing expenses during calendar year 2019. This amendment is also projected to result in a revenue loss estimated at $2 million, based upon commodity sale values from April 2019, for the period from June 1, 2019 through Dec. 31, 2019. The total estimated impact from additional operating fees and reduced revenue is estimated at $4.5 million for calendar year 2019. Actual fees and revenues from this contract and amendment may be higher or lower depending on recycling tonnage collected and commodity sales. Funding is available in the Public Works Department Solid Waste operating budget.
Concurrence/Previous Council Action
Contract 131492 was approved by City Council on June 8, 2011. City Council approved a contract amendment on Sept. 30, 2015.
Department
Responsible Department
This item is submitted by Deputy City Manager Karen Peters and the Public Works Department.