On December 3, 1999 the City received four responses to its Request for Proposals (RFP) for contractors to operate its Sunnyvale Materials Recovery and Transfer (SMaRT^®) Station for the next seven years.

The SMaRT Station serves five main purposes:

1. Receive and recover recyclable materials from garbage collected in the cities of Mountain View, Palo Alto and Sunnyvale
2. Transfer the unrecycled portion of the garbage to the Kirby Canyon Landfill for disposal
3. Receive, process, and ship to composting facilities the yard trimmings collected by the three cities
4. Receive, sort and prepare for market recyclables collected at curbside
5. Provide a recycling center where residents can drop off a number of recyclable materials and receive cash for bottles and cans covered by California’s "Bottle Bill" system

Waste Management currently operates the SMaRT Station under a contract that expires December 31, 2000. Prior to issuing the RFP, the City evaluated an unsolicited proposal from Waste Management to extend the existing contract for another seven years. Following a financial evaluation by McGladrey, Inc., an independent consultant, staff concluded that the Waste Management proposal, while not unreasonable, was not so attractive as to preclude the competitive RFP process.

The four companies that submitted proposals were:

1. Bay Counties Waste Services

• Tipping Fee - $24.69 per ton
• Minimum Recycling Level – 15.51%

2. Burrtec Waste Industries

• Tipping Fee - $21.82 per ton
• Minimum Recycling Level – 15.00%

3. GreenTeam/Zanker

• Tipping Fee - $20.56 per ton
• Minimum Recycling Level – 14.52%

4. Norcal Waste Systems, Inc.

• Tipping Fee - $28.92
• Minimum Recycling Level – 21.00%

The four proposals were carefully evaluated by a City team that includes Public Works staff, financial advisors Hilton, Farnkopf, and Hobson L.L.P. and Ray McDevitt of the Hanson, Bridgett, law firm, the City’s special legal counsel for solid waste issues. The evaluation focused on the following areas:

• Verifying that the proposers have the financial wherewithal to perform the duties required under the contract
  
• Verifying the reasonableness of and consistency of proposed staffing, costs, and revenues and requesting corrections of obvious errors
  
• Confirming the presence of the necessary corporate authority to commit the company to the City’s contract and other legal issues
  
• Evaluating the companies and their proposals against the six evaluation criteria listed in the RFP

After an initial review by the evaluation team, each of the proposers was asked follow-up questions, asked to provide supplemental information, and/or asked to revise proposal forms, and interviewed on January 14. Between February 23 and March 3, 2000, staff conducted due diligence reviews of facilities operated by the various proposers. During five days of travel, 17 facilities were visited. Follow-up questions asked of some proposers resulted in receipt by the City of revised proposal forms. In two cases, corrections to the recycling revenue calculations on Form 11 resulted in changes to the tipping fees calculated by Form 11. The corrections and their impacts on the Form 11 calculations are shown in summary form on Attachment A, titled "Corrections to Proposer Revenue Assumptions." However, as discussed further in the "Discussion" section of this report, GreenTeam/Zanker, the recommended proposer, is ranked #1 whether the analysis uses the original or corrected revenue assumptions.

GreenTeam/Zanker received the highest ranking for experience and tipping fee. Its proposal also results in the lowest net cost to the cities. Staff is thus recommending that the City Council award the SMaRT Station operating contract to GreenTeam/Zanker. The cities of Mountain View and Palo Alto concur in this recommendation. Letters to that effect from the public works directors of both cities are shown as Attachments B and C.

Awarding the contract to GreenTeam/Zanker will reduce the net annual operating costs of the SMaRT Station materials recovery, transfer, and disposal system by approximately $3,300,000 as compared to the cost budgeted for the existing contract. This savings in Fund 490-100 (SMaRT Operations), will be realized by the three SMaRT cities proportional to the amount of municipal solid waste delivered to SMaRT by each city.

As the source of about 50% of the solid waste, Sunnyvale will thus achieve a reduction of approximately $1,650,000 per year. This savings to Fund 455-200 (Refuse Collection) will be incorporated into the analysis of refuse collection rates for FY 2000/01 and beyond.

This RTC was made available to the proposers and to the cities of Mountain View and Palo Alto more than one week in advance of the City Council meeting. The Council Agenda was published and posted. In addition, all reports are available in the Library and on the City’s Internet home page.

Staff recommends that the Council award the contract for operation of the SMaRT Station to GreenTeam/Zanker and authorize the City Manager to execute the appropriate agreement.

The Sunnyvale Materials Recovery and Transfer (SMaRT) Station began operations in October 1993. The SMaRT Station was built by the City of Sunnyvale, in partnership with the cities of Mountain View and Palo Alto, to serve five main purposes:

• Receive and recover recyclable materials from garbage collected in the three cities
  
• Transfer the unrecycled portion of the garbage to the Kirby Canyon Landfill for disposal
  
• Receive, process, and ship to composting facilities the yard trimmings collected by the three cities

• Receive, sort and prepare for market recyclables collected at curbside
  
• Provide a recycling center where residents can drop off a number of recyclable materials and receive cash for bottles and cans covered by California’s "Bottle Bill" system

At the SMaRT Station residents of the three cities may also:

• Dispose of "self haul" refuse
  
• Pick up free ground yard trimmings suitable for composting
  
• Drop off used hypodermic needles at no cost
  
• Tour the facility individually or in groups

The costs of building and operating the SMaRT Station are shared by the three cities as specified by an MOU among the cities. At current garbage delivery rates, Sunnyvale is responsible for about ˝ of the SMaRT Station operating expenditures and receives about ˝ of the revenues generated by the facility. The capital cost of the SMaRT Station was financed by the sale of revenue bonds by Sunnyvale. The debt service on the bonds is shared among the three cities as specified in the MOU.

The selection of the original operator for the SMaRT Station was the outcome of a request for proposals (RFP) issued in 1992. The RFP, which was issued before construction of the facility was complete, offered a seven-year contract that required the operator to guarantee a minimum diversion level and featured a split of recycling revenues between the cities and the contractor. The contract contained a significant number of risks for the respondents to the 1992 RFP, including:

• The facility had not yet been constructed
  
• Recycling revenues can be difficult to predict due to the volatility of recycling markets
  
• Cost of operations and quantities/types of recoverable materials were difficult to predict because of limited information about the waste stream that was to be delivered to the facility

The following companies submitted proposals in response to the City’s RFP:

• BFI
  
• National Ecology
  
• Nortech
  
• Western Waste Industries

On March 2, 1993 the City Council selected Western Waste Industries (WWI) to operate the SMaRT Station and directed staff to develop a contract with National Recovery Technology (NRT), WWI’s proposal partner, to design and install the materials recovery and curbside processing components of the facility. Refuse transfer operations began on October 1, 1993 and materials recovery operations began in 1994. The facility has been in full operation since 1994, with the exception of the curbside processing equipment line. NRT’s design and installation of this line was deficient. Negotiations on this point eventually led to agreements among the City, NRT, and WWI that provided for closeout of the NRT contract in exchange for financial contributions from NRT and WWI toward the cost of reconstructing the curbside processing line. The City currently has an engineering consulting firm under contract and working on the design of a curbside system that will meet the needs of the cities.

Because of the recent consolidation of the waste industry, the contract for SMaRT Station operation has changed hands twice. In 1996, WWI was acquired by USA Waste Industries, Inc. Subsequently, in 1998 USA Waste Industries, Inc. merged with Waste Management, Inc. The surviving corporation, known as Waste Management, is currently responsible for operating the facility for the remainder of the term of the 1993 Agreement, i.e., until December 31, 2000. As viewed from the local perspective, these changes in corporate ownership of the contractor had little, if any, effect on SMaRT Station operations.

The original WWI tipping fee for full operation of the SMaRT Station, charged on deliveries of garbage and yard trimmings, was $27.40 per ton. The fee is adjusted each year by the change in the consumer price index and presently stands at $32.14 per ton.

However, the lack of the curbside processing component of the station has delayed implementation of this "full" tipping fee. Until the curbside installation is in operation (presently projected for January 2001), Waste Management is compensated by a "transfer only" tipping fee, plus direct reimbursement of its materials recovery expenses. During this period the cities have also received 100% of the revenues from recycled materials.

During its first six years of operation the SMaRT Station has received steadily increasing amounts of garbage and yard trimmings, including a total of 272,613 tons during Fiscal Year 1998/99. Diversion of garbage from the landfill has also increased steadily, rising from 8.98% in the first full year of operation to 15.14% in FY 1998/99. Revenues from the sale of diverted recyclable materials have varied with the volatile markets for these materials, ranging from a low of $621,186 in FY 1996/97 to a high of $1,144,357 in FY 1994/95. Annual revenues from recyclables have averaged $877,412.

With the diversion provided by SMaRT making the difference, Sunnyvale has met the State of California’s "50% by 2000" solid waste diversion mandate well in advance. Diversion of wastes generated in Sunnyvale was calculated to be 52% during 1998. SMaRT plays a key role in that accomplishment in many ways, including:

• Diversion of recyclables from garbage
  
• Processing yard trimmings
  
• Processing (soon) curbside and multi-family recyclables
  
• Providing a drop-off/buyback recycling location for residents

The SMaRT Station has emerged as the most advanced materials recovery facility (MRF) in the Western United States, and may be the most sophisticated publicly-owned MRF in the nation. As such, it is a very popular tour location for solid waste industry professionals, public officials, and universities. Visitors have come to SMaRT from across the U.S. and throughout the world, including Australia, Canada, China, Egypt, Germany, Great Britain, India, Italy, Japan, Korea, New Zealand, Philippines, Poland, South Africa, Spain, Taiwan and the United Nations. Visitors from near and far are impressed by the scope and sophistication of the facility and the message that it sends about Sunnyvale’s commitment to minimizing the amount of waste that is landfilled.

The term of the original operations contract was set at seven years to match typical industry depreciation schedules for the types of trucks and loaders used in refuse transfer operations. The contract also provided for its extension upon mutual agreement by the City and the contractor.

As the RFP for the second operations contract was being prepared, the City received an unsolicited proposal from Waste Management. The company proposed that the original SMaRT Station operations contract be extended for another seven-year term. The SMaRT Station tipping fee proposed by Waste Management was lower than the fee will be at the end of the current contract. The Minimum Recycling Level during the extended term would have been equivalent to approximately 12˝% after correcting for the change in how diversion is calculated in the RFP’s contract.

The Waste Management proposal initiated a period of negotiation between City staff and Waste Management. Staff was interested in finding out if the company was willing and able to offer so low a price that going through an RFP process to find an operator would have been an unnecessary expenditure of time and money. If so, staff would have recommended to the Council a seven-year contract extension instead of issuing an RFP.

As part of this process, McGladrey, Inc., an independent consultant with extensive solid waste management experience was engaged to:

• Determine the cost and efficiency of the current Waste Management operation
  
• Determine what the company’s rate of return would be if it received the proposed tip fee
  
• Estimate a reasonable rate of return for an operator of the SMaRT Station, in light of customary rates of return in the solid waste industry and the low level of financial risk to which a SMaRT Station operator is exposed
  
• Calculate the range of tipping fees that would correspond with a reasonable rate of return

The tipping fee proposed by Waste Management was compared to the range of tipping fees that corresponded to McGladrey’s estimated range of reasonable rates of return. The proposed tipping fee was found to correspond with the upper bound of McGladrey’s estimated reasonable range. As a result, staff’s conclusion was that Waste Management’s extension proposal, while certainly not unreasonable, was not so attractive as to preclude the competitive RFP process. Work on the RFP continued throughout the negotiations and staff began advertising the availability of the RFP during the week of September 27, 1999.

Solid Waste Sub-Element, Policy 3.2D.2 – Reduce the amount of refuse being disposed, generate recycling revenues, and minimize truck travel to the disposal site through use of the Sunnyvale Materials Recovery and Transfer (SMaRT) Station.

A total of 4 proposals was received by 3:00 p.m. on December 3, 1999, the deadline identified by the RFP. An additional proposal from Waste Management was, as specified by the RFP, returned to the company unopened because it was received after 3:00 p.m.

The key elements of the four proposals are shown in Table 1 below. The Net Annual SMaRT/Landfill Expense of each proposal is evaluated at its Minimum Recycling Level.

Table 1—Key Proposal Elements

See Attachment D for a more detailed description of each proposal.

The four proposals were carefully evaluated by a City team that included Public Works staff, financial advisors Hilton, Farnkopf, and Hobson L.L.P. and Ray McDevitt of the Hanson, Bridgett, law firm, the City’s special legal counsel for solid waste issues. The evaluation focused on the following areas:

• Verifying that the proposers have the financial wherewithal to perform the duties required under the contract
  
• Verifying the reasonableness of and consistency of proposed staffing, costs, and revenues and requesting corrections of obvious errors
  
• Confirming the presence of the necessary corporate authority to commit the company to the City’s contract and other legal issues
  
• Evaluating the companies and their proposals against the six general criteria listed in the RFP:

1. Experience and qualifications of the Proposer to operate a materials recovery and transfer facility of this size
   
2. Thoroughness, comprehensibility, and adequacy of facility operating and marketing plans, and overall proposal approach
   
3. Tipping Fee proposed
   
4. Guaranteed materials recovery percentage
   
5. The number, nature, and materiality of exceptions taken to the Agreement
   
6. The degree to which diverted materials are reused or recycled as opposed to use for alternative daily cover

The proposals were submitted on December 3, 1999. After an initial review by the evaluation team, each proposer was asked follow-up questions, asked to provide supplemental information, and/or asked to revise proposal forms. After these submittals were received on January 10, 2000, interviews were conducted with each proposer on January 14. Representatives of the cities of Mountain View and Palo Alto observed these interviews and later provided comments to the evaluation team based on their observations. Following this process, additional follow-up questions were asked of some proposers, resulting in receipt by the City of additional information and revised proposal forms. In the two cases noted above, corrections to the recycling revenue calculation on Form 11 resulted in changes to the tipping fees calculated by Form 11. The corrections and their impacts on the Form 11 calculations are shown in summary form on Attachment A, titled "Corrections to Proposer Revenue Assumptions." However, as discussed further below, GreenTeam/Zanker, the recommended proposer is ranked #1 whether the analysis uses the original or corrected revenue assumptions.

Between February 23 and March 3, 2000, staff conducted due diligence reviews of facilities operated by the various proposers. During five days of travel, 17 facilities were visited. Information gathered during this process was incorporated into the review process.

The procurement of a SMaRT Station operator for the next seven year contract was conducted as an RFP rather than a bid because price alone is an insufficient criterion for selection. The agreement for operation of the SMaRT Station describes a complex scope of work and contains significant incentive-driven recycling provisions. The City must rely upon the skill and experience of the operator to achieve municipal policy goals related to diversion of waste from landfills, generation of revenues from sale of recyclable materials, compliance with complex environmental permits held in the City’s name, and provision of good customer service to the residents and businesses that use the facility. The City also must rely on the operator’s skill and diligence to properly repair and maintain the City’s $24 million investment in the facility and its complex automated equipment.

None of the important factors noted above would have been evaluated if the SMaRT Station procurement were conducted as a bid. However, the Request for Proposals process used in this procurement allows the City to consider all of the criteria discussed below.

To evaluate proposer experience, each facility was compared to SMaRT on the basis of tons handled and similarity of functions, waste stream, and machinery sophistication. Functions evaluated were:

• Mixed Waste Processing (i.e. sorting of recyclables from solid waste)
  
• Source-Separated Recyclables Processing
  
• Recyclable Materials Marketing
  
• Long Haul Transport (transfer of solid waste to a landfill)

Each facility was then scored, and these scores summarized to generate an overall "Experience Ranking" for each proposer. Each proposer was then assigned a score that reflected its experience ranking relative to the highest ranking received.

This criterion considers each proposer’s understanding of the scope of work of the contract, the quality of its proposal, and its anticipation of the various issues involved in operating the SMaRT Station. The evaluation team ranked the proposals in quality order and assigned scores in that order from 100% to 50% of the available points.

The lowest tipping fee received the full score, and the other tipping fees received scores that reflect their proportional variance from the lowest tipping fee.

The highest MRL received the full score, and the others received scores that reflect their proportional variance from the highest MRL.

This criterion rates the willingness of each proposer to accept the contract terms presented by the City in the RFP. Following the interviews, it was determined that none of the proposers took significant exception to the contract terms, so all have received the full score on this criterion.

This criterion rates each proposer’s intentions with regard to the use of recyclable materials as Alternative Daily Cover (ADC) which is sometimes used by landfill operators in lieu of dirt cover. None of the proposers expressed the intent to market SMaRT Station recyclables as ADC, and all received the same score on this criterion.

The criteria were weighted in a manner developed by the evaluation team, with the sum of the ratings adding to 100%. The results of the evaluation process are shown in Table 2.

Table 2—Proposal Rankings

GreenTeam/Zanker emerged as the top proposal. GreenTeam/Zanker’s rating was most heavily influenced by its top rankings on Experience and Tip Fee.

Note that Tipping Fee is the most heavily weighted criterion in Table 2. This is because the tipping fee charged for every ton of solid waste or yard waste delivered to SMaRT is the unambiguous financial cornerstone of the contract.

There are other financial impacts that vary among the proposals, particularly with regard to the Minimum Recycling Level guaranteed by the proposer. A proposer who recycles more of the solid waste delivered to SMaRT will transport less to the landfill. This benefits the cities in three ways:

• Achieving "50% by 2000" State Mandate—The SMaRT Station currently diverts from the landfill 15% of the solid waste brought to SMaRT, thus exceeding its original design criterion. This translates, for Sunnyvale, to approximately 5% of the City’s 52% overall diversion (the 47% balance is diverted by waste reduction and "upstream" recycling by residents and businesses) and is essential to the City complying with the state mandate. Palo Alto currently diverts 57% and Mountain View 47% of their waste streams. To reach 50%, Mountain View is relying on programs that divert waste before it has a chance to reach the SMaRT Station.

Thus, Sunnyvale and Palo Alto have already exceeded the state mandate and the other city, Mountain View, has indicated that it will build on the SMaRT Station’s diversion with other types of programs. While it is vitally important to maintain the existing level of diversion at SMaRT, the cities appear to have little incentive to spend additional funds to further increase SMaRT diversion.

• Reducing Landfill Expenses—Higher diversion levels at SMaRT mean that the cities pay for disposal of less waste at the Kirby Canyon Landfill.
• Increasing Revenues From Sale of Recycled Materials—In general, when more recyclables are diverted at SMaRT, the operator’s gross revenues from sale of those materials increases. The operator then retains a share of the revenues and passes along the remainder to the cities. The proportions of this revenue split are determined by a sliding scale in the contract. The share of revenue kept by the contractor increases as the diversion rate increases.

The net financial impacts to the cities of varying SMaRT diversion rates are real, although somewhat more difficult to precisely predict than the impacts of the tipping fee. Taking in account all known financial factors, the net cost of each proposal, including tipping fees, recycling revenues and landfill disposal costs is shown below and in Table 1. For all four scenarios, it is assumed that waste diversion is at the proposed Minimum Recycling Level

While Norcal’s proposal would divert 21% vs. GreenTeam/Zanker’s 14.52%, it would be at an additional net cost of over $2 million per year. With none of the cities pursuing a diversion strategy based on significant increases in SMaRT diversion, it is difficult to justify the additional expenditure. Staff has discussed the results of the proposal evaluation with the staffs of Mountain View and Palo Alto, and they concur in this conclusion. Attached as Attachments A and B are letters to that effect from both cities.

As noted in Attachment D (Proposers and Proposals), correction of two proposers’ recycling revenue estimates resulted in changes in those two tip fees, as calculated by Form 11. In order to verify that these changes did not unfairly affect the comparison of proposals, staff generated a ranking identical to Tables 2 above, but with the originally proposed (and incorrect tipping fees). As shown in Table 3, GreenTeam would have been the #1 proposal even if the incorrect tipping fees were used. Therefore, the only real impact of the revenue corrections was to lower the cost of what was already the best proposal.

Table 3—Tipping Fees Before Revenue Corrections

In order to provide the City Council with a complete range of alternatives to consider, each proposer has been or will be asked to sign a fully developed agreement with the City. Assuming staff has received a signed agreement from each proposer by the date of the Council meeting, the Council has the ability to select from among any of the proposers. Due to their large size, the agreements have not been attached to this RTC, but they are available for review upon request.

Staff is recommending that the Council award the SMaRT Station operations contract to GreenTeam/Zanker and authorize the City Manager to execute the agreement with GreenTeam/Zanker.

Awarding the contract to GreenTeam/Zanker will reduce net annual operating costs of the SMaRT Station materials recovery, transfer, and disposal system by approximately $3,300,000 as compared to the cost budgeted for the existing contract. This savings in Fund 490-100 (SMaRT Operations), will be realized by the three SMaRT cities proportional to the amount of municipal solid waste delivered to SMaRT by each city.

As the source of about 50% of the solid waste, Sunnyvale will thus achieve a reduction in SMaRT Station and refuse disposal costs of approximately $1,650,000 per year. This savings to Fund 455-200 (Refuse Collection) will be incorporated into the analysis of refuse collection rates for FY 2000/01 and beyond. The cost of the SMaRT Station materials recovery, refuse transfer, and disposal system is the second largest factor influencing refuse rates. The largest factor is the contractor payment for collection of refuse and recyclable materials.

Following its extensive analysis of the four proposals, staff believes that the recommended proposer, GreenTeam/Zanker, possesses the requisite skills and experience to operate and maintain the SMaRT Station in a manner that will well serve the City. Contracting with GreenTeam/Zanker has the added benefit of also providing the lowest net cost to the cities. Selection of this alternative will save the City and its ratepayers an estimated $1,650,000 per year compared to the current Waste Management operating agreement. Thus, staff is recommending that the Council award the contract to GreenTeam/Zanker.

This RTC was made available to the proposers and to the cities of Mountain View and Palo Alto more than one week in advance of the City Council meeting. The Council Agenda was published and posted. In addition, all reports are available in the Library and on the City’s Internet home page.

Staff recommends Alternative 1, that the Council award the contract for operation of the SMaRT Station to GreenTeam/Zanker and authorize the City Manager to execute the appropriate agreement.

Prepared by:

Mark A. Bowers
Solid Waste Program Manager

Reviewed by:

Marvin A. Rose
Director, Public Works

Reviewed by:

Mary J. Bradley
Director, Finance

Approved by:

Robert S. LaSala
City Manager