In 1989, the City first executed a contract with Taormina Industries (Taormina) (d.b.a. Brea Disposal) to grant an exclusive franchise for the collection, transportation, recycling, composting, and disposal of solid waste, recyclable, and compostable materials. The contract has been amended several times over the years. This includes a 1996 amendment that memorialized the City’s consent for Republic Services, Inc. (Republic) to purchase Taormina. The current contract is a September 3, 2002 restated and amended agreement. Although the contact is with Taormina, discussions regarding the contract commonly refer to Republic due to its status as the parent company.
Paragraph (A) of Section 5 of the Republic contract addresses the duration of the agreement. Essentially, this provision specifies a 20-year term that is automatically extended by 1-year each January 1st unless either party has issued a non-extension notice before July 1st. The following is the exact language from the agreement:
“SECTION 5. TERM OF AGREEMENT.
A. The term of this Agreement shall be for a period of twenty (20) years commencing August 1, 1996 through and including December 31, 2016. On January 1 of each year beginning with the year 1997, the term of this Agreement shall be automatically extended one (1) additional year unless either party has determined not to grant such an extension for any reason, in either party’s sole discretion, and has notified the other party in writing of such determination prior to July 1 of a given year at which time the Agreement shall remain in effect for the remainder of the then unexpired term.“
Separate from this “evergreen” provision, state law authorizes local agencies to terminate a franchise with a solid waste enterprise in order to award an exclusive franchise to a new firm. This statute, Public Resources Code Section 49520, gives an incumbent solid waste enterprise certain “continuation rights.” In relevant part, if a solid waste enterprise has lawfully provided solid waste handling services pursuant to an exclusive franchise for more than the three previous years, then that firm is entitled to continue providing such services for the lesser of the following: (i) the unexpired franchise term; or (ii) five years after the local agency mails notice that it is awarding an exclusive franchise to a new firm. The City Attorney’s office believes the City Council can invoke this statute to terminate the Republic contract after five years and award an exclusive franchise to a new firm. It must be noted, however, that Republic disputes this position and contends that the statute does not apply to this situation.
For some time, the City Council has publicly expressed concern regarding the term of the Republic contract and the overall cost/benefit to the City. As a result, in late 2017, the City Council directed staff to review the contract and “modernize” provisions that may need to be updated or are missing, and to look for opportunities to streamline processes that would result in savings to the City. Also, in early 2018, the City Council approved a contract with HF&H Consultants, Inc. (HF&H) to allow staff to obtain as-needed support services for this effort. Republic agreed to work with staff on this possible contract amendment. However, the contract amendment work has been delayed given the high priority focus on the organics recycling program mandated by AB 1826 (2014). That program has been delayed too, in part due to the City Council's continued concerns with the overall contract. Thus, staff recommends that the City Council provide direction on the term of the Republic contract.
There are many arguable pros and cons to continuing moving forward with an “evergreen” contract. The most traditional argument in favor of a long term contract is that capital costs for refuse operations are distributed over a longer period of time, resulting in lower overall rates to the customers and better equipment. The most traditional argument against is that there is no competition or incentive to keep rates low and continue providing the best customer service.
For information, without performing our own recent rate comparison, HF&H has provided staff with rate comparisons from a survey the firm prepared in 2016 for Orange County cities.
- For Residential Service Rates, Brea was in the upper third at $19.94 per month. The low was $9.20 and the high was $23.51 (30 to 100 gallon carts used in survey)
- For Commercial Service Rates, Brea was in the upper third at $140.50 per month. The low was $52.08 and the high was $171.94 (3 yard bin collected 1x/week)
Our contractor, Laith Ezzet from HF&H, is considered an industry expert in the field of refuse management in California and will be present at the meeting to provide an industry perspective should City Council request it. Republic representatives will also be in attendance to provide responses from their perspective if called upon.
Potential City Council Actions
- No action
- Authorize City Manager to issue a termination notice (contract will remain in effect for five years)
- Authorize City Manager to issue a non-extension notice (contract will remain in effect for 20 years)
- Other
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