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There’s one thing we know – it is becoming more difficult for municipalities to manage and maintain their waste facilities and fleets in a cost-effective manner.

Josh Allen, chief executive officer of Global Disposal, said that many municipalities are switching from open market programs and non-exclusive franchises to exclusive franchise programs.

“The commodities market is incredibly volatile, making it challenging to set prices for services,” Allen said. “Furthermore, new regulations such as requiring clean-fuel trucks, cost municipalities a lot of money to stay in compliance. For many municipalities, it makes more sense to outsource garbage pickup.”

Moreover, responsible waste and recycling solutions often require a combination of local, regional, out-of-state and overseas solutions, which may be challenging for municipalities to manage on their own. Allen said another key component driving this change is the passage of legislation such as California’s SB 1383 (requiring 75 percent landfill diversion) which requires a more aggressive and progressive approach.

“This is often more than municipalities are willing or able to invest in,” Allen said.

By way of example, in Palm Beach County, Florida, the majority of its 39 municipalities have outsourced residential waste management. The trend is nationwide.

According to John Fumero, a government affairs and environmental attorney with the law firm of Nason Yeager who represents municipalities in waste hauling issues, more than half of U.S. cities contract out all or a portion of their residential waste management services, including residential waste pickup.

“To be sure, waste management and pickup has become more and more costly, and complex, over the last two decades,” Fumero said. “Residences and businesses generate increasingly diverse quantities and types of waste, which results in a wider variety of waste collection requirements and needs. Many municipalities have found they are able to respond to these needs in a more fiscally prudent and efficient manner through outsourcing waste collection.”

Indeed, the key instigators behind municipalities making the move to privatize waste pickup services vary, but the primary driving factor is cost. It has been reported that many municipalities have found that privatizing waste management and pickup can result in savings that range from 20 to 40 percent. If properly carried out, private waste managers can offer improved services at lower costs through economies of scale, as well as utilization of new technology such as computerized fleet and collection management.

Kristin Kinder, waste manager at Ecova, said franchising has been a trend for quite a while, but now the industry is seeing a few different models emerging. For example, some cities run their own infrastructure for hauling waste, some locations allow residents and businesses to contract with any waste hauler they prefer, and some cities contract with a professional hauling company or companies to collect all waste for them.  

In the latter model, some cities elect to franchise just their residential waste, and others incorporate commercial waste collection with their franchise agreement.
“Moving from a model where cities hauled their own waste or where any waste hauler could collect waste to a franchised model offers cities more centralized control to achieve their objectives with less responsibility,” Kinder said. “Multiple haulers working in a city are often inefficient. In a franchised model, truck routing is more streamlined and organized, meaning fewer trucks are on the road. This model lowers greenhouse gas emissions and the wear and tear on roads.”

The potential cost for a municipality to collect its own trash is more than just operating a fleet, but it includes potential liability and maintenance costs associated with having trucks on the road.

“Outsourcing this responsibility to professional waste haulers with large fleets and advanced systems not only cuts down on a city’s operating costs, but it also limits safety liability,” Kinder said. Ecova procures services for large, multisite companies. While Ecova’s clients with sites in franchised cities are required to pay predetermined rates, the company focuses on helping them maintain service costs by right-sizing their equipment and optimizing their recycling programs.

“Typically, cities keep construction and demolition waste (C&D), recycling, and organics open market, so we have a lot of room to help clients secure competitive rates and improve their diversion,” Kinder said.

With a constant dialog and interconnectedness, Ecova is also seeing that the franchise process encourages haulers and cities to build better partnerships and community.

“Contracting with one hauler also enables cities to better maintain and track quality of service, and find an instrumental partner to achieve their sustainability objectives, including tracking diversion,” Kinder said. “They can also structure rates to encourage recycling.”  

Challenges Facing Municipalities

According to Allen, the real challenge facing municipalities and their waste handling is successfully transitioning to exclusive franchise models and aligning the municipalities’ goals and objectives with private haulers’ desires to maximize profitability.

“If municipalities don’t plan carefully, cost, quality and long-term goals can be hard to manage once the private haulers control the programs if transparent, flexible programs are not kept,” Allen said. “It’s difficult to blame waste haulers for choosing to only meet minimum objectives when exceeding those objectives is going to decrease profitability and keep them from hitting Wall Street expectations.”

For example, a city may have long-term goals to remove as much waste from the landfill as possible, but in the agreement, the hauler must prove through the reporting process that a minimum 75 percent landfill diversion is met. The hauler may choose to only hit the 75 percent diversion rate when a 90 percent diversion rate is possible in order to maintain a higher level of profitability.

One additional drawback to the franchised approach is that franchise contracts typically last 7 to 10 years, so cities have limited flexibility to adapt to market changes quickly.

“It can also take a lot of work to implement these programs initially and manage contracts effectively,” Kinder said.

Geoff Aardsma, vice president of client services at Enevo, a provider of waste and recycling services and analytics solutions, said the main drawback of outsourcing waste collection to private hauling companies for the municipalities is that they lose some control.

“The city has less oversight of the management of their pickup services, which are now being handled by the hauler who likely has several other customers,” Aardsma said.

The biggest legal issue that municipalities face in outsourcing their waste collections to private haulers is contract compliance.

“It’s important to set reasonable contractual terms for the hauler relationship that incorporate flexibility for changing market conditions in a way that is both enforceable and in the best interest of the city and waste management company,” Aardsma said.

Benefits Aplenty

One of the biggest benefits of using a franchise model is that waste providers, and in particular the recycling industry, are able to capitalize from economies of scale as they are awarded more municipal service contracts. “Under this concept, the private waste provider’s cost per unit serviced decreases as the number of units served increases,” Fumero said. “Simultaneously, this savings can be passed on to the municipality and, ultimately, the consumer.”

In fact, the future benefits to municipalities and the recycling industry could be massive. Allen said the hope is that extensive data could be collected and used to facilitate the recycling of commodities which aren’t cost-effective to recycle, so that municipal waste and recycling services could be improved. In addition, long-term pricing could be controlled with the right franchise management.

While recycling is open market for businesses in most franchised models, franchised models offer more control and reporting for municipal sustainability goals.

Kinder also stressed that this model strengthens the connection between city initiatives and the haulers and processors who are instrumental in achieving them.
“The benefits to municipalities include standards and reporting for recycling volumes and ensuring that recyclables are being properly handled for their residents,” Kinder said.

Municipalities may also contract with recycling processors to sort and market their recyclables. In this model, they have a little more direct control over which recyclables are accepted and what happens to them after they leave the curb. That said, recycling processors are often squeezed between municipal commitments for collecting recycling and volatile market fluctuations.

In addition to getting more value for the cost of waste collection through privatization, municipalities also benefit from a limited risk and cost control for significant expenditures, such as maintenance for an aging fleet. “Also, in facing the driver shortage of today’s waste industry, cities have access to more consistency with personnel when outsourcing their collection services,” Aardsma said.

It’s important for cities to not only evaluate their options when selecting a hauling partner for outsourcing waste and recycling collection. Those involved should also better understand the behavior and waste generation of their residents and businesses so they can match their contract with actual client needs.

“Switching to a franchise system is a cumbersome political process that is usually met with some of the standard legal issues that surround any big change in a municipal system,” Allen said. “A more transparent market-place that allows data to flow freely will allow market changes to be less volatile and help decrease the costs of necessary programs as well as spur innovation. I think the waste industry is ripe for change and is still waiting for an Uber-like disruption that would help society reach or even exceed the recycling reformation it desires.”

The future, as many industries are seeing today, will be powered by connected, innovative technology. Today, waste container sensors can monitor the amount of waste produced and provide data and insights to improve waste management programs. IoT technology replaces assumption with data in the waste and recycling industry. Technology enables more efficient and accurate collections and provides validation to the hauler’s clients that the services are delivered as required.

“We are excited about the future of waste management as a technology-driven company, but also for the benefits it will have for waste generators,” Aardsma said. “Technology will enable municipalities as well as other waste generators to be more educated about their waste needs. And with that transparency, they will not only be able to take advantage of more efficient and cost-effective waste and recycling collections, they will also regain some of the control in their waste management.”

Fumero predicted that we’ll continue to see an increasing number of municipalities look to privatization as the regulation of waste disposal and recycling becomes more complex. Especially in the past decade, many communities have taken on an increasingly green “eco-conscious” ethic. Communities want to know their waste disposal and recycling is done in a “sustainable” manner.

“Responding to these demands requires increased capital for new technologies that the private sector is typically in a better position to handle,” Fumero said. “Municipal government can engage in public-private partnerships to privatize their waste pickup and management in a manner that is responsive to the demands of their community.”

Published in the January 2018 Edition of American Recycler News