Municipal contracting for solid waste collection services can sometimes be a frustrating experience. Too often, it is. Solid waste contracts are typically put in place for five to ten years — a long time to be frustrated!
A common factor is a municipality’s conclusion that the supplier isn’t performing as expected; yet the public works director responsible for the services may not know quite what to do. Where the quality of the service is clearly inferior, termination of the contract for cause is the obvious answer. It’s an easy decision to make. But with most solid waste contracts where the municipality is dissatisfied, the quality of the service rarely deteriorates to the point where termination for cause is easy to substantiate. What then?
A number of steps can be taken to set things right, provided the contract includes the appropriate levers. The first important step is recognition before the contract is signed that long-term contracts are not like ordinary, short- to medium-term contracts. Contracts that involve the outsourcing of a business function (that has traditionally been performed in-house) need unique provisions that allow the municipality to obtain the services for which it bargained.
How can a municipality deal with multiple, recurring minor contractual breaches — the type where the supplier repeatedly causes spills or fails to pick Mrs. Jones’ waste, or the supplier’s employees damages Mrs. Jones’ green bin? Here, the municipality may think of termination, but it will often realize that arguing termination for cause is difficult. The supplier’s repeated breaches may even be met by the payment of minor liquidated damages to the municipality (deducted from the monthly payment to the supplier), but again, such breaches typically cannot support termination for cause.
The way to deal with minor contractual breaches is to insert a special provision in the outsourcing contract that sets a process into motion allowing the municipality to begin a countdown towards eventual termination of the contract if certain corrective measures are not taken by the supplier. This normally gets the attention of the supplier like nothing else! As well, a contract governance structure can be established that keeps the supplier focused on performing to the highest level. It also builds supplier loyalty towards the municipality. This type of governance arrangement can be structured is a number of ways; what matters is to customize it to reflect the specific needs and goals of the municipality.
Aside from what goes into the solid waste outsourcing contract (and well before it’s signed) it’s important question to determine an appropriate procurement vehicle to select a solid waste services supplier. Some municipalities use a tender document, as opposed to a request for proposals (RFP). With tenders, the rule is that the lowest price wins. The use of tenders in solid waste contracting is most unfortunate, since they essentially make it impossible to include in the contract those provisions essential to extract optimum value from the contract. Tenders are fine with traditional “build” construction projects. But with long-term services contracts, measuring only the lowest price is ill-advised.
Some solid waste management services are highly commoditized — meaning that they are cookie cutter-types of services, with no frills. Even where that’s the case and the lowest price approach seems to make sense, changes will always occur over the longer term that may affect the services provided by the supplier. How a supplier handles large-scale changes, how creative it is in finding solutions to ongoing problems — these are important matters that the municipality will want to evaluate within the context of an RFP. It will also want to build into the RFP the flexibility it needs to negotiate into the contract provisions to ensure a successful relationship with the supplier.
Given the growing importance of the solid waste sector and the pressures on municipalities to achieve better value-for-money for the public, it’s worth investing a little time upfront to make sure that the procurement and contracting process truly supports the municipality’s goals. Done right, the municipality and supplier will look good; less time and effort will be consumed later trying to put right a dysfunctional relationship. Solid preparation and sound advice up front will not be wasted, and will save frustration.
Denis Chamberland is a partner at Aird & Berlis LLP in Toronto, Ontario. His new book Procurement: A Practice Guide for Elected Municipal Leaders will be published this spring. Contact Denis at firstname.lastname@example.org