Having trouble making enough money on your no-bid contract with the City and County of Denver? No problem, city council may let you renegotiate it to your advantage in mid-stream.
At least that’s what Waste Management was able to do last year when prices declined in the recycling market.
In 2005 Waste Management inked a 10-year contract with Denver, agreeing to pay the city $33 per ton for 95 percent of the recyclable material delivered by the city.
If the value of the materials reached a certain level, the city was also entitled to share the surplus 50-50 with the company.
The program went so well that in 2011, four years before the end of the contract, the company asked to renew it for five more years, through 2020 — an option permitted under the original contract.
“This extension protects the city when the market is down by ensuring our base of $33 per ton,” a public works spokesman told city council on Oct. 17, 2011. “Through this agreement the city locks in this pricing no matter what the conditions for the length of the contract.”
The city shares in the upside when the market is high “but we don’t share in the downside.”
Charlotte Pitt, operations manager of Denver’s solid waste, noted that “the word on the street is the market price will go down again, so we are locking in that price.” This inspired Councilwoman Mary Beth Susman to ask how Waste Management benefits by keeping the price at $33 if the price might go down. Pitt explained that the company is “taking a chance that it won’t go down, or hoping that it will go up.”
Council approved the extension.
That was then. But in 2014 the market for recyclables crashed and Waste Management wanted out, at least temporarily. Last summer, with the support of the solid waste department, it convinced council to entertain a bill designed to dramatically lower the payments to Denver for the next 17 months.
From June 2015 through October 2016 the contract provided that: 1) a $65 “processing fee” would be subtracted by Waste Management from the “blended net value” of each recycled ton, and 2) the city was to be given only 60 percent of the remainder.
That led to a dramatic reduction from the $33 per ton that city officials had earlier boasted would be “locked in.”
In a hypothetical example attached to the amendatory agreement the blended net value for one month was $77.86. Subtract $65 and you get $12.86. Pay only 60 percent of that and the city would get a mere $7.72.
The agreement did specify that in no case was the city’s compensation to fall below $5 a ton.
A document given to council at the time predicted that the city would lose $800,000 over the course of the 17-month contract.
Strangely, city council records indicate that there was no public discussion of this amendment during the two times it was on the agenda. What’s more, the bill was put on the consent calendar and passed unanimously.
Come next November, the original terms are supposed to resume — unless, of course, Waste Management comes back to council and convinces it to prolong the lower rate.
“The parties hereby agree and acknowledge that no additional pricing adjustments will be authorized” during the agreement’s duration, but Pitt conceded the other day “they probably will ask for an extension.”
Waste Management has succeeded in renegotiating recycling contracts in other cities. But in Houston — where the company is headquartered — it had to wait until the current contract expired this month. Denver apparently isn’t as tough a bargainer as Houston.
Pitt said the amended agreement started last summer with a payment of $10.55 per ton a month but declined steadily. The city has been getting the minimum $5 in recent months.
Assuming an average of $7 and a conservative 2,400 tons a month, that means the city will get only $285,600 during the 17 months — compared to what would have been $1.34 million under the original terms — a difference of more than $1 million.
“We didn’t have to negotiate with them,” Pitt conceded in an interview. But Waste Management has been a “good partner” for many years and “we’re not oblivious to market conditions.”
The alternative to renegotiation, she said, was the possibility of default on the contract, “and we didn’t want that to happen.”
Hmmm. Government looking after its corporate friends, privatizing the profits and socializing the losses. Isn’t that the definition of crony capitalism? Pitt maintained that even if recycling doesn’t make money, it does reduce the cost of taking trash to a landfill.
Waste Management, of course, is not a local company struggling to make good. It is ranked No. 217 on the list of Fortune 500 companies. An investor’s publication this week noted that while the market may be down overall this year, Waste Management stock is up almost 10 percent.
At the city council meeting in October 2011, Pitt was asked whether Denver’s recycling program pays for itself. “That is the question I hate the most,” she replied. Then she admitted, “No, the revenue we generate does not cover our operating costs.”
She said that she wasn’t aware of any municipal recycling program that makes money.
All this begs the question: Why recycle? If recycling costs more than it brings in, and the recycler and the city both lose money, recycling must be more of a religion than a sensible economic policy — especially when there is plenty of landfill space available, as there is in this area.
If a recycling program is economically worthwhile, you will be paid for the materials. Remember those machines that spit out cash for your crushed aluminum cans?
Longtime Rocky Mountain News political columnist Peter Blake now writes once a week for CompleteColorado.com. Contact him at firstname.lastname@example.org You may re-publish his work at no charge and without further permission; please give full credit to Peter Blake and www.CompleteColorado.com.