Long term relationships often are successful because of the give-and- take between the partners. And as the city of Houston recently demonstrated, a comprehensive search for the right partner is the key to an enduring relationship.
Each year, Houston collects approximately 600,000 tons of residential solid waste, relying on short-term disposal contracts. Recognizing that a long-term disposal contract could stabilize prices and provide security for the future, the city sought a vendor who also would be willing to share risks as well as benefits.
The city hired Camp Dresser & McKee (CDM), Cambridge, Mass., to help determine its future needs, evaluate candidates and negotiate a contract.
First, Houston issued a request for proposals from private firms to provide 30 years of disposal services for its 600,000 tons per year of waste. The city only considered proposals that included partnering/revenue sharing.
Houston evaluated five proposals based on the vendor's qualifications and price. They were also judged from a business, financial and technical standpoint.
The project team, consisting of the city's solid waste management department, the city attorney and CDM, reviewed each firm's experience in providing the needed services. They determined the appropriate price by calculating revenue and expense projections over the 30-year contract and modeling each candidate's proposal based on the city's current solid waste system. Finally, they discounted each annual expense back to 1996 dollars to yield a net present value cost.
Candidates had to demonstrate their ability to finance all proposed solid waste facilities and agree to a 30-year contract. The technical evaluation also asked that each meet federal and state regulations, particularly concerning permits and disposal capacity.
Following these evaluations, three firms were chosen for further negotiations. Houston's project team then drafted a contract which included issues such as transfer station construction time, the vendor's waste commitment, indemnification and short- and long-term contracts.
Since it is impossible to address unforeseen needs and changes, the team must remain flexible. For example, since landfills near Houston are expected to close within 15 years, the city will rely on its private partner to secure long-term capacity. Also, while the city currently operates one transfer station, the negotiations will include the construction and operation of additional transfer stations.
Further, Houston requested that each firm send the waste they collect to the transfer stations. This will allow the city to use unit pricing of the transfer and haul operation based on the sum of the city's waste, plus the amount added by the vendor.
In the next few months, the city expects to choose a partner for its solid waste disposal. But already, by determining its waste disposal needs, identifying a long-term plan, and evaluating the experience and qualifications of all interested firms, Houston has demonstrated that a public/private partnership can be a beneficial and practical arrangement.
As communities strive to manage solid waste systems in light of growing populations and shrinking budgets, these long-term relationships will continue to emerge as a cost-effective, successful alternative.