Winning the Refuse Game

All is not fair in love and competition. At least that's what private and public sector operators are discovering as shrinking profits and dwindling budgets come into play.

The nature of the game has changed, so it becomes critical that today's players understand the objectives, rules, penalties, the other team's strengths/weaknesses and the exact prize that the winner gets to take home.

If you're lucky, the competition will be similar to responding to a municipality's request for qualifications or a request for proposal. Here, the who, what, when, where and how will be spelled out.

In other cases, these factors may not be that cut-and-dry.

During the last five years, the definition of "competition" has evolved, and buzz words like "managed competition" and "privatization" have come into vogue to either clarify or confuse.

Depending on whether your desk is in City Hall, in a corporate office of one of the 10 largest refuse companies or in the back corner of one of the thousands of mom-and-pop operations, your definition and perception of "competing" is bound to vary.

"My definition of 'competition' is when qualified companies that have services to offer and that meet the requirements of a business or community submit a combination of prices and services and whoever has the best combination is awarded the contract," says Christi Clark, Corporate Director of Marketing and Sales for the Public Sector for Browning-Ferris Industries (BFI), Houston.

The end result of competition should be quality services for residents, adds John Skinner, CEO of the Solid Waste Association of North America, Silver Spring, Md. "Competition is activities between service providers that result in the most favorable terms for the ratepayer."

Robert Epler, assistant director of the Environmental Services Department in the city of San Diego is more blunt: "As I see it now, [competition] seems to be a code word for the private sector attempting to take municipal services and convert them over to private systems."

No matter what your definition is, one thing is true: To brace for the future of competition, you must understand how competition has changed over the past few years. For example, "managed competition" has given the public sector both opportunities and challenges.

"There is a big change that most of the folks in the industry really have not caught onto yet," reports John Williams, senior vice president with HDR Engineering Inc., Omaha, Neb.

"The term 'managed competition' originated in Phoenix more than a decade ago, where they started bidding out public services and allowing public employees to bid against private entities," he continues.

"Originally, the private companies grasped managed competition with enthusiasm because it represented an opportunity for them to enter what was formerly a pure public market. They may not like it anymore, because lately, there have been a number of [situations where] public employees won.

"I don't think that many of the private companies expected that to happen, and there's a growing number of them that are saying they will no longer participate in managed competitions where they feel the competition isn't on an even playing field."

For municipalities, the idea of competing is both frightening and invigorating. "Before Carbone [decision], we in the public waste industry were monopoly operators," says John Hadfield, deputy executive director for the Southeastern Public Service Authority in Chesapeake, Va.

"We operated waste management facilities for which there was little competition in most communities," he says. "With the advent of Carbone, a lot of us found that we were no longer monopolies, and we had to fight for our survival."

For most municipalities, this paradigm shift was the result of altered public perception.

"The prevailing [general public] belief is that public employees are not efficient, that government is wasteful and the only good government is a smaller or non-existent government," Williams says. "However, the public works sector suddenly has been introduced to the pressures of competition, and the belief that only the private sector can deal productively with that is absolutely false."

The private sector has not been left unscathed by this changing paradigm either. The recent spate of acquisitions, divestitures and realignments - with their accompanying management shake-ups - has affected how the private sector is responding as well.

"When I started in the late '70s, the complexity of what was required [to compete] was not as sophisticated," Clark, a 20-year BFI veteran, says. "The customer had a different expectation level than what they have today. I think that's why there's really been an increasing level of competition above and beyond just the price."

Epler sees the private sector vertically integrating to ensure market share, while simultaneously vying for the remaining municipal collection and disposal operations. "They are fighting to maintain their status quo on the contracts and on the franchises they have," he says.

Level Playing Fields? One of the most critical changes has been the concept of leveling the playing field so that both sectors are competing on the same footing and with the same costs.

"When folks start talking about an even playing field, almost invariably they're saying that they're searching for some advantage that they can realize from the process," Williams says. "In the real world, there is no such thing as an even playing field. Every team has its own advantages and disadvantages."

Until recently, the playing field was filled with traps that obstructed anything except token competition.

"Great efforts have gone into [defining] service requirements and bidding procedures," Epler says. "The public sector services have been beating out private bids on a fairly regular basis with Phoenix, Charlotte [N.C.] and Florida having some very notable examples.

"Competition has spurred [municipal services] to improve their operations and get rid of program costs that were assigned when collection or landfill service was a cash cow. All of a sudden, prices are compared equally," he adds.

Today's biggest competitive battlefield consists of maximizing existing system tonnage into the private landfill systems. A decade ago, it was feared that the nation would run out of landfill capacity, which ultimately pushed recycling and waste diversion to the forefront.

Instead, small, local landfills closed, and mega-landfills, which were operated primarily by private companies, developed. Increasing waste diversion, coupled with expanding capacity, has put a downward pressure on landfill costs, resulting in fierce competition for tonnage.

"There are a number of areas in the country where capacity is significant and where the volumes are less than what the capacity would be able to handle," Clark says. "[In some places], disposal prices have really plummeted - in some cases to levels of 10 and 15 years ago."

This pressure to feed capacity critically affects the public sector as well, especially where large investments in infrastructure were made assuming flow control would ensure the revenues necessary to pay off the bonds.

With legalized flow control considered dead by many, public agencies have had to come up with aggressive pricing to prevent revenue losses. "We looked at other ways to compete rather than trying to grab the waste and control it," Hadfield says.

"We attacked the competition issue by telling our communities that if we lose all the private sector waste, their disposal fees are going to go up into the $80- or $90-a-ton range," he says. "If that is taken as the floor, then anything we can do to reduce cost below that is good. We made tipping fees for the private sector competitive with hauling waste out of the area. Over the first six months, we stabilized and started recovering waste flow."

Another major battlefield continues to be collection. "It's in both commercial and residential collection," Skinner says. "In the area of commercial collection, it's the private sector firms predominately competing with each other. [There is] some public sector interest in commercial collection as well to capture waste flows for various purposes."

Collection competition continues to remain a hotbed of controversy. "Municipally-provided services are a prime target for private companies that need to increase their market share and feed the facilities that they've developed," Epler says. "It seemed like the private sector simultaneously has closed down competition in areas that have exclusive franchises."

California state law requires that a municipality must give a five-year notice before terminating collection services with a private hauler.

"You've got all of these companies that have negotiated evergreen contracts in their franchise agreements," Epler says. "We've got examples of cities that've gone 43 years without any rebidding, and so you've got the private sector guarding its nest and trying to stake out new territories. That's the area where there isn't competition."

What's Your Strategy? The basic differences between the public and private sectors often make it difficult to ensure fair and equitable competition.

Whereas the private sector has the flexibility to set pricing based on market demands, the public sector often is limited to a one-size-fits-all pricing scheme to ensure equitable service.

"If you're in the private sector, you have an unfettered opportunity to do business with whomever you want to and under whatever conditions," Hadfield says.

"As a public agency, we've got a couple of restrictions," he continues. "First, in order to move outside of our normal business, we need political support. Also, because of our public nature, we're unable to cut special deals with certain customers to improve our position. Whatever we do has to be offered to everybody. So, we find ourselves trying to be creative in establishing what appears to be equal terms, but that really are terms that are geared to one or two businesses."

If you're in the public sector, it's easy to assume that the private waste companies have got competition wired since they've been doing it for much longer.

Not necessarily. Private companies often wrestle with understanding their competition and the changing nature of the waste industry as well.

"You might be thinking we have some strategy that's oriented to our competition," Clark says. "You watch the competition to see if there is innovation that is meeting the needs of the customers in a way that you should adopt.

"Simultaneously, you're working to develop your own innovation, doing your research with your customers to make sure that you're doing what you need to do internally to meet their needs," she says. "It's nearly impossible to figure out what our competition's strategies are from the pricing standpoint, because it is so variable from one area of the country to the other."

Since profit is the motivating factor with private companies, the competitive engine runs much hotter than it does in the public sector. While staying competitive in the public sector means controlling costs to satisfy the community's ratepayers, in the private sector, this often means ensuring a maximum return to stockholders.

"In the private sector, the competition has heated up far more than anyone anticipated because of the glut in cheap landfill space," Williams reports. "Many of the large, private companies are facing stockholders who are demanding significant profit.

"Over the past few years, a couple of the major companies have reported disappointing profits or major losses. They're desperate to improve their bottom line, and therefore, they're trying to compete even harder.

"In the meantime, the public sector emerges as a portion of the marketplace that's not interested in profits, so they're more service- and regulatory-driven," he continues. "Instead of chasing a profit target, they simply want to provide a comparable service with the private provider and fulfill their regulatory requirements. It's going to come down to who can satisfy the requirements and nothing more."

The winners will be those who can thrive in a changing environment, acting entrepreneurially while responding to customer needs and regulatory requirements in a manner that satisfies everyone.

"Those that have the best chance of winning recognize the market has changed and that they need to change with it," Hadfield says. "Folks who stick their heads in the sand and hope for flow control or expect customer loyalty when prices are still high are going to lose.

"[Private companies] don't have to be viewed as the enemy," he continues. "We can all learn a lot about this business if we rise to the challenge."

And this challenge is likely to continue, Clark adds. "It's a very dynamic industry," she says. "The only way to survive is to renew yourself continually.

"You need to do the best you can to understand your customers and what their needs are, then look internally and improve upon the internal efficiencies and capabilities of your organization," she says.

"Sometimes you're going to win and sometimes you're not, but if you do the best you can, you're going to win your share."