New York City’s Franchise Plan in a Nutshell

New York City’s Franchise Plan in a Nutshell

In this month’s edition of Business Insights, we highlight the key points of the city’s long-awaited waste franchise plan.

In November, the City of New York Department of Sanitation (DSNY), in conjunction with the Business Integrity Commission (BIC), released its long-awaited franchise plan entitled “Commercial Waste Zones: A Plan to Reform, Reroute and Revitalize Private Carting in New York City.” In this month’s edition of Business Insights, we attempt to encapsulate the plan’s highlights.

Basic Statistics and Commercial Collection Today

While residential collection in New York City is handled by DSNY, more than 3 million tons of commercial waste and recyclables, generated by more than 100,000 NYC office buildings, retailers, restaurants, manufacturers and other commercial establishments, are handled by more than 90 private haulers. These carters, operating primarily at night, can have as many as 1,000 stops to service and cover all five boroughs on a single, long route, while as many as 50 carters may service a single neighborhood. As a result, proponents of a commercial waste zone (CWZ) system have characterized the current system as inefficient and unsafe. Given a very competitive market, it has also been alleged that there is insufficient investment in fleets—the average age of a commercial waste collection truck is 12 years—and efforts to properly collect recyclables and organics are very mixed.

The Basic Outline of the Plan

Three years ago, DSNY, in collaboration with the BIC, began to evaluate NYC’s commercial waste collection system with an eye to establishing some type of franchise system, and in November, they released a comprehensive plan after an extensive stakeholder engagement process. The plan involves setting up a nonexclusive system of 20 geographic zones with between three and five carters per operating zone, which is intended to cut inefficiency but still preserve a competitive market to ensure customer choice and a fair price. The CWZs will be awarded via a price-competitive solicitation process, along with the consideration of other criteria, to grant carters the ability to serve customers within a designated zone for a period of 10 years, with the potential for extension. Carters will be obligated to meet contractual requirements to further NYC’s goals and objectives. No carter is allowed to win more than 15 zones (out of a total of 68 potential awards), and subcontracting and consortiums are encouraged, in part to accommodate special services (like organics) but also to limit market share concentration and maintain a diverse group of carters. Each zone has between 3,300 and 9,800 total customers and generates between 100 and 1,000 tons of commercial waste per day. The nonexclusive zone design is intended to allow both smaller and larger carters to be viable and provide for much denser and geographically concentrated customer bases for more efficient operations.

Program Goals and Requirements—Environmental, Health and Safety Benefits Are Key

In 2015, the city set a very ambitious goal of sending zero waste (90 percent less) to landfills by 2030, and the zone plan is a key component of moving toward that goal. Currently 25 to 30 percent of commercial waste is recycled, and the plan is designed to increase that, though no formal diversion target has yet been set under the plan. Rather, each carter must submit a Zero Waste plan, and carters with more ambitious diversion plans will receive higher consideration during the request for proposal (RFP) process. Carters must provide recycling collection and offer organics collection, and organics and recycling services must be priced lower than refuse. Given current recycling market conditions, that looks problematic; though, the plan notes short-term market fluctuations may require revenues from one stream to cross-subsidize the cost of others.

The second major goal of the plan is to reduce truck traffic throughout the city to reduce air pollution. Under the zone system, it is estimated that truck traffic will be cut by 63 percent. Interestingly, however, the only requirements are that carters comply with Local Law 145—fleet retrofit to a 2007 engine model year or newer—and install on-board GPS tracking. Although the plan notes that carters with clear plans to adopt alternative fuel vehicles will be given higher consideration during the RFP process, there is no mandatory requirement to convert to such vehicles, unlike in a number of other franchise agreements.

A third major program goal is to improve the industry’s training and safety standards to better protect both the workers and the public. Under NYC’s Vision Zero effort, traffic fatalities in NYC have been reduced substantially, but that has not been the case for the private carting industry. During the solicitation process, carters will be evaluated based on health and safety plans as well as their safety record over the past three years. The plan is also intended to improve industry labor standards and worker rights—carters will no longer be able to hire “third men” or off-the-books helpers at a few dollars per hour. Although a number of carters are expected to go out of business as a result of the zone system, DSNY believes overall employment could actually increase as a result of the new requirements.

Another goal of the plan is to prioritize investments in clean, modern fleets and facilities to promote a sustainable waste management system. Here, again, the requirements are fairly ambiguous—carters must submit a waste management plan and identify planned fleet investments. For organics and recycling processing infrastructure, carters must only identify existing facilities they will use, as well as potential additional investments in expanded facilities as these waste streams grow, and, again, additional investments will receive higher consideration. This also looks problematic given the prevalent difficulty in siting composting facilities or other organics handling systems.

Cost Considerations

Although the plan notes that a goal of the zone system is to provide fair, transparent pricing with low prices for businesses large and small, the cost aspect has certainly generated the most concern among stakeholders, especially businesses in NYC. Bottom line, the carter must propose a maximum rate at which or below it must service any customer within a zone, and DSNY will base at least 40 percent of the overall score on low pricing determined by the proposed rate caps. Also, the original exclusive zone system envisioned was replaced by the nonexclusive plan with several carters per zone to encourage competition—individual customers can negotiate with all the carters in their zone to get the lowest price. However, DSNY does acknowledge that the zone plan may increase costs to the commercial customer given the higher requirements and goals embedded in the plan.

Although extra fees are limited, importantly, carters can charge supplemental fees for waste stream contamination or improper recyclables separation. On the other hand, costs should decrease due to the denser concentration of customers and shorter routes. All that said, the current rate cap in NYC of $20.76 per cubic yard compares favorably to cubic yard prices of several West Coast franchises that were cited in the 2016 DSNY report on private carters, though requirements in those cities seemingly contained diversion mandates and greater fleet requirements.

Implementation Timeline

In any event, this is going to be a slow process. DSNY intends to conduct an environmental review from now until the summer of 2019. It will release RFPs by early 2020, with decisions in early 2021, and finally with customer transition occurring in 2021-2023. And, that all assumes the plan passes muster with the City Council!

Leone Young is the principal of LTY ERC, LLC, providing consulting and research services to, and conducting special projects for, the environmental services industry, primarily the solid waste sector.

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