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Home My WebLink AboutC17230 Solid Waste Disposal ServicesREQUEST: INTEROFFICE MEMORANDUM Community Services Division City of Palm Desert Request for approval of Assignment from Waste Management of the Desert to Burrtec Waste Industries to Provide Solid Waste Disposal Services to Palm Desert. SUBMITTED BY: Frankie Riddle, Acting Director of Special Programs DATE: April 27, 2006 CONTENTS: 1. Staff Report 2. Report by Hilton, Farnkoph, & Hobson, LLC (HFH) I. RECOMMENDATION: By Minute Motion, approve assignment of the Solid Waste Franchise Contract to Burrtec Waste Industries with the provisions of Findings No. 6 and 7 as stipulated within the HFH Report. I1. Executive Summary: Staff contracted with HFH to review the proposed assignment of the Palm Desert Franchise related to waste operations from Waste Management of the Desert to Burrtec Waste Industries and to prepare a report based on the information gathered. HFH's final conclusion as provided within the report states that, "if financing to acquire the Waste Management operations can be structured without overburdening the company with unreasonable debt payments, the proposed assignment to Burrtec Waste & Recycling does not appear unreasonable if accompanied by a corporate guaranty from Burrtec Waste Industries and if the franchise agreement is amended as recommended in Finding No. 7." Staff concurs with these findings and recommendations. III. Background: Waste Management of the Desert recently notified the City of Palm Desert that it would be selling its Coachella Valley (Hi and Low Desert) facilities and operations to Burrtec Waste Industries. City Council directed staff to review this request and Agendize for Council consideration. Upon this request, staff contracted with HFH to undertake a review of the assignment and a financial assessment of Burrtec to determine if this is in the best interest of the City and its residents. The report has eight findings that address different aspects of the assignment and Burrtec's capacity to expand while continuing to provide satisfactory service to its clients. The following is a brief summary of each finding: City Council Staff Report April 27, 2006 Page 2of2 Finding No. 1: Ownership and Company Breakdown: Burrtec is a 100 percent privately -owned by Burr family of companies ("Burr Companies"). The ownership percentage is as follows Edward Burr 25%, Sandra Burr 25%, Cole Burr 25%, and Tracy Burr 25%. On January 1, 2006, a new entity named Burrtec Waste & Recycling Services, LLC (Burrtec Waste & Recycling) was organized to hold the Coachella Valley operations. Finding No. 2: Burrtec Financial Resources and Financial Stability Industry Comparison: The comparison of Burrtec to Waste Management and the industry standard addresses four areas: 1) Size of Company; 2) Liquidity; 3) Capital Structure; 4) Operating Results. Overall results reflect that Burrtec is comparable to Waste Management and industry standards. Finding No. 3: Financial Risk: It is noted in the report that, "it appears that the new entity will be profitable, although the new entity will be highly leveraged, and its ratio of total liabilities to total assets is projected at 99%, indicating higher financial risk than industry average. Finding No. 4: Performance Sampling of 12 Jurisdictions with Current Exclusive Franchise Agreements: The overall consensus of the jurisdictions sampled reflected satisfactory or above expectations in customer service, programs, and working with the city categories and in overall performance satisfactory to exceptional. Finding No. 5: General Liability Insurance: City's requirement is $5,000,000 combined single limit per occurrence and $1,000,000 per occurrence. However, Burrtec's policy is $55,000,000, which exceeds the City's requirement. Finding No. 6: Performance Guaranty: The City should require Burrtec Waste Industries to execute a performance guaranty to assure the performance of Burrtec Waste & Recycling, which would be similar to that required of Waste Management per Agreement. Finding No. 7: Update of Agreement: Items within the existing Agreement that should be updated to ensure compliance: A) Compressed Natural Gas (CNG) vehicles; B) implementation of mandatory automated collection system; C) remittance of Franchise and Recycling Fees with backup documentation; D) food Waste Recycling Program; E) walk-in service fee of $8.20 per household per month clarification. Finding No. 7 addresses items that have been approved by the City and Waste Management and programs that are in various stages of implementation. Therefore, they have been addressed within the report for the purposes of inclusion and clarification to the existing Agreement and notice to Burrtec. Items A through E have been assessed liquidated damages, which are not specifically called out in the Agreement under Section 11.4 (e.g., Use of Alternative Fuel Route Vehicles: The Agreement specifies City Council Staff Report April 27, 2006 Page 3 of 2 time periods to have 50% of the route trucks switched to alternative fuel vehicles and 100% but it does not provide for the replacement of these vehicles nor liquidated damages in such instance). Finding No. 8: Civil Actions with Government Agencies or Criminal Actions: There were no reported civil or criminal actions by Burrtec. Conclusion: The overall conclusion of HFH is that Burrtec is qualified and experienced in the solid waste industry and capable of managing the Palm Desert contract. The report recommends that the City require a performance/corporate guaranty from Burrtec to guaranty performance and that the current Agreement be amended to address items listed in Finding No. 7. Staff recommends that City Council approve the assignment of the Solid Waste Franchise Agreement from Waste Management of the Desert to Burrtec Waste & Recycling with the inclusion of the recommendations noted within Findings No. 6 and 7 of the report prepared and submitted by HFH. Submitted By: Frankie Riddle Acting Director of Special Programs Sheila R. Gillig'an Assistant City Managf Community Service Approval: Carlos L. 0 City Mana • er CITY C�F PALM DESERT Review of Proposed Assignment of Solid Waste Agreement � � � Final Renort April 17, 2006 Prepared by: Hilton Farnkopf & Hobson, LLC 3990 Westerly Place, Suite 195 Newport Seach, California 92660-2311 Phone: 949/251-8628 Facsimile: 949/251-9741 HF H HILTON FARNKOPF & HOBSON, LLC HILTON FARNKOPF 6z HOBSON, LLC Advisory Services to =� Municipal Managemettt 3990 Westerly Place, Suite 195 Newport Beach, California 92660-2311 Telephone: 949/251-8628 Fax: 949-251-9741 April 17, 2006 Ms. Sheila R. Gilligan Assistant City Manager City of Palm Desert 73-510 Fred Waring Drive Pa1m Desert, California 92260-2578 Review of Proposed Assignment of Solid Waste Agreement Dear Ms. Gilligan: San Francisco Newport $each Sacramento We have completed our review of the proposed assignment of the City of Palm Desert's solid waste collection agreement from Waste Management of the Desert to Burrtec Waste & Recycling Services. The enclosed report describes the study's background, objectzve, work perfoxmed, findings and conclusion. A summary of the study findings and our conclusion is provided below. Summary of Findin�s 1. Burrtec has extensive experience in Southern California providing solid waste services similar to those in Palm Desert. 2. Although smaller than Waste Management, Burrtec has significant financial resources and its financial stability, as measured by standard financial ratios, is similax to industry benchmarks. 3. The financing of the acquisition of Waste Management of the Desert's Coachella Valley operations may increase Burrtec's financial risk. 4. Based on a sample of jurisdictions coritacted where Burrtec is providing service, performance is at least satisfactory and often above expectations. 5. Burrtec maintains general liability insurance coverage that meets the current requirements contained in the Palm Desert franchise agreement. recycled �a paper �HILTON FARNKOPF & HOBSON, LLC _�� Ms. Sheila R. Gilligan Apri117, 2006 Page 2 of 3 6. The City should obtain a corporate guaranty from Burrtec Waste Industries to assure the performance of the contracting entity (Burrtec Waste & Recycling Services). 7. The existing agreement should be updated to ensure that the new contractor meets performance expectations, including provisions for: • Replacing the compressed natural gas vehicles for solid waste collection that were burned in a fire in July 2005; • Completing the roll-out of automated collection to gated communities in a timely manner; • Providing supporting documentation to accompany fees remitted to the City; • Implementing a food waste recycling program; and, • Clarifying the method of billing the walk-in service fee in the rate schedule. 8. Burrtec reported no significant civil actions with government agencies or criminal actions in the past 10 years. Conclusion Based on the information we received, we found that: • Burrtec has the necessary experience to manage the Palm Desert contract; • Burrtec received positive recommendations from the cities we contacted that it currently serves; • Burrtec maintains insurance coverage in excess of that required by the Palm Desert contract; • The new corporate entity formed to hold the Coachella Valley operations, Burrtec Waste & Recycling Services, will have a high ratio of total liabilities to total assets, indicating higher financial risk; recycled C� paper �HILTON FARNKOPF & HOBSON, LLC �� Ms. Sheila R. Gilligan Apri117, 2006 Page 3 of 3 • The City should obtain a corporate guaranty from Burrtec Waste Industries to assure the performance of Surrtec Waste & Recycling Services; The City should amend the franchise agreement as a condition of the assignment as described in Finding #7 in order to enhance the City's ability to manage the contract and monitor performance of the new entity; and, Although significantly smaller than Waste Management Inc., the Burr Companies (Burrtec and its sister company EDCO Disposal) are a large regional solid waste organization, and the financial ratios for Burrtec Waste Industries measuring financial stability are similar to the ratios of Waste Management, Inc. and are consistent with industry averages. Therefore, assuming that the financing to acquire the Waste Management of the Deser� operations can be structured without overburdening the company with unreasonable debt payments, then the proposed assignment to Burrtec Waste & Recycling Services does not appear unreasonable if accompanied by a corporate guaranty from Burrtec Waste Industries and if the franchise agreement is amended as recommended in Finding #7. * � :� * * Thank you for the opportunity to assist the City of Palm Desert with this engagement. We would like to thank Frankie Riddle from your staff, Frank Orlett frorn Waste Management and Steve South from Burrtec for their assistance. If you have any questions, please call me at (949) 251-8902. Very truly yours, � Laith B. Ezzet Senior Vice President Enclosure - report recycled ��a paper CITY OF PALM DESERT REVIEW OF PROPOSED ASSIGNMENT OF WASTE OPERATIONS FROM WASTE MANAGEMENT TO BURRTEC WASTE INDUSTRIES SACKGROUND The City of Palm Desert ("City") contracts with Waste Management of the Desert ("WM") for exclusive residential and commercial solid waste services. The existing contract, as amended, expires on February 28, 2008. WM has notified the City that it intends to asszgn the Palm Desert contract and other operations of Waste Management of the Desert to Burrtec Waste & Recycling Services, LLC ("Burrtec Waste & Recycling"). Section 12.5 of the City's agreemenfi with WM describes the assignment provision. The City "may deny or approve such request in its complete discretion." As des�ribed in that section, in response to a request for an assignment: a) The company shall pay the City its reasonable expenses to investigate the suitability of the proposed assignee; b) The company shall furnish the City with audited financial statements of fihe proposed assignee's operations for the past three years; and, c) The company shall furnish the City with satisfactory proof that it has the experience and regulatory track record required by Section 12.5(c) of the agreernent. Hilton, Farnkopf & Hobson ("HF&H") previously assisted the City in negotiating the existing agreement with WM. The City requested HF&H to assist in its review of the propased assignment. STUDY OSJECTIVE The objective of our study was to review the inforrriation provided by WM and its proposed assignee as required by Section 12.5 of the agreement, and to report to the City on the qualifications and financial resources of the proposed assignee to take over the Palm Desert operations. We were also requested to describe how the current contract could be updated to ensure that City concerns regarding service implementation could be addressed. 4/ 17/ 06 Page 1 City of Palm Desert LIMITATIONS The work was performed for the City of Palm Desert for the purpose stated above and is not to be used by other parties or relied upon for other purposes other than those stated above. Our findings are based on reports, documents and other information provided by WM and its assignee. Our scope of work did not include independently verifying the accuracy of the submitted information. WORK PERFURMED In order to achieve the study objective we performed the following tasks: 1) Prepared a request for information identifying the required documents and data. 2) Reviewed documents provided by the City, including the existing franchise agreement and amendments, and reports submitted by WM to the City. 3) Reviewed the information provided by WM, its assignee, and the City. 4) Calculated financial ratios based on the financial stateznents provided by the WM and its proposed assignee in order to compare the financial resources of the two companies to each other and to industry benchmarks. 5) Asked follow-up questions of WM and its proposed assignee to clarify any unclear or missing information. 6) Discussed with City staff its satisfaction with the current services provided and the existing contractor's performance. 7) Contacted a sample of other jurisdictions that contract with Burrtec in Southern California as references. 8) Prepared this report describing the results of our review. 4/ 17/ 06 Page 2 City of Palm Desert FINDINGS Findin� #1 Burrtec has extensive experience in Southern California providing solid waste services similar to those in Palm Desert. The privately-owned Burr family of companies ("Burr Companies") include Burrtec Waste Industries ("Burrtec"), a wholly-owned subsidiary of the Burrtec Waste Group, and its sister-company EDCO, that collectively are one of the ten largest solid waste companies in the United States. The Burr Companies (including EDCO and Burrtec) reported providing hauling service in 42 jurisdictions in Southern California (Attachment 1), including 27 agencies with exclusive service agreements. Burrtec alone reported exclusive hauling contracts with 12 agencies including: • City of Adelanto • Town of Apple Valley • City of Barstow • City of Bradbury • City of Duarte • City of Fontana • City of Montclair • City of Rialto • Rubidoux CSD • City of Upland • City of Victorville • City of Yucaipa Details of specific services provided in these communities are provided in Attachment 2. Burrtec also owns and manages several material recovery facilities and transfer stations, and operates the landfills and transfer stations for the County of San Bernardino. A new entity named Burrtec Waste & Recycling Services, LLC ("'Burrtec Waste & Recycling") was organized January 1, 2006 to hald the proposed Coachella Valley operations to be acquired from Waste Management. Burrtec Waste & Recycling is 100% privately owned by the Burr family: Name and Title Edward Burr, Chairman of the Board Sandra Surr Cole Burr, Chief Executive Officer Tracy Burr % Ownership 25 % 25 % 25 % 25 % 4/17/06 Page 3 City of Palm Desert Surrtec's corporate headquarters are located in San Marcos, Califorzua. The local headquarters for Btzrrtec Waste & Recycling are located at 41575 Eclectic Street, Palm Desert, California 92260. Findin� #2 Although smaller than Waste Managernent, Burrtec has significant financial resources and its iinancial stability, as measured by standard financial ratios, is similar to industry benchmarks. Audited consolidated financial statements were submitted for Waste Management, Inc. and Burrtec Waste Industries for the years 2002, 2003 and 2004 (the fiscal year for both companies ends on December 31). We calculated financial ratios that demonstrate the financial resources and stability of both companies and compared those ratios to the median ratios of solid waste collection companies with annual revenues over $25 million reported in Robert Morris Associates' Annual Statement Studies. The ratios are presented in four categories: size of company, liquidity, capital structure, and operating results. The meaning of the ratios is described in Tab�e 1. Table 1_Ratio Categories and Descriptions Category Size of Company: Liquidity: Current Ratio Capital Structure: Operating Results: Profit Margin Calculation Palm Desert Revenue/ Company Revenues Current Assets/ Currenf Liabilities Total Liabilities/ Total Assets Pre-Tax Pro#it/ Total Revenues Purpose (Description) This ratio describes the size of the company relative to the company's City of Palm Desert contract. The current ratio is a rough measure of a company's ability to pay its current obligations. A higher ratio means the company is better positioned ta meet its short term payment obli�atians. This ratio measures the relationship of capital contributed by a company's creditors to total assets. A higher percentage of total liabilities to total assets indicates higher financial risk. This percentage measures a company's profitability. A higher percentage indicates higher profifiability. 4/17/06 Page 4 City of Palm Desert Size of Companv Waste Management Inc., is the largest waste company in North America, and reported annual revenues for 2004 of approxirnately $12.5 billion. Burrtec Waste Industries, Inc. reported annual revenues for 2004 of approxirnately $130 million. WM is nearly 100 times the size of Burrtec in terms of reported revenues. During calendar year 2005, WM reported City of Palm Desert contract revenues of approximately $8.4 million. Palm Desert's 2005 contract revenue is less than 1% of WM's 2004 revenues, compared to 6% of Burrtec's 2004 revenues. Liquidity The current ratio indicates the ability to meet short-term payment obligations (typically within the next 12 months). Burrtec's current ratio for 2004 of 1.4 is more favorable than WM's current ratio of 0.9, and more favorable than the industry average. In 2003 and 2002, the current ratios for both companies were slightly less favorable than industry averages as shown below. Table 2: Current Ratio I Year 2004 WM 1• 2003 0.7 I2002 0.9 (1> Reported by 21 companies (2) Reported by 16 companies (3) Reported by 7 companies Capital Structure Burrtec 1.4 0.7 0.9 Industry 0.9 �1� 0.9 �2� 1.0 �3> The ratios of total liabilities to total assets, measuring financial risk, are similar for both companies and similar to industry averages. Table 3: Total Liabilities to Total Assets Year WM Burrtec Industry 2004 70 °/a 71 % 72 % �1� 4/17/06 2003 71 % 68 % 2002 73 % 75 % (1> Reported by 21 companies c2> Reported by 16 companies (3) Reported by 7 companies Page 5 76 % 71% (2) (3) City of Palm Desert Operatin� Results Pre-tax profit margins measure profitability, which typically ranges from 4% to 12% for companies in the waste management industry. Reported profifiability for Waste Management and Burrtec for the past three years is consistent with the range of industry data. Findin� #3 The financing of the acquisition of WM's Coachella Valley operations may increase Surrtec's financial risk. The proposed acquisition oi the WM operations will significantly increase the size of the company. The operations that Surrfec plans to acquire from WM will increase Burrtec's total annual revenues by over 50 %, to more than $200 million, if the financial results ior Burrtec Waste Industries and Burrtec Waste and Recycling are combined. We understand that the key management team from Waste Management of the Desert will become part of Burrtec Waste & Recycling, and as a result Burrtec should have the management resources necessary to continue smooth operations. An issue in any acquisition of this size is how the financing arrangements will affect the company's debt and therefore financial risk. Burrtec provided letters of reference from several financial institutions. These included a letter dated January 25, 2006, from Union Bank of California that sfated the following: "Since August 1995, Union Bank of California has provided various credit facilities to the Burr family of companies, including Burrtec Waste and Recycling Services, LLC, which includes, among other things, CPCFA bond financing, zvorking capital and acquisition financing, and term loans. These credit facilities, including those of other members of the bank group, are in excess of $300,000,000 and includes the financing for the proposed acquisition of Waste Management of the Desert." "The financing for the proposed acquisition of Waste Management of the Desert hns been arranged by Union Bank of Cqlifornia, who acts as the Agent Bank for a group of banks that includes among others, Wells Fqrgo Bank and Bank of America." As previously discussed, we received financial statements for Burrtec Waste Industries. In order to understand and evaluate the financial resources of the new corporate entity that would acquire the Coachella Valley operations, we 4/ 17/ 06 Page 6 City of Palm Desert requested and $urrtec declined to provide a projected financial statement for Burrtec Waste & Recycling. Burrtec did provide certain financial ratios for the new entity. Based on these projected financial ratios, it appears that the new entity will be profitable, although the new entity will be highly leveraged, and its ratio of total liabilities to total assets is projected at 99%, indicating higher financial risk than industry averages. We did not receive specific information about the debt repayment terms and cannot assess the ability of the new entity to repay the debt with the information provided. In response to the request for additional information about the financial impact of the acquisition on the new entity, Burrtec's President provided the following statement in an e-mail correspondence dated March 31, 2006: "The credit facility has been fully approved by our bank group (Union Bank, Wells Fargo, Bank of America, First Bank and Bank of the West) based on very detailed, confidential and proprietary schedules that they have deemed appropriate to reasonably support the debt, This also includes the necessary altocation for ongoing fleet replacement and other capital needs to se� ve the City of Palm Desert in a manner that exceeds expectations." Findin� #4 Based on a sample of jurisdictions contacted where Burrtec is providing service, performance is at least satisfactory and often above expectations. Burrtec provided a list of cities where either Burrtec or its sister company, EDCO, (collectively referred to as "the Company") is providing services in Southern California. The list included 27 cities where the Company is the exclusive service provider, and 15 cities where the Company is one of multiple non-exclusive service providers. The Company included favorable letters of reference from 27. cities in the package of information that it submitted to the City. Letters from the following jurisdictions were included: • City of Barstow • City of Bradbury • City of Buena Park • City of Coronado • City of Duarte • City of Encinitas • City of Escondido • City of Fontana • City of Imperial Beach • City of La Mesa • City of La Palma • City of Lakewood • City of Lemon Grove • City of Montclair 4/ 17/ 06 Page 7 City of Palm Desert . . . . . . City of National City City of Poway City of Rancho Cucamonga City of Rialto City of Riverside Rubidoux District County of San Bernardino . . . City of San Marcos City of Santa Clarita City of Signal Hill City of Upland City of Victorville City of Vista We contacted the following twelve agencies that receive exclusive solid waste collection services from Burrtec as part of our reference checks: . . . . . • City of Adelanto City of Apple Valley City of Barstow City of Bradbury City of Duarte City of Fontana . . City of Montclair City of Rialto Rubidoux CSD City of Upland City of Victorville City of Yucaipa We inquired about the following areas of performance during our reference checks: I. Customer service A. Collection quality • Frequency and number of customer camplaints B. Complaint resolution • Reasonable and timely resolution of customer complaints • Availability of customer representatives • Familiarity of services and service area • Customer communication on new, changing, and ongoing services II. Pro�ram Implementation A. New service implementation • Date of implementation and quality of implementation procedures 4/ 17/ 06 Page 8 City of Palm Desert B. Diversion activities C. Transition from former service provider III. Workin� With Citv A. Working relationship with City staff • Contractual issue resolution • Rate adjustments • Contract rnodifications B. Changes to key company staff • Frequency of changes • Was jurisdiction informed in a timely manner C. Promptness of communication with jurisdiction regarding changes to key staff, changes in collection methods, deployment of new vehicles, or other operational changes D. Accuracy and timeliness of reporting We asked the City representatives that we interviewed to evaluate Burrtec's performance in each area as either below expectations, satisfactory, or above expectations. The results are summarized in the table below. Criteria Customer Service Programs Below Satisfactory Above Total Expectations Expectations Res�onses p 2 10 12 '1� 5 6 11(1) Working With City 0 1 11 12 � (1) One city stated that no new programs had been requested; and therefore, it was felt that this area was not applicable to their city. 4/ 17/ 06 Page 9 City of Palm Desert Additionally, after inquiring about each area described above, we asked how Burrtec performed on an overall basis, and expanded the ratings to include the five options shown below. Overall Rating Number of Cities � Exceptional 3 � Above Expectations 8 l Satisfactory 1 � Below Expectations 0 , Unacceptable 0 � Total Responses: 12 I Findin� #5: Burrtec maintains general liability insurance coverage that meets the current requirements contained in the Palm Desert iranchise agreement. The City's general liability insurance coverage amount defined in Section 9.4 of the Franchise Agreement between WM and the City requires Five Million Dollars ($5,OQ0,000) combined single limit per occurrence, for bodily injury, personal injury and property damage, with any self-insured retention not exceeding One Hundred Thousand Dollars ($100,000) per occurrence. Burrtec carries generalliability insurance in the amount of Fifty-Five Million Dollars ($55,000,000) which exceeds the City's requirement. Findin� #6 The City should obtain a corporate guaranty from Burrtec Waste Industries to assure the performance of the contracting entity. Burrtec has created a new corporate entity called "Burrtec Wasfie and Recycling Services, LLC, a California Limited Liability Company", for the WM operations to be acquired. Burrtec provided a financial statement for another entity, Burrtec Waste Industries, whose financial ratios are described in Finding #2. The City should require Burrtec Waste Industries to execute a performance guaranty to assure the performance of Burrtec Waste & Recycling. This would be similar to the guaranty executed by Waste Management, Inc. to assure the per£ormance of Waste Management of the Desert, as shown in Exhibit 6 of the existing franchise agreement (Attachment 3). 4/ 17/ 06 Page 10 City of Palm Desert Findin� #7 The existing agreement should be updated to ensure that the new contractor rneets performance expectations. We interviewed City staff responsible for managing the franchise agreement with WM to determine their satisfaction with current services. Generally, the City is satisfied with the current contracfor's performance, although some specific areas for improvement were noted and the contract should be amended prior to approval of the assignment to ensure that the City's concerns are addressed. Section 11.4 of the agreement contains "liquidated damages" or compensation to be paid by the contractor to the Cify for failure to perform. We recommend that the Iiquidated damages in Section 11.4 and related service standards in other sections be updated to address the following issues identified by the City: A. WM suspended the use of compressed natural gas (CNG) solid waste vehicles after six vehicles were destroyed in a fire on July 26, 2005. On July 27, 2005, WM sent a letter to the City requesting a variance from the requirement to use alternative fuel trucks until June 2006 to allow time to secure permanent replacement vehicles. On August 25, 2005 the City Council approved a six- month variance to the requirement to use alternative fuel vehicles for collection services, and noted that WM could submit another request if additional time was needed. The variance has since expired and WM has not yet replaced the vehicles. Since WM originally requested a variance until June 2006, we recommend that a liquidated damage of $100 per truck pex day be implemented for each day past June 30, 2006 (or other such date that the City and WM agree upon) that the CNG trucks are not returned to operation in the City. B. The City Council approved a rate increase effective July 1, 2005 to offset the cost for WM to transition homes in gated communities to automated collection service. On July 14, 2005, the City Council passed resolution No. 1094 which requires all single-family residential homes with individual service to place solid waste in automated refuse, recycling and green waste carts for collection. The ordinance became effective within 30 days of adoption. WM's transition to automated service is not yet complete. According to City staff, the initial implementation milestones were not met, and under the revised schedule WM is supposed to complete the transition to automated residential solid waste collection for appxoximately 10,000 homes by December 31, 2006. We recommend that a liquidated damage of $100 per 4/ 17/ 06 Page 11 City of Palm Desert ..�. day be implemented for each day past December 31, 2006 if the transition is nc�t completed. C. WM remits a franchise fee to the City based on 8% of its gross receipts in Palm Desert (excluding disposal and recycling fees) and a recycling fee based on $$.25 per ton disposed. WM has stopped submitting back-up documentation with its franchise fee and recycling fee payment which has limited the City's ability to monitor the accuracy of the payment. We recommend that the agreement be modified to specify the required documentatian and to implement a liquidated damage of $50 per day for each day past the due date that franchise fee payment documentation has not been submitted. D. We understand from City staff that the City has requested the contractor to implement a food waste recycling program and that the City and WM have been unable to agree upon an acceptable program. We recommend that the City and the contractor agree on the speciiic service arrangements, implementation schedule, and compensation method to implement a food waste recycling program, and include a liquidated damage of $100 per day for each day past the required implementation date that a program is not implemented. E. The rate schedule needs to be amended to clarify that the walk-in service fee (for single-£amily customers that request the hauler fo move their carts to the curb) is $8.20 per household per month (regardless of the number of carts) and not $8.20 per cart per month. As a condition of the assignment, we recomrnend that the franchise agreement be amended to achieve the objectives described above. This will require the assistance of the City Attorney to prepare the amendment language, and participation by City staff and the contractor to define the food waste program parameters and schedule. Findin� #8 Burrtec reported no significant civil actions with government agencies or criminal actions in the past 10 years. The request for information that was sent by the City on March 8, 2006, requested the following information regarding Burrtec: "Describe all civil legal actions with government agencies now pending or which have occurred in the past ten years zvifih potential liability or actual 4/ 17/ 06 Page 12 City of Palm Desert damages greater than $50,000, and all criminal legal actions now pending or thai have occurred in the past 10 years, against Burrtec Waste Industries or any parent or affiliated companies or any of the owners, officers, or managers of the company." Burrtec stated in its response to the City, dated March 14, 2006 that there were no actions that met the disclosure requirement "against Surrtec Waste & Recycling Services, LLC or any parent or affiliated companies or any of the owners, officers or managers of the company." CONCLUSION Based on fhe information we received, we found that: • Burrtec has the necessary experience to manage the Palm Desert contract; • Burrtec received positive recommendations from the cities we contacted that it currently serves; • Burrtec maintains insurance coverage in excess of that required by the Palm Desert contract; • The new corporate entity formed to hold the Coachella Valley operations, Burrtec Waste & Recycling, will have a high ratio of total liabilities to total assets, indicating higher financial risk; • The City should obtain a corporate guaranty from Burrtec Waste Industries to assure the performance of Burrtec Waste & Recycling; • The City should amend the franchise agreement as a condition of the assignment as described in Finding #7 in order to enhance the City's ability to manage the contract and monitor performance of the new entity; and, • Although significantly smaller than WM, the Burr Companies are a large regional solid waste organization, and the financial ratios for Burrtec Waste Industries measuring financial stability are similar to the ratios of WM, and are consistent with industry averages. Therefore, assurning that the financing to acquire the WM operations can be structured without overburdening the company with unreasonable debt payments, then the proposed assignment to Burrtec Waste & Recycling does not appear unreasonable if accompanied by a corporate guaranty from Burrtec Waste Industries and if the franchise agreement is amended as recommended in Finding #7. 4/ 17/ 06 Page 13 City of Palm Desert Attachments: 1. List of cities served by the Burr Companies 2. List of cities served by Burrtec 3. WM Corporate Guaranty (Exhibifi 6 of franchise agreement) 4/17/06 Page 14 City of Palxn Desert Page 1 of 3 Hughes, Amy From: Riddle, Frankie Sent: Wednesday, April 19, 20Q6 8:08 AM To: Hughes, Amy Subject: FW: Friday Amy, when Laith sends you the replacement page to the Burrtec Report please take to City Clerk and substitute pages. Thanks. Frankie -----Original Message----- From: Laith Ezzet [mailto:LEzzet@hfh-consultants.com] Sent: Tuesday, April 18, 2006 6:06 PM To: Riddle, Frankie Subject: RE: Friday FYI - there's a minor typo in the staff report conclusion. Refers to us as "FHF" rather than "HFH". Also, if you haven't gone to press yet, I had a minor typo on page 4 of rny report referencing tables 2 through 4 when I should have said tables 2 through 3. I can e-mail you a replacement page if you have time to replace it. Laith Ezzet Senior Vice President Hilton Farnkopf & Hobson, LLC 3990 Westerly Place, Suite 195 Newport Beach, CA 92660 Tel: 949/251-8902 Fax: 949/251-9741 From: friddle@ci.palm-desert.ca.us [mailto:friddle@ci.palm-desert.ca.us] Sent: Tuesday, April 18, 2006 5:24 PM 4/19/2006 . C�CM! � Citv o£ r'�delanCo . . . jTown of Apple Valley_� (City.of �3arstow . l City of Bradbury jCit�� of Buena �ar1i � City of Carson �Cit�� o£�oronado . . ICity of Duarte � Cit�. o� �nei�utas _ j City of Escondido �.C�ty of Fc�z�ta�a . j City of Highland jCity. bf I.mp�rial Beac�i I Ciry of La Mesa (Citp of Za T�alma ; "_ � Citp of Lakewood I.'��Y oi Leti�oi� Grove � City of Lon� Beach t�r..of I.os A:�i�etes , : i Countp of Los Angeles j:iCity� iaf'.��onrovia: � City of Montelair k�Ci� of N'atic�riai Cif'� j City of Pomona � �it� _ af I'.Q�uay , . ATTACHMENT 1 � . � �� HAULING SERVT,.CES i s��vzcE � , � ; � � + � BEGAN Fd�PULATIOIV �RANCI3ISE Residenrial Comnnercial Industrial � � Txash Rerycling ! Gseen I I Auto Man , Auto Man ! Auto Man � , � 1 �$$ , _ j . 15;600 _ E�clusi� e � � . . J � � � � ; � 1988 ' S7,000 Exclusive I � _ � � � � � � 20(�� 23;300 , Exchisive � � . � � . I � ! ' 1996 970 Exclusive � � � � ' � � 1975 -� - 77,300 Esclusi�*e � . � � � I '� � 2003 i 93,200 Non-Exclusive � ; � � # . :19�� I:' �4,65Ci ,E�clusive � � � � � . � � � � � { 199b � 23,000 �Exclusive � � � � � � � � ( �1992 ' __b2;100 . .°jEi�clusive __ � �- � � �:' _ � —_ � 1970 127,800 Exclusive � ; �i � ! �� `� � 19$8 ; 117;�Q0: ,: : ��clusive . , "' ` � : : .. i �.. . �i � _ . � k � �999 I 44,450 Non-Esclusive � � � 1 � � � � 1 . . 2UD0 : �. ' 29,2�4 : . Eaclusive : �j �j ,} .� .. ;� E. _ �, 1967 _59,20� Exclusive � , � I � � � � � - -- , , .. . _...... 197'S 1Ci;5,5C1, ; . E�cliis:ti:e `�. �. . -� . . ;. , � �%: : . � ".: . .. i � I � i � � 2003 � 81,000 �Exclusive , ,. , , +,. �.. i � . f �� : ��,�so, �� :: . �. - _ �( � �` 1987 �_ 457,6Q0_ �Non-Exclusive I � - � � � 199(i.'> ` '. '3,$23,�. .-.:' �Nbn-�;�Cltisitie` 1 � ' " . ' � . � � 1981 1,036,300 jNon-E�clusive j� �i ,� � I `� 1.9�(i.:. :`: ;:.. 41;p�Q.:. �N'ctii-E�rclusitre ` � `. : � � �: , .. f...:. 1993 30,950 ;Exclusive � �i � �i � � � � � � � � , , ��9�5:. . ; � .: : ��;�: .:°:: . EE�cclusive : � , . .. . � �.; , . _. �j_. {.. . ; ' .� ., , �- ;.: .� . ; . 1988 j 147,700 iNon-Exciusive �i � � I � � � � . . .,,2:99� .. � . 4�3,�.Q0, ; . fE�e.lu�i�re . . - : :., . . �..'` ::,_:. :.j:, �:. . � � �.:, .. ':'� ' u amon 19$1 125 GOQ �Non-Exclusive ,� I� � City of Rancho C c ga , � , . . . ; Cit� of Rz�tlto .. . 1_976 : � : ' ;;:..83;700 .: , - . ( E.rclusive° ; . �J... .. I �.: _ City of Riverside 1988 � 259,700 jNon-Exclusive � %� I 1� . . . <._ : i . . . , .. . ., , . .. . ,..: .. ...; . . . .. �, ... -.-,.... ,. ... . . , �ozui�7 .af Rayerside . , ;19$$.;: �. : . 402.,4{�7. : Non=.��elusrve. :. .. � � :� � �.. Rubido� CSD � 1988 26,177 �Exclusive � ,. }. ... . . 4City of Sa�° Berrcardis�a 1999,; :. �$5,40Q. �• ° FI�1o�:�xclusive �. � : .: .:. - �.. � : . .. � ; -- .� ; County of San Bernardino 1981 292,300 �Non-Exclusive �� I� � -.._� � E.. .... _. .. . �£it3F ai' �'vaia..]�ie�;o.: :. . �973 , . : 1, 77,20Q Nan�-�xclusire', , t t i County of San Die�o 1973 4G9,300 INon-Exclusive � �i � �' � Caty ci£ S�ti "1Vla�cos 19G3. �, 53,�OQ Excl�;�isi�e ,. �_ ` . � : � City of Santa Clartia 2004 i 151,300 �Non-Exclusive � , , , .:. ,: -;: ..,..:. ,:. _ . . . . . { . .: t 9,�5� .: ; clus�ve ,, . . i Cit�� 'of 5s�tial T�l _ : .: � . .. .1�3$7. �. . �e ,.. ... �City of Solaria Beach , 1993 � 14,350 �Exciusive ; _.. ' i _,. ....:._.:, _'. � Cs : t�f .t;S - Iati� . . .. ,..: � : :; ". 200Q : ;:. " ; G8;$t}� . : :. .. � Exclusi�e . .. -. .. .... ,. i� � .. f.::;:.,....,._ �_�. p 4� �� "'ty of Victorville 1988 � 64,500 iExclusive i � � ,, ,-, ,.... ,,, cy of �ista: .. . . . ... ; . : 1�63::' .,. . ... :85,70Q. ": ��tlusi�� .. . , , � � ,_ ` �. ' . ` ; City of Yucaipa 1995 � 39,$50 �Exclusive 1� ��i � � � � ,� : :... . � .. . � � � �. .. � � � �.: ; .: . �J. :: � � � . �. , . . �. ,; '. �j.. . _ � � � _ t._. � , �.. � �. �. ::..,I. �.. �...:. ...::�: . � � � ... . _....� . � � 1 - 1 ATTACHMENT 2 � � � � � BURRTEC HAULING SERVICES B�ELViC� � C;iTY I3FGAN P(3P�I..ATION FRANCI-IISE id.esiciential C;on�ro.erc:ial Ixxdu:;triat � Trash � Recycling Gxeen � Auto Man Auto Man Auto Man � > � ' � c�� Q�:�ia�i��o . ° ' ��ss �s;�o� EX�;�S��. � :. . �: � { Town of Ap�le Valley � 1988 57,000 �Exclusive � �� ! -. , �� ' �li� b� ��S�fl'4Y�, . ; �� : : ��J7��ii<" , , ��XCiilSi�� y �' "V : �,, �, , ,, �` J � ' ' �'I " ' � 1' ' ,,, , City of Bradbtuy 1996 970 IExclusive v � v v � i ',Gity a�L��arte ;::.. 1 :: ��96 " ,� . .23�Opi�.,. ` Ex�lus�ve ,; , .. :'�' '�. ::,.. '� .. � , � � ; I Ci of Fontana I 1988 I 117,400 �Exclusive � �� i � � �' i -� <� � � �,. .� ;{II , � �r� 4f H��:�a ' . ` ',' l ��.: ��,4�a :, ��t�-��s�v� ::: �City of Los Angeles I 1996 3,823,000 �Non-Exclusive � � � � { � C, ounty o.f I,crs �i�eles `, I _ > � 9$1 ' ,1;03G;300. �Noii-�xclusive � , �i , ; � ' l � ..: " � I �.: � { I City of iVlor�ovta 1996 41 050 Non-Exclusive �i.ry af �o�tclaix' ' `.:... ` . 1��3_ . 3#�,95C1 Ex,.cJusx�e ';'. � "� �, ; ` � � . �. � � � � IC1ty of Pomona I 1988 I 147,700 Non-Exclusive � I ; I ;1 Ci:ty; of Rancho Ci�camon�a .. 19 $1; �:: J 25 6t�€�' : I�on�Exclu��x� � �,; I � City of Rivexside � 1988 I 259 700 Non Exclusive �� . ,.. . , t . Cou�� r�£ �ive�sade �_; 19�:8, . 40�;4Qb::. . Nc�z��Exclusi�e r.. 1 I <.:.:.� : � �, :' ::. � � 1988 ; 26,177 �Exclusive � � � � � � �Rubidoux CSD I , ..:.,. � ..... ; �J, < � �` �� ' :; �J ; .:� �Ci� of San I3e,rnaxdt�o :.: ... :. , 1�399.:;. 1$6,�t30 �on-Exc��si*re , ; � ;: .. I Count� of San Bernasdino 1981 292,300 Non-Exclusive � � � � � � � � ; ;. j Cxty of �anta''��rtxa :. , 20�4 ' 151,3Q� :; : Nox� �.�clusive; . � _ � � � �.. � City of Upland 2000 68,800 IExclusive � � �I � � � �' �,. ,� � � i ��iiq o�'fi�i�'to�ville ' 1°9$8 :, �4;�4Q'; �Exclus��e„<: � �; ::. I City of Yucaipa 1995 . 39,850 IExclusive � � I � � � � , � � 2 — 1 ATTACHMENT 3 E?CHIBIT 6 CORPORATE GUARANTY Guarantv January THIS GUARANTY (the "Guaranty) is given as of the 31 day of , 2U01. THIS GUARANTY is made with reference to the following facts and circumstances: A. Waste Management of California, Inc. d/b/a Waste Management of the Desert, hereinafter ("Owner") is a corporation organized under the laws of the State of California, all of the issued and outstanding stock of which is owned by Waste Management, Inc. (Guarantor). B. Owner and the City of Palm Desert ("the City") have negotiated an Contract for Collection, Processing, and Disposal of Solid Waste dated as of %— �/- f� �. , (hereinafter "Contract"). A copy of this Contract is attached hereto. C. It is a requirement of the Contract, and a condition to the City entering into the Contract, that Guarantor guaranty Owner's performance of the Contract. D. Guarantor is providing this Guaranty to induce the City to enter into the Contract. NOW, THEREFORE, in consideration of the foregoing, Guarantor agrees as follows: 1. Guarantv of the Contract. Guarantor hereby irrevocably and unconditionally guarantees to the City the complete and tirnely performance, satisfaction and observation by Owner of each and every term and condition of the Contract which Owner i.s required to perform, satisfy or observe. In the event that Owner fails to perform, satisfy or observe any of the terms and conditions of the Contract, Guarantor will promptly and fully perform, satisfy or observe them in the place of the Owner or cause them to be performed, satisfied or observed. Guarantor hereby guarantees payment to the City of any damages, costs or expenses which might become recoverable by the City from Owner due to its breach of the Contract. September i3, 2000 6-1 City of Palm Desert 2. �uarantor's �bix�ations Are Albsolute. The obligations of the Guarantor hereunder are direct, immediate, absolute, continuing, unconditional and unlimited, and with respect to any payment obligation of Owner under the Contract, shall constitute a guarantee of payment and not of collection, and are not conditional upon the genuineness, validii�y, regularity or enforceability of the Contract. In any action brought against the Guarantor to enforce, or for damages for breach of, its obligations hereunder, the Guarantor shall be entitled to all defenses, if any, that would be available to the Owner in an action to enforce, or for damages for breach of, the Contract (other than discharge of, or stay of proceedings to enforce, obligations under the Contract under bankruptcy law}. 3. Waivers. Except as provided herein the Guarantor shall have no right to terminate this Guaranty or to be released, relieved, exonerated or discharged from its obligations under it for any reason whatsoever, including, without limitation: (1) the insolvency, bankruptcy, reorganization or cessation of existence of the Owner; (2) the actual or purported rejection by a trustee in bankruptcy of the Contract, or any limitation on any claim in bankruptcy resulting from the actual or purported termination of the Contract; {3) any waiver with respect to any of the obligations of the Contract guaranteed hereunder or the impairment or suspension of any of the City's rights or remedies against the Owner; or (4) any merger or consolidation of the Owner with any other corporation, or any sale, lease or transfer of any or all the assets of the Owner. Without limiting the generality of the foregoing, Guarantor hereby waives the rights and benefits under California Civil Code Section 2819. The Guarantor hereby waives any and all benefits and defenses under California Civil Code Section 2846, 2849, and 2850, including without limitation, the right to require the City to (a) proceed against Owner, (b) proceed against or exhaust any security or collateral the City may hold now or hereafter hold, or (c) pursue any other right or remedy for Guarantor's benefit, and agrees that the City may proceed against Guarantor for the obligations guaranteed herein without taking any action against Owner or any other guarantor or pledgor and without proceeding against or exhausting any security or collateral the City may hold now or hereafter hold. City may unqualifiedly exercise in its sole discretion any or all rights and rem.edies available to it against Owner or any other guarantor or pledgor without impairing the City's rights and remedies in enforcing this Guaranty. September 1 i, 2000 6- 2 City of Palm Desert The Guarantor hereby waives and agrees to waive at any future time at the request of the City to the extent now or then permitted by applicable law, any and all rights which the Guarantor may have or which at any time hereafter may be conferred upon it, by statute, regulation or otherwise, to avoid any of its obligations under, or to terminate, cancel, quit or surrender this Guaranty. Without limiting the generality of the foregoing, it is agreed that the occurrence of any one or more of the following shall not affect the liability of the Guarantor hereunder: (a) at any time or frorn time to time, without notice the Guarantor, performance or compliance herewith is waived; (b) any other of any provision of its Contract indemnification with respect to Owner's obligations under the Contract or any security therefore is released or exchanged in whole or in part or otherwise dealt with; or (c) any assignment of the Contract is effected which does not require the City's approval. The Guarantor hereby expressly waives, diligence, presentment, demand for payment or performance, protest and all notices whatsoever, including, but not limited to, notices of non-payment or non-performance, notices of protest, notices of any breach or default, and notices of acceptance of this Guaranty. If all or any portion of the obligations guaranteed hereunder are paid or perforrned, Guarantor's obligations hereunder shall continue and remain in full force and effect in the event that all or any part of such payment or performance is avoided or recovered directly or indirectly from the City as a preference, fraudulent transfer or otherwise, irrespective of (a) any notice of revocation givert by Guarantor or Owner prior to such avoidance or recovery, and (b) payment in full of any obligations then outstanding. 4. Term. This Guaranty is not limited to any period of time, but shall continue in full force and effect until all of the terms and conditions of the Contract have been fully performed or otherwise discharged and Guarantor shall remain fully responsible under this Guaranty without regard to the acceptance by the City of any performance bond or other collateral to assure the performance of Owner's obligations under the Contract. Guarantor shall not be released of its obligations hereunder so long as there is any claim by the City against Owner arising out of the Contract based on Owner's failure to perform which has not been settled or discharged. 5. 1Vo Waivers. No delay on the part of the City in exercising any rights under this Guaranty or failure to exercise such rights shall operate as a waiver of such rights. No September i 1, 2000 6- 3 City of Palm Desert notice to or demand on Guarantor shall be a waiver of any obligation of Guarantor or right of the City to take other or further action without notice or demand. No modification .or waiver of any of the provisions of this Guaranty shall be effective unless it is in writing and signed by the City and by Guarantor, nor shall any waiver be effective except in the specific instance or matter for which it is given. 6. Attornev's Fees. In addition to the amounts guaranteed under this Guaranty, Guarantor agrees in the event of Guaranty's breach of its obligations including to pay reasonable attorney's fees and all other reasonable costs and expenses incurred by the City in enforcing this Guaranty, or in any action or proceeding arising out of or relating to this Guaranty, including any action instituted to determine the respective rights and obligations of the parties hereunder. 7. Governin� Law: Turisdiction. T'his Guaranty is and shall be deemed to be a contract entered into in and pursuant to the laws of the State of California and shall be goverried and construed in accordance with the laws of California without regard to its conflicts of laws, rules for all purposes including, but not limited to, matters of construction, validity and performance. Guarantor agrees that any action brought by the City to enforce this Guaranty may be brought in any court of the State of California and Guarantor consents to personal jurisdiction over it by such courts. Guarantor appoints the following person as its agents for service of process in California: � � �� . i . � ,, r �,�+ � , �, , � �. _, � � _ :. _. .� With a copy by certified mail to: �i � �s� �� 1 �G�- c �. r ��.d� �'�5,�.�;�'' �� . Severability. If any portion of this Guaranty is held to be invalid or unenforceable, such invalidity will have not effect upon the remaining portions of this Guaranty, which shall be severable and continue in full force and effect. September i 1, 200D 6- 4 City of Palm Desert 9. Bind'gaa� On Succes�c�rs. This Guaranty shall inure to the benefit of the City and its successors and shall be binding upon Guarantor and its successors, including transferee(s) of substantially all of its assets and its shareholder(s) in the event of its dissolution or insolvency. � 10. Authoritv. Guarantor represents and warrants that it has the corporate power and authority to give this Guaranty, that its execution of this Guaranty has been authorizecl by all necessary action under its Article of Incorporation and By-Laws, and that the person signing this Guaranty on its behalf has the authority to do so. 11. Notices. Notice shall be given in writing, deposited irt the U.S. mail, registered or certified, first class postage prepaid, addressed as follows: To the City: City Manager City of Palm Desert 73510 Fred Waring Drive Palm Desert, CA 92260 with a copy to the City Counsel at the same address. • � � � .- �' .. , / � ,� �� :� / ` . „- �y,, . � By: (title) �� • �"�'�� 4:.%; .r,o �'r�sia��n$ � 'T'reaSex�� m 1/'....�.� ei �r �� + � • � '._��s^� ay"�./� � By, � � (titl �: �aya� J. �Sa 'i�Pd c�C� �eesiden4 � Ass�stant S��p�� September 11, 2000 6- 5 Cify of Palm Desert