That the City Council approve and authorize the City Manager to execute the third amendment to the Franchise Agreement For Integrated Solid Waste Management Services with CR&R, Incorporated for residential, commercial, and industrial solid waste collection.

The Amended and Restated Franchise Agreement for Integrated Solid Waste Management Services by and with CR&R Incorporated ("CR&R) and the City of La Habra (Franchise Agreement) was approved by the City Council on December 6, 2018, for an initial six and one-half year term, and included three additional two-year term extensions at the City's sole option. The Franchise Agreement approved in 2018 has been amended by previous amendments and a side letter agreement, as outlined below:

If approved by the City Council, the proposed Amendment No. 3 will amend the Franchise Agreement to extend the term, reduce the amount of time required to give notice of future term extensions, and provide for liquidated damages, as outlined below:

The original Franchise Agreement allows the City to have the sole option to extend the agreement. Any extensions would require the City to provide a nine (9) month notice to CR&R before the deadline of the existing term. Since the deadline for the first term ends June 30, 2025, the original deadline to provide notice would have occurred on September 30, 2024. However, CR&R and the City approved a side letter agreement on September 16, 2024, to extend the deadline to December 31, 2024.  Under this Amendment, if the City elects to extend the term, the City will notify CR&R in writing no later than six (6) months prior to the end of the term, as opposed to nine (9) months notice.  

The current initial term in the Franchise Agreement ends on June 30, 2025. The Franchise Agreement currently requires the City to approve any term extensions before the deadline of December 31, 2024.  If approved by City Council, Amendment No. 3 will approve the first two-year extension of the agreement, extending it to June 30, 2027.

Due to an unacceptably high number of customer complaints regarding CR&R's service levels and quality, mainly due to missed waste bin pickups, over the past several years following the COVID pandemic, Amendment No. 3 proposes a new contract provision that will provide for liquidated damages to the City should CR&R fail to achieve performance standards or ensure reliable service.  If approved by City Council, CR&R will agree to pay the City $100 in liquidated damages for each complaint received regarding missed collections within the City, in excess of 55 homes per month. For example, if CR&R recorded 2,000 complaints in a year regarding missed pickups over the agreed upon threshold, then at the end of the year, CR&R would be required to write a check to the City for $200,000. The primary purpose for this new contract provision is to further incentivize CR&R to return to providing high quality and reliable services that are expected by both the City and its residents.

Staff recommends that the City Council approve Amendment No. 3, which will incorporate the changes listed above. If the City Council does not approve Amendment No. 3, then staff will either attempt to negotiate a new agreement with CR&R by the end of the six-month deadline, or will evaluate the feasibility of securing a new contract with a new refuse hauler by the deadline.

If Amendment No. 3 is approved, the total estimated annual cost to the Refuse Fund for two additional years of Solid Waste Services with CR&R will be approximately $4.6 million and will be funded through refuse rates and charges. While the new liquidated damages clause could result in an unknown amount of additional revenue paid to the Refuse Fund, the goal would be for CR&R to resolve its service quality issues and not have complaints reach a level where liquidated damages would be required to be paid.