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ITEM 33 |
City Council Memorandum Public Works & Utilities Memo No. UA24-003
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Date: |
July 20, 2023 |
To: |
Mayor and Council |
Thru: |
Joshua H. Wright, City Manager Andy Bass, Deputy City Manager John Knudson, Public Works and Utilities Director |
From: |
Tabitha Sauer, Solid Waste Manager |
Subject: |
Agreement No. SW0-910-2493, Amendment No. 2, with Waste Management of Arizona, Inc., for Solid Waste Collection and Transfer Station Services |
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Proposed Motion: |
Move City Council approve Agreement No. SW0-910-2493, Amendment No. 2, with Waste Management of Arizona, Inc., for solid waste collection and transfer station services, for a lump sum payment due to extraordinary circumstances. |
Background/Discussion: |
The City of Chandler has an agreement with Waste Management to provide recycling and trash collection services. These services include twice-per-week container collection, bulk collection, delivery and repair of containers, and transportation of waste to disposal sites. Over the last fiscal year, Waste Management has been meeting with staff to review past and current operational costs that have experienced extraordinary increases, including the operation of their fleet, labor, and market volatility of compressed natural gas (CNG) fuel. In November 2022, Waste Management initially approached the City requesting an ongoing 17.44% overall contract increase, citing the factors above. Since the fleet had not been able to be replaced due to supply chain issues during and immediately following the COVID-19 pandemic, the maintenance costs of operating aging refuse trucks continued to increase. However, recently trucks are being replaced, allowing for a relief in these costs, which are therefore not part of the extraordinary increase. Also, since the volatility of CNG fuel is not unusual, the City did not consider it extraordinary, and this item was excluded. These cost fluctuations are already covered by the existing contract, which allows for an up to 3.5% annual increase in cost based on the Consumer Price Index (CPI) Water, Sewer, Trash (WST) Index. Conversely, the cost of driver labor and alley bulk driver labor has increased year over year and is expected to stay at the higher values. This amendment recognizes the extraordinary increase Waste Management has experienced beginning in Fiscal Years (FY) 2020-21 and FY 2021-22. The lump sum payment of $1,068,000 reflects the value of this increase over those two years. However, staff does not expect the cost of labor to decrease, thus it is included in the proposed ongoing 8.8% overall contract increase, effective only when City Council later approves the Solid Waste rate changes needed to support it. The FY 2024-25 proposed budget would then be adjusted to reflect this increase. |
Evaluation: |
On September 24, 2020, City Council approved a ten-year extension to the agreement with Waste Management of Arizona, Inc., for solid waste collection and transfer station services under the same terms and conditions the previous contract, which was executed in 2010. Due to the extraordinary circumstances resulting from the COVID-19 pandemic, as well as the inflationary impacts absorbed by the contractor in FY 2020-21 and 2021-22, the City and the contractor have agreed to the following: The City will pay the Contractor a one-time lump sum payment in the amount of $1,068,000 to address the increase in the cost of labor in FY 2020-2021 and 2021-2022. This payment will be made in August 2023. The Agreement unit prices will be adjusted by 3.5% in accordance with the annual adjustment detailed in Amendment No. 1, dated September 24, 2020. This adjustment will be effective July 1, 2023. Contingent upon City Council approval of an adjustment to the Solid Waste rates for FY 2024-2025, the Agreement unit prices will be permanently adjusted by 8.8% in addition to the annual adjustment detailed in Amendment No. 1, dated September 24, 2020. This adjustment will be effective July 1, 2024. Effective July 1, 2025, and through the remainder of the term of the Agreement, the Agreement unit prices will be adjusted in accordance with the annual adjustment detailed in Amendment No. 1, dated September 24, 2020. Staff has thoroughly analyzed the documentation provided by Waste Management to support its request for a rate adjustment as a result of the COVID-19 pandemic and extraordinary inflationary impacts absorbed by Waste Management in FY 2020-2021 and 2021-2022, and recommends approval of the amendment. |
Financial Implications: |
This amendment will require a one-time lump sum payment of $1,068,000. When preparing for the FY 2023-24 budget, staff included an anticipated one time payment of up to $1,613,500. The final negotiation came in less than that amount. This amendment allows for an ongoing adjustment, but only if City Council later approves the Solid Waste rate changes needed to support it. The FY 2024-25 proposed budget would then be adjusted to reflect this increase. |
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Fiscal Impact |
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