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1990-0904_SOLAG DISPOSAL_Amendatory AgrCity Copy AMENDATORY AGREEMENT THIS AMENDATORY AGREEMENT is made this 3rd day of September, 1991 by and between THE CITY OF SAN JUAN CAPISTRANO, hereinafter referred to as City, and SOLAG DISPOSAL, INC., hereinafter referred to as Contractor. WHEREAS, the City and Contractor have entered into a Recycling Agreement dated September 4, 1990 providing for residential curbside collection of recyclable material services by the Contractor; and, WHEREAS, Contractor and City desire to amend portions of said agreement relating to the terms of the Recycling Agreement, NOW, THEREFORE, BE IT MUTUALLY AGREED between City and Contractor that the following sections and subsections of the Recycling Agreement are hereby amended to read as follows: SECTION I. Page 6, Section A.I, the first sentence of the second paragraph is hereby amended to "The collection of recyclable material by CONTRACTOR will not commence before 7:00 A.M., unless otherwise authorized by CITY." Page 13, Section B., the last sentence of the paragraph at the top of the page is hereby amended to "The term of Phase I Program shall continue in full force and effect through June 30, 1992, unless mutually approved for extension by both parties." Page 14, Section C.2., entitled "Ongoing Evaluation" is hereby deleted in its entirety. Page 16, Section E.7., regarding participation rates is hereby deleted in its entirety. Page 17, Section E.12., regarding daily participation reports is hereby deleted in its entirety. SECTION XIII. This agreement contains the entire agreement of the parties, and any agreement or representations affecting the obligations under this agreement, or the duties of the City and Contractor under the underlying franchise agreement in relation thereto, not expressly set forth herein, is null and void. Each party also, in addition to acknowledges that they have thoroughly read and understood each of the provisions contained herein prior to signing this document. CITY OF SAN JUAN CAPISTRANO ATTEST B r ✓rn— Ke neth E. Friess, Mayr City Cle> c SOLAG DISPOSAL, INC. APPROVED AS TO FORM 0 0 city copy RECYCLING BETWEEN THE CITY OF SAN JUAN CAPISTRANO �; l b7 SOLAG DISPOSAL, INC. Attachment A 0 Table of Contents Page 1 Page SECTION I SCOPE OF SERVICES . . . . . . . . . . . . . . (6) (A) Curbside Recycling . . . . . . . . . . . (6) 1. Collection . . . . . . . . . . . . ( 6 ) 2. Labor and Costs . . . . . . . . . . (7) 2. Missed Pick-ups . . . . . . . . . . (7) 4. Material to be Recycled . . . . . . (7) 5. Notices . . . . . . . . . . . . . . (8) 6. Container Purchase . . . . . . . . (8) 7. Container Distribution . . . . . . (9) 8. Replacement of Containers . . . . . (9) 9. Container Type . . . . . . . . . (10) 10. Standards of Service . . . . . . (10) 11. Transportation of Materials . . . (11) 12. Sale of Recyclable Materials . . (11) (B) Phase I Location and Term of Program . (12) (C) Evaluation . . . . . . . . . . . . . . (13) 1. Audit 2. Ongoing Evaluation 3. Contractor's Records (D) Citizen Participation . . . . . . . . (14) (E) Monthly Reports . . . . . . . . . . . (15) (F) Semi -Annual Reports . . . . . . . . . (17) Page 1 0 0 SECTION II COMPENSATION AND INVOICING . . . . . . . . (A) Compensation for Services . . . . . . (B) Salvage Revenue . . . . . . . . . . . (C) Market Factors . . . . . . . . . . . . (D) Diversion Credit . . . . . . . . . . . (E) Invoicing . . . . . . . . . . . . . . SECTION III PUBLIC AWARENESS PROGRAM . . . . . . . . . SECTION IV EXPANSION OF PROGRAM . . . . . . . . . . . SECTION V PROTECTION OF MATERIALS . . . . . . . . . . SECTION VI INDEPENDENT CONTRACTOR . . . . . . . . . . SECTION VII NON -ASSIGNMENT . . . . . . . . . . . . . . SECTION VIII INDEMNIFICATION AND HOLD HARMLESS . . . . . SECTION IX STANDARDS OF PERFORMANCE . . . . . . . . . SECTION X TERMINATION . . . . . . . . . . . . . . . . SECTION XI MODIFICATION AND/OR EXPANSION OF PROGRAM SECTION XII AGREEMENT . . . . . . . . . . . . . . . . SECTION XIII ENTIRETY . . . . . . . . . . . . . . . . Page 2 (18) (18) (19) (19) (19) (20) (20) (21) (22) (22) (23) (23) (24) (25) (29) (30) (30) 0 0 TO AGREEMENT FOR SOLID WASTE COLLECTION AND DISPOSAL THIS AGREEMENT for Solid Waste Collection and Disposal (here- inafter "AGREEMENT"), is made and entered into this September 4, 1990 day of 1990, by and between the CITY OF SAN JUAN CAPISTRANO, a municipal corporation (hereinafter "CITY") and SOLAG DISPOSAL, INC., a California corporation (hereinafter "CONTRACTOR"). RECITALS WHEREAS, the CITY and CONTRACTOR entered into an Agreement for Solid Waste Collection and Disposal Services, dated March 18, 1986, and, WHEREAS, the reduction of the amount of solid waste collected, transported and deposited in landfills and the conservation of recyclable materials is an important public concern by reason of the growing problem of solid waste disposal and its impact upon the environment; and WHEREAS, recycling conserves valuable material resources and energy, promotes greater efficiency in the local economy; and Page 4 Ll • WHEREAS, recycling will reduce the overall amount of solid waste presently generated, and thus reduce storage, collection, transportation, and disposal costs; and WHEREAS, State 1989, C. 1095 requires that cities and counties institute recycling programs to reduce the volume of solid waste disposed of in landfills by 25% by 1995 and 50% by 2000; and WHEREAS, CITY desires to institute a curbside recycling program for certain residential areas within the CITY to conserve valuable material resources and energy and promote greater efficiency in the local economy to be performed by CONTRACTOR in conjunction with the collection of solid wastes in the CITY pursuant to this AGREEMENT; and WHEREAS, CONTRACTOR desires to provide such curbside recycling services in the CITY in conjunction with its present contract for collection of solid wastes in the CITY pursuant to the AGREEMENT; and WHEREAS, the parties agree to implement a pilot (hereinafter "PHASE I") curbside recycling program to serve 1,000 residents pursuant to the goals established by the CITY. Page 5 0 0 NOW, THEREFORE, CITY and CONTRACTOR do hereby agree as follows: SECTION I. SCOPE OF SERVICES A. Curbside Recycling CONTRACTOR shall perform curbside recycling services in the CITY as follows: 1. Collection Commencing on October 3, 1990, CONTRACTOR shall collect and remove all recyclable materials which are segregated and placed in or near the recycling containers at the curbside on public streets. The collection of materials will be scheduled on the same day as refuse collection service performed pursuant with weekly pick up on existing regularly scheduled refuse collection service days. Collection of recyclable materials by CONTRACTOR will not commence before 8:00 A.M., and will be completed before sunset each day, unless otherwise authorized by CITY. This schedule will be publicized, and residents will be requested to not put recyclables out until the morning of the pick-up day to reduce scavenging. Page 6 2. Labor and Costs CONTRACTOR shall furnish all labor and equipment re- quired (not independent of, but in conjunction with CONTRACTOR'S existing operation), to perform curbside recycling collection pursuant to this AGREEMENT. 3. Missed Pick-ups In case of a missed pick-up called in by a resident, CONTRACTOR shall collect the recyclable materials from such resident, no later than the next working day following the day of the call. 4. Materials to be Recycled Materials deemed to be recycled and required to be recycled pursuant to this AGREEMENT are as follows: newspapers, glass containers, metal (aluminum and steel/tin) cans, and plastics (all PET soft drink bottles, and one-half gallon and larger HDPE milk and water containers). Collection of used motor oil and other materials may be added as agreed to in writing by all parties to this AGREEMENT. Page 7 0 0 5. Notices CONTRACTOR may refuse to collect recyclable materials of, and shall not be obligated to continue to provide any recycling receptacle or container to, any partici- pant who after reasonable notice, fails to sort recycla- ble materials properly. 6. Container Purchase CONTRACTOR shall initially purchase 1,000 sets of containers, or 3,000 individual containers, plus an additional five percent (5%) as a reserve for replace- ment (as described in Section I.A.S.) for the PHASE I program. CONTRACTOR shall, at all times during Phase I, have a sufficient supply of extra containers on hand to provide not less than 25 full sets of replacement containers for residents. The initial distribution of containers shall be provided to each residential unit at no cost in addition to the monthly rate charged to each unit. Page 8 0 0 7. Container Distribution CONTRACTOR shall distribute containers and an informa- tional packet of promotional materials (as described in Section III.A.3). These items shall be placed on the door step of each designated residence to be serviced. Distribution shall occur on the same day that service will be provided to that residence, one (1) week prior to the beginning day for the program. 8. Replacement of Containers The parties acknowledge that from time -to -time recycling containers supplied by CONTRACTOR may be damaged, de- stroyed, lost or stolen. CONTRACTOR shall replace containers within 72 hours from time CONTRACTOR is so notified by resident or CITY. Following distribution of the initial container purchase (as described in Section I.A.6.) CONTRACTOR shall charge residents at current market cost per bin for replacement containers. CON- TRACTOR shall replace at no cost to resident any con- tainer damaged or destroyed by CONTRACTOR. In the event of a dispute between CONTRACTOR and resident regarding charges for replacement of containers, the decision of the CITY Manager or designee shall be final and conclusive. Page 9 9. Container Type Containers shall be of the "nesting" type in a set of three (3) and shall be stable when stacked. The con- tainers in the set shall include a blue bin for cans and plastic beverage containers, a gray bin for glass containers, and a tan bin for newspapers. Containers shall be labeled to identify CITY, the CONTRACTOR'S recycling customer service telephone number, the afore- mentioned materials to be place said containers in the bin, and the order by which they should be stacked. 10. Standards of Service a) After the recycling containers have been emptied into a collection truck, the CONTRACTOR shall place said containers in an upright, stacked position at a uniform location behind the curb within the parkway. b) Contractor shall not throw containers to the ground, but placed on the ground in a manner that will prevent damage to the containers. Page 10 11. Transportation of Materials During Phase I, the CONTRACTOR shall transport the collected recyclable materials from the curbside, or designated collection location, to the markets at the end of each day. There the materials will be weighed, and the driver will obtain receipts for the weights for each material from each section of the truck. During the PHASE I Program, no stockpiling of materials by CONTRACTOR will be allowed, to insure that each juris- diction served will be able to accurately assess the amount of materials diverted from their waste stream as + required by AB 939. It is anticipated that if and when there is an expansion of the PHASE I Program, a more efficient processing arrangement may be implemented. 12. Sale of Recyclable Materials During PHASE I, the CONTRACTOR shall sell all recyclable materials collected from curbside or designated collec- tion locations by CONTRACTOR pursuant to this AGREEMENT at the highest market value available within the County, and at a location accessible at the end of the route within a normal working day. The purchaser of these Page 11 materials will make payment to CITY as designated in Section II.B. If PHASE I program is expanded by agreement of CITY and CONTRACTOR, CONTRACTOR will be expected to sell the recovered recyclable materials at fair market value. The fair market value of the recyclable materials shall be the highest responsible price quoted to CONTRACTOR (verbally or in writing), FOB CONTRACTOR'S yard, at the time of the intended sale, by purchasers of such materi- als. If there is any dispute as to which market pro- vides the highest responsible price, the determination of CITY shall rule. B. PRASE I Location and Term of Program The CITY and CONTRACTOR shall mutually agree upon the service area for the PHASE I Curbside Recycling Program. CONTRACTOR shall provide route maps (showing the general sequence in which the route will be served), addresses and schedules to CITY. Any changes to these areas shall require prior written approval of the CITY Solid Waste Management Coordinator. Page 12 The term of the PHASE I program shall be up to one year unless mutually approved for extension by both parties. C. Evaluation 1. Audit CONTRACTOR shall submit to an audit of all expenses, expenditures and revenues for the first six (6) month period pertaining to the provisions of this service, and at any point thereafter as requested by CITY. CONTRAC- TOR must maintain all records relating to this program in a manner to facilitate the audit. The audit will be performed by private outside firm selected by CITY. This audit will be conducted at CITY'S cost to determine the actual costs of providing curbside recycling servic- es. Because of the improved economies of an expanded pro- gram, the evaluation of PHASE I will also include the cost of additional collection and processing equipment, the higher market value which may be achieved by market- ing of larger volumes of processed materials, the efficiencies of larger routes, with operations and maintenance costs being spread over a larger servine area, and other relevant factors. Page 13 z. Ongoing Evaluation During PHASE I the address of each residence from which recyclable materials are collected shall be recorded on a route sheet by the collector/driver. The driver shall also note which materials were set out at that location. This information will be evaluated by the CITY at the end of each month. This will help determine citizen participation. 3. ContractorIs Records CONTRACTOR shall maintain, or provide to CITY, any and all ledgers, books of account, invoices, vouchers and canceled checks, as well as all other records or docu- ments evidencing or relating to charges for services, expenditures or disbursements borne by the CONTRACTOR for a period of not less than three years from the termination of this AGREEMENT. D. Citizen Participation The goal is to maximize the citizen participation rate within a six-month period following commencement of PHASE I curbside recycling services by CONTRACTOR Page 14 0 0 pursuant to this AGREEMENT. If by the sixth month the participation rate does not reach an acceptable level, as determined by CITY, CITY shall have the right to terminate this AGREEMENT or negotiate with CONTRACTOR in good faith towards a mutually acceptable modification thereof. A participation rate of 100% is defined as one or more set -outs (that is the placement of containers at curbside containing Recyclable Materials as described), per each one (1) month period per each single-family residence in the PHASE I service area. E. Monthly Reports During the term of this AGREEMENT, CONTRACTOR shall submit to CITY's Solid Waste Management Coordinator, or designated person, monthly reports on the following information within fifteen (15) working days after the last day of each month. CONTRACTOR shall submit at least all of the following on forms approved by CITY: 1. Summaries of tonnages of all recyclable materials collected, by material type. 2. Summaries of tonnages of all recyclable materials sold, by material type. 3. Summaries of tonnages of all recyclable materials Page 15 0 0 not yet sold at the end of the month (not applica- ble in PHASE I). 4. Summaries of tonnages of residue which is not saleable, or required disposal by either the CON- TRACTOR or the purchaser of the recyclable materi- als. 5. Summaries of tonnages of materials which are not listed as recyclable materials, but which were collected, processed and sold (i.e., cardboard). 6. Market prices for all recyclable materials collect- ed from curbside and sold by CONTRACTOR and the basis for such determination. 7. Participation rates in terms of weekly set -outs (as described in Section I.D.). 8. A summary of missed pick ups by routes, with expla- nation of why, and a summary of telephone calls received by category, (pros/cons) including inqui- ries about the program, missed pick ups, and con- tainer replacement. 9. A summary of program highlights, special events, milestones, or other noteworthy occurrences. 10. A listing of all reports of scavenging of materials or containers. 11. A report of all revenues and expenses relating to this AGREEMENT. Page 16 0 0 12. Copies of CONTRACTOR'S daily reports showing the amount of recyclable materials collected on each route, the total number of set -outs on each route, the number of truck loads for each route, the number of hours per route per day to complete the route,and the total work time of the driver and helper for the day. F. Semi -Annual Reports On or before fifteen (15) days after the completion of each six (6) month period for which service is provided, CONTRACTOR shall submit to the CITY's Solid Waste Management Coordinator, or designated person, a Semi - Annual Report, to include at least the following: 1. A collated summary of the information contained in the monthly reports, and a summary of the partici- pation rates and tonnages of collected materials. 2. A discussion of public awareness activities and their impact on participation and collected ton- nages. 3. A discussion of highlights and other noteworthy experiences, measures taken to resolve problems, Page 17 9 0 increased efficiency and household participation levels. 4. A Semi -Annual salvage revenue statement of all sales of recyclable materials. SECTION II COMPENSATION AND INVOICING A. Compensation for Services CONTRACTOR shall be compensated a monthly per unit amount of $2.48 for any and all subscribers for refuse collection in the PHASE I collection area. CONTRACTOR agrees to no increase in said monthly unit amount for twelve (12) months from the commencement of the PHASE I program, for service to the 1,000 households designated in Section I.B. of this AGREEMENT unless the program is modified or expanded. Compensation to CONTRACTOR will be rescinded immediately, should the recycling program be discontinued. The monthly per unit amount of $2.48 shall be subject to change due to modification or expansion of PHASE I. The franchise fee required to be paid to the CITY under the AGREEMENT for Solid Waste Collection and Disposal shall not be applicable to revenues of CONTRACTOR Page 18 0 0 collected for the Phase I curbside recycling program pursuant to this AGREEMENT. B. Salvage Revenue During PHASE I of the AGREEMENT, CONTRACTOR shall direct the purchaser of the recyclable materials to deposit all revenues from the sale of recyclable materials collected by CONTRACTOR into a special account of CITY. C. Market Factors The CITY may renegotiate or terminate this AGREEMENT in the event that factors beyond the reasonable control of the parties involved materially change the market for the sale of any of the recyclable materials. D. Diversion Credit CONTRACTOR shall pay to CITY, on a quarterly basis, an amount equal to the per ton tipping fee at the County landfill at the time of the collection, multiplied by the number of tons of recyclable materials sold by CONTRACTOR during that period. Page 19 9 0 E. invoiaina CONTRACTOR shall invoice each regular subscriber for refuse colletction for curbside recycling services in conjunction with its regular invoicing practice and procedures for refuse collection services. The amount charged and format of the invoice shall be subject to approval of the CITY MANAGER. Any regular subscriber to CONTRACTOR for refuse collection shall be charged for recycling services regardless of whether subscriber elects to participate in the recycling program. SECTION III. PUBLIC AWARENESS PROGRA1[ A. CONTRACTOR will assist the CITY in the preparation of an introductory packet of information regarding the PHASE I curbside recycling program. The information will be prepared at CITY'S expense, provided that CITY not be labor expenses involved in this preparation, and shall include a letter from the CITY urging the residents to participate in the program, and specific information regarding collection day, non -collection holidays, preparation of materials, and other appropriate matters. CONTRACTOR shall deliver a similar informational packet Page 20 prepared by CITY with the containers upon initial distribution of containers (See Section I.A.4.). CITY shall, at CITY'S sole expense, prepare and distrib- ute all additional public awareness materials, to encourage ongoing citizen participation and citizen compliance. CONTRACTOR shall, at CONTRACTOR'S sole expense, prepare and distribute all applicable public notices required to notify residents of violations, non-compliance, and other issues relating to the curbside recycling program procedures and practices. SECTION IV. EXPANSION OF PROGRAM It is the intent of CITY and CONTRACTOR that an expanded city- wide recycling program be provided to CITY following evaluation of the PHASE I program. Factors which will be used to arrive at a decision regarding an expanded program will include the following: PHASE I evaluations, including CONTRACTOR'S performance and capability to handle an expanded program, consultant research, and data gained from the waste characterization study to be performed by CITY and COUNTY, all of which will enhance methodology needed to meet the AB 939 mandate. Notwithstanding any other provision of thi.s AGREEMENT to the contrary, CITY does not warrant or Page 21 represent that it will enter into an agreement with CONTRACTOR for an expanded program. SECTION V. PROTECTION OF MATERIALS CITY agrees to take such steps as CITY may determine to be necessary and appropriate to protect CITY'S ownership of all recyclable materials placed at the curbside for collection by CONTRACTOR under the terms of this AGREEMENT and to discourage scavenging activities, provided, however, that CITY shall not be held liable to CONTRACTOR for any scavenging that does occur. SECTION VI. INDEPENDENT CONTRACTOR CONTRACTOR shall perform all work and services described herein as an independent contractor and not as an officer, agent, servant or employee of CITY. CONTRACTOR shall have exclusive control of and the exclusive right to control the details of the services and work performed hereunder and all persons performing the same and CONTRACTOR shall be solely responsible for the acts and omissions of its officers, agents, employees, contractors and subcontractors, if any. Nothing herein shall be construed as creating a partnership or joint venture between CITY and CONTRAC- TOR. No person performing any of the work or services described hereunder shall be considered an officer, agent, servant or employee of CITY, nor shall any such person be entitled to any Page 22 • 0 benefits available or granted to employees of CITY. SECTION VII. NON -ASSIGNMENT CONTRACTOR shall not assign, transfer, convey, or otherwise hypothecate this AGREEMENT or CONTRACTOR's rights, duties or obligations hereunder or any part thereof without the prior written consent of CITY and the written concurrence of CONTRACTOR's surety. In the event CONTRACTOR attempts to assign, transfer, convey or otherwise hypothecate this AGREEMENT or CONTRACTORRIs rights, duties or obligations hereunder or any part thereof without the prior written consent of CITY, CITY may, at its option, terminate this AGREEMENT immediately. CITY reserves the right to assign this AGREEMENT to a Joint Powers Authority, if one is formed, for the purposes of providing among other Integrated Waste Management services, curbside recycling services. SECTION VIII. INDEMNIFICATION AND HOLD HARMLESS The CONTRACTOR shall indemnify and save harmless the CITY, its officers, agents, employees, and servants, from all claims suits or actions of every name, kind and description brought for or on account of injuries to or death of any person or damage to property Page 23 0 0 resulting from the performance of any work required by this AGREEMENT by the CONTRACTOR, its officers, agents, employees, or servants. The duty of the CONTRACTOR to indemnify and save harmless as set forth herein shall include the duty to defend as set forth in Section 2778 of the California Civil Code. SECTION I%. STANDARDS OF PERFORMANCE A. MISSED PICKUPS With respect to the curbside recycling program, the CONTRACTOR shall accomplish the following: 1. Records of the addresses of all missed pickups shall be maintained by CONTRACTOR and reported to CITY. If the number of missed pickups exceeds 1% per collection day more than one time per month, a fine of $1 per miss for the entire month shall be assessed CONTRACTOR. 2. If more than three missed pickups each month are not collected within 24 hours of the resident or City report of said miss to CONTRACTOR a fine of $10 each missed pickup will be assessed. 3. If CONTRACTOR can demonstrate a pattern of ongoing Page 24 0 0 late set outs by a resident, those missed pickups shall not be counted as missed pickups. B. REPORTS a. If more than one report as required in Sections E and F is late in any six month period, for every working day beyond the due date that the most recent report due is late, a $100 fine will be assessed CONTRACTOR. SECTION X. TERMINATION This agreement may be terminated at any time as follows: A. By mutual agreement of the parties hereto, evidenced by an appropriate written instrument; or B. Where the CITY determines that the CONTRACTOR'S perfor- mance has not been in conformity with the provisions of this AGREEMENT or any applicable law. In such case, the City Manager shall, in writing, advise CONTRACTOR of such deficiencies, and set in such written instrument, a reasonable time within which correction of all such deficiencies is to be made; unless otherwise specified, a reasonable time for correction shall be deemed to be Page 25 fourteen (14) days from the receipt by the CONTRACTOR of such written notice. If within said fourteen (14) day period of time (or other period of time, as may be specified by the CITY Manager), the CONTRACTOR does not correct such deficiencies to the reasonable satisfaction of the City Manager, the City Manager shall advise the City Council of such circumstances; the City Council, in such case, shall, as soon as is possible, set the matter for hearing. The City Council shall give CONTRACTOR, and any other person requesting the same, ten (10) days written notice at the time and place of such hearing. At the time of such hearing, the City Council shall consider the report of the City Manager indicating the deficiencies, and shall give the CONTRACTOR, or its representatives and any other interested person, reason- able opportunity to be heard in conjunction therewith. If the City Council, at the conclusion of such hearing, determines, based upon reliable evidentiary material, that performance of the CONTRACTOR is not in conformity with this AGREEMENT, as alleged by the City Manager, the City Council shall terminate, forthwith, the agreement. The decision of the City Council shall be final and conclusive. CONTRACTOR'S performance under this AGREE- MENT is not excused during the period of time prior to the City Council's final determination as to whether such performance is deficient; or Page 26 0 0 C. In the event that factors beyond the reasonable control of the parties materially changed the market for the sale of recyclable material. D. Except upon termination for cause or by choice of CONTRACTOR, in the event of termination of this AMEND- MENT, CITY agrees to reimburse CONTRACTOR for the net capital investment of CONTRACTOR associated with the establishment of the curbside recycling program. The net capital investment, at termination of the AMENDMENT, shall be defined as the total cost of the CONTRACTOR in purchasing containers, new trucks and special equipment and vehicle preparation costs as supported by acceptable documentation less the accumulated depreciation of such containers, trucks and special equipment and the market salvage value of the containers, trucks and special equipment. If new trucks are purchased, the market salvage value of said trucks shall be the retail blue- book value of the cab and chassis plus market salvage value of appurtenant equipment. However, if used trucks from CONTRACTOR'S fleet are retrofitted, there will be n allowance in the net capital investment for the pur- chase of already depreciated value of the trucks. Upon termination by CONTRACTOR, CITY shall not be bound or required to pay damages of any sort to the CONTRACTOR. Page 27 If the CITY and CONTRACTOR are unable to agree on the market salvage value of such containers, trucks and special equipment, the market salvage value shall be determined by an independent appraiser mutually agree- able to CITY and CONTRACTOR with cost of the appraiser shared equally. Since the curbside recycling program was predicated on a 5,200 unit program with participation by the Cities of Dana Point, San Juan Capistrano and San Clemente, together with the County of Orange, each city's share of CONTRACTOR'S net capital investment at termination shall be established on a prorated basis using the total number of units served in each City in comparison to the total units served in all four agencies. In the event that one or more of the foregoing named agencies terminate the PHASE I program, but CITY does not, this AGREEMENT shall be renegotiated. E. If the CITY terminates this AGREEMENT for non-perfor- mance as specified in Section X.B., and CITY wishes to continue the operation of the PHASE I curbside recycling program, CITY may take over use of the curbside collec- tion vehicle from CONTRACTOR immediately to avoid disruption in service, pending resolution of any other Page 28 0 9 dispute including any dispute regarding CITY'S obliga- tion for payment, if any under Section X.D. SECTION XI MODIFICATION AND/OR EXPANSION OF PROGRAM CITY and CONTRACTOR agree to negotiate in good faith any terms or conditions in the modification and/or expansion of the Phase I program. In undertaking these negotiations, the results of audits undertaken by CITY to determine CONTRACTOR's costs and profits in providing the curbside recycling program during PHASE I shall be considered to establish CONTRACTOR's compensation. If CONTRACTOR'S after tax profit exceeds ten percent (10%) during PHASE I, any excess shall be deducted in establishing the compensation to CONTRACTOR for the modified and/or expanded program so that CONTRACTOR'S average yearly after tax profit over the term of the AGREEMENT and any extension or modification thereof does not exceed ten percent (10%). If CITY and CONTRACTOR fail to reach agreement with respect to the terms and conditions for modification and/or expansion of the Phase I recycling program within sixty (60) days of the date of the proposed program changes, CONTRACTOR will agree to continue to perform changes, CONTRACTOR will agree to continue to perform recycling as originally specified in this Agreement for the remaining term hereof, subject to the provisions of Sections VII and X. Page 29 0 0 If at the time that the program is expanded to include all residential units receiving curbside service, it is intended that amended contract agreement provide for the term of these services to coincide with the term of CONTRACTOR's franchise agreement with the CITY. Nothing contained in this AGREEMENT shall limit the right of CITY to solicit proposals from any other entity for curbside recycling services. SECTION SII AGREEMENT This AGREEMENT may be modified or amended only by a written agreement duly executed by the parties hereto or their representa- tives. SECTION XIII ENTIRETY This AGREEMENT and the AGREEMENT for Solid Waste Collecting and Disposal Services dated March 18, 1986 contains the entire AGREEMENT between the parties as to the matters contained herein. Any oral representations or modifications concerning this AGREEMENT shall be of no force and effect. Page 30 0 0 IN WITNESS THEREOF, we, the authorized agents of the contract- ing parties, by our duly authorized agents, do hereby affix our signatures and seals this September 4th , 1990. CITY OF SAN JUAN CAPIST O G ry Hausdorfer, ayor ATTEST: Cheryl J%6hmon, City Clerk APPROVED AS TO John R. Shaw,itf A dg/AF071790 day of SOLAG DISPOSAL, INC. Title Page 31 ADMINISTRATIVE ITEMS CITY MANAGER 2. 0 Report dat d S ptember 3, 1991, fr m the Assistant C ty Manager, f ar ing a Resolution ss' ning to the Coun - ity Hazardous at ial Emergency R po se Authority th Ci y's interest n t e collection of co s from those p rso s or entities esp nsible for a ha r us materials mi hap which has resu ted in an emergency es onse service. Douglas u art, Management s istant I, presen ed he staff report. It wased by Counc Jones, hat the foil O U O O. T T OR C CITY COUNCIL OF CALIFORNIA HAZARDOUS MAT 1 AND ASSIGN UT AUTHORITY motion AYES: / usdorfer, second d y Councilman esolution be ad t d: C" N ^T R S MATERIAL EMERd CY RESPONSE ORANGE - A RE XJTION OF THE CITY OF SAN CAPISTRANO, NG THE O E COUNTY -CITY EMERGENCY PONSE AUTHORITY LIN RECOVEI RIGHTS TO SAID the ilmen Jory4s, ez, and/kayc ABSENT: Councilman Buchheim iess 0 --� 3. EXTENSION OF CONTRACT - CURBSIDE RECYCLING SERVICES (SOLAG DISPOSAL. INC.) (6000..301 Written Communication: Report dated September 3, 1991, from the Management Assistant I, recommending that the contract between the City and Solag Disposal be extended through June 30, 1992, for the residen- tial curbside collection of recyclable materials. Costs for this service will be absorbed through the garbage collection bill, and user fees will not be increased. -11- 9/3/91 4. 5. 0 0 Douglas Dumhart, Management Assistant I, presented the staff report and noted the success with the Phase I pilot area. Final adoption of Phase II is scheduled for November 1991, with implementation expected between April and June 1992. Joan Scarantino, 27441 Ortega Highway, inquired about the revenues and expenses generated by the program. Mr. Dumhart explained that although the City obtains rebates from Solag Disposal, the program essentially operates at a loss to the City. Approval of Contract Extension: It was moved by Councilman Hausdorfer, seconded by Councilman Jones, and unanimously carried that the Recycling Agreement between the City and Solag Disposal be extended to June 30, 1992. The Mayor and City Clerk were authorized to execute the agreement on behalf of the City. Report ed September 3, 1 1,/o�wned e ss' taut City Manager forwarding an ag eemee t City and Marbel Development Co a whics t City with a cash yment in the a u of $9co r grading and co ction of the a ess road ateau area of i opter Hill by city. Mr. Scarborough ted the modito the proposed Ag eement, at th request of the r, clarifying that th developer not required tothe City with any of er access r m any of the grope by the developer. It w�ds�moved y Councilman Hau rfer, seconded by Councilman Jones, and nanimously carr' d that the Agreement Regarding Access to Helicopter Hil be ween the City and Marbella Developme Company be prove , as modified, providing the City wit a cash paym t in t e amount of $95,100 to cover grading #nd const ru ion of t e access road to the plateau area of elicopte ill by the City. Written Communications: (1) Report dated September 3, 1991, from the Assistant City Manager, recommending that an agreement between the City -12- 9/3/91 AGENDA ITEM 0 0 September 3, 1991 TO: Stephen B. Julian, City Manager FROM: Douglas Dumhart, Management Assistant I SUBJECT: Contract Extension - Curbside Recycling Service with Solag Disposal, Inc. SITUATION: The Recycling Agreement between the City of San Juan Capistrano and Solag Disposal, Inc. to provide residential curbside recycling service is scheduled to expire October 3, 1991. The Recycling Agreement has been provided as attachment "A". The expansion of city-wide curbside recycling is scheduled to be implemented in the second quarter of 1992. It is the City's desire to continue the pilot program area known as "Phase I" until city-wide expansion can be achieved. The program has received great reviews from many of the participants and to discontinue service from the Recycling Agreement termination date until city-wide expansion could have ill effects on participation and acceptance. For that reason, we are requesting an extension of this contract until June 30, 1992. Additional Information During the course of Phase I we have been carefully monitoring the program so as to evaluate the criteria necessary for city-wide expansion. The City has surveyed all participants in the Phase I program with a return mail questionnaire. This enabled us to evaluate the effectiveness and success of the residential curbside recycling program selected. The results of the survey are provided as an Attachment "B". The City also had a limited procedure review performed on the records of the recycling program. A limited procedure review is like a small scale accounting audit. This limited review suggests that the Phase I program as currently structured, costs Solag Disposal more to operate the program than the negotiated rate. The limited procedure review has been provided as Attachment "C". With some minor modifications to the program structure as outlined by the Recycling Agreement, we will be able to continue the service for the same negotiated rate. Items which have been targeted for amendment in the agreement are the start time permitted, the amount of record keeping required and the terms of the contract. FOR CITY COUNCIL AGEND k Ic 0 9 Agenda Item -2- September 3, 1991 Originally the thinking was that the City would hold the contractor to an 8:00 a.m. start time allowing homeowners time to set out recyclables for collection on the morning of pick up. Setting recyclables out the morning of pick up was thought to reduce theft and scavenging. It has been discovered that homeowners put their recyclables out at their convenience and are not overly concerned with scavenging. It has also been found that starting one hour later than the normal garbage collection time causes the recycling truck to hit afternoon traffic on the I-5 freeway to and from the recycling center. Starting the collection of recyclables at 7:00 a.m. should help to miss rush hour traffic and decrease overtime costs. Additionally, since homeowners are putting their recyclables out for pick up with their garbage the night before, as opposed to the morning of collection, preventing scavenging will be more effective if the recyclables are collected as soon as possible the next day. Another area of change involves participation record keeping. For staff to effectively analyze and evaluate this type of recycling program, provisions were incorporated into the Recycling Agreement to have the contractor keep detailed participation records. Keeping track of the participation rates meant having two persons on the truck for the program. One person to drive and mark the route sheets, the other to empty the recycling container. Now that the program has been evaluated the need for this additional record keeping is not necessary. Deleting this requirement from the agreement will enable Solag Disposal to run the program with one person on the truck thereby reducing labor costs by half. Finally, the last amendment to the agreement is in regards to the terms extending the length of the agreement to June 30, 1992. An amendatory agreement has been drafted for your approval and is provided as Attachment "D". The details and selection of expanded city-wide residential curbside program should come before the City Council early next year. COMMISSION/BOARD REVIEW & RECOMMENDATIONS: Not applicable. FINANCIAL CONSIDERATIONS: The cost of this service is already covered in the garbage collection bill, thus the proposed extension will not increase user fees. All billings and accountings are provided by the contractor, Solag Disposal, Inc. NOTIFICATION: Solag Disposal, Inc. 0 Agenda Item -3- September 3, 1991 ALTERNATE ACTIONS: 1. By motion, approve the requested contract extension to the Recycling Agreement with Solag Disposal to be effective through June 30, 1992. 2. Do not approve the contract extension. 3. Refer back to staff for additional information. ----------------------------------------------------------------- ------------------------------------------------------------------ RECOMMENDATION: By motion, approve the requested contract extension to the Recycling Agreement with Solag Disposal to be effective through June 30, 1992. ------------------------------------------------------------------ ------------------------------------------------------------------ Respectfully submitted, 44441-441*?4 Douglas Dumhart DD:dh Attachments: All attachments are on file with the City Clerk with the exception of Attachment "C". Due to its proprietary information, it is found in Council Packets only. —� 5. 0 0 Councilman Friess felt that the gang problems within the City, although on a relatively small scale, should not be ignored. He stated concern regarding budget impacts but alternative program were unknown at this time. He cited support for the program only on the basis of a one-year evaluation. The Council voiced concerns regarding budget impacts and the potential for additional fees and costs to be added by the County after the program is implemented. Approval of Intent+on to Participate in Program: It was moved by Councilman Friess, seconded by Councilman Bland, and unanimously carried that the City Council state its intention to participate in the proposed Gang Prevention and Suppression Team Program for one year, after which time the program will be evaluated by the City. The City's participation is also to be based on the amount of $27,400, representing the City's share of costs for the program for the first year, and the requirement that San Clemente be part of the program. The City Manager was directed to draft a letter to the Board of Supervisors for the Mayor's signature requesting an indication of their commitment to the program. Written Communication: Report dated September 4, 1990, from the Assistant City Manager, summarizing the three components necessary to implement the state -mandated proposed curbside recycling program in conjunction with the Cities of Dana Point and San Clemente. Phase I of the program is anticipated to begin October 3, 1990, in two selected neighborhoods, at a cost of $2.48 per residence. The program will be re-evaluated after a six-month period to determine its effectiveness. Mr. Scarborough made an oral presentation, noting that the $2.48 cost per residence is guaranteed for a one-year period. James Routroulis of Solag Disposal suggested that the costs be shared by both residential and commercial property owners because of the program's general benefits to the City. He noted that one of the mobile home parks on Alipaz Street may be included in Phase I and that the bins would be picked up at individual mobile homes. Approval of Agreement: It was moved by Councilman Friess, seconded by Councilman Buchheim, and unanimously carried that the Recycling Agreement between the City and Solag Disposal, Inc. be -9- 9/4/90 AGENDA ITEM TO: FROM: SUBJECT: SITI IATION 0 1-1 September 4, 1990 Stephen B. Julian, City Manager George Scarborough, Assistant City Manager Approval of Amendment to Agreement Between Solag Disposal, Inc. and City of San Juan Capistrano At the City Council meeting of June 19, 1990, Council gave approval in concept to the proposed curbside recycling program. The City, in conjunction with the Cities of Dana Point and San Clemente, has been working to develop a recycling program to meet the State mandated requirements of AB 939. The recycling program consists of three components: 1. Phase I curbside recycling; 2. Compliance with AB 939 to develop a mandated source reduction and recycling element; 3. The proposed establishment of a JPA to provide regional coordination of efforts to comply with the State mandates. Curbside Recycling An agreement has been finalized and approved by Solag Disposal, Inc. that provides for implementation of curbside recycling conforming to the major elements outlined below. The agreement with Solag Disposal, Inc. was approved and executed by the City of Dana Point on August 14, 1990. Based upon the approval of this agreement with Solag Disposal, Inc. by the City of San Juan Capistrano and upon the approval of the agreement with San Clemente Commercial by San Clemente on September 5, 1990, the proposed start date for Solag to begin providing curbside recycling collection services in the Phase I service area in San Juan Capistrano is October 3, 1990. The agreement with Solag for Phase I of curbside recycling is composed of the following elements: 1. The Phase I area to be served will be composed of 1,000 residential units in the area of Harbor Lane Homes and Troy Homes as shown on map included as an attachment. 2. The pickup of recyclable materials will be scheduled on the same day as the existing regularly scheduled refuse collection service day. 3. The materials to be collected and transported by Solag to the market places will be: newspapers, glass containers, metal (aluminum and steel/tin) cans and plastics (all PET soft drink bottles and half gallon and larger HDPE milk and water containers). FOR CITY COUNCIL AGEND 91 AGENDA ITEM • September 4, 1990 Page 2 0 4. The three -bin method of separation and collection is the method proposed by Solag Disposal, Inc. and supported by the three Cities' staff. The containers will be of the nesting type in a set of three. The containers will include a gray bin for cans and plastic bottles, a blue bin for glass bottles and a tan bin for newspapers. 5. The bins for the recyclables will be distributed by Solag to the individual homes a week prior to the start of the program. Instructions and encouragement for participation will be included with the bins. A hotline telephone number will be noted on the bins and publicized. 6. Solag will purchase sufficient bins to be furnished to the 1,000 residents plus a 5 percent reserve for replacements. The residents will receive the initial allocation of bins at no cost. Replacements for damaged, lost or stolen bins will be at the cost of the resident, excepting containers damaged by contractor. The City Manager or designee will be responsible to resolve any dispute regarding charges for container replacement. 7. Collection of the recycled materials by Solag will not commence before 8:00 a.m. This schedule will be publicized, and all residents will be requested to not put recyclables out until the morning of the scheduled pickup day to reduce scavenging. 8. Solag will sell all recyclable material at fair market value at a reasonably accessible location at the end of a normal working day. The purchaser of these materials will make payment directly to the City. 9. At the conclusion of a six-month period following commencement of the Phase I curbside recycling services, the data collected from information provided by the contractor and by City staff will be evaluated to assess the effectiveness of the program. In addition, Solag's records will be audited to determine the actual costs of providing the curbside recycling program services. This information will be used to make a decision as to whether to modify the program and/or expand to include other areas of the City or continue with the same area for an extended period of evaluation. 10. Since there will be a diversion of solid waste from the landfill and a corresponding reduction in the amount of waste material to be hauled by Solag under the basic solid waste contract with the City, Solag will pay to the City on a quarterly basis a diversion credit amount equal to the per ton gate fee at the County landfill at the time of the collection, multiplied by the number of tons of recyclable materials sold by Solag during that period. Subsequently, that diversion credit will be passed on to the rate payers in the form of lower rates. 11. Solag will invoice each subscribing residential customer for curbside recycling services. However, as noted earlier, all revenue from the sale of recyclable materials will be paid directly to the Cities. 12. The cost proposal from Solag Disposal for the Phase I program is $2.48 per residence per month with the price guaranteed for a one-year period from the date of implementation of the program unless the Cities modify and/or expand the program before the end of the one-year period. However, Solag's records will be audited at the Cities' cost at the end of six months following implementation of the program to determine the actual cost and profits in providing the services. This AGENDA ITEM • • September 4, 1990 Page 3 cost information will be considered in the extension, expansion or modification of the recycling program and the negotiation of any contract amendments. A public education and outreach program will be initiated in advance of the start- up of the curbside program. The program will include: o A mailer to all residents in the Phase I area with instructions and encouragement for participation in the program. This will occur approximately two weeks before the start-up date. o Further instructions and encouragement for participation will be included with the delivery of the bins by Solag Disposal, Inc. A hotline telephone number will be publicized to answer questions about the program. o The recycling program will be publicized extensively in the media serving the City of San Juan Capistrano, including local newspapers and CATV. Information will also be sent to all homeowners associations and civic groups to promote the Phase I curbside recycling program as well as the concept of source reduction and recycling of materials. o Public awareness and education will also be undertaken with various civic groups, schools and other organizations following the start-up of the initial curbside recycling program. 13. At the conclusion of Phase I of the curbside recycling program, City reserves the right to solicit requests for proposals from any other entity for curbside recycling services. Each City will enter into a separate and similar agreement/amendment with Solag Disposal, Inc. for recycling services. Dana Point approved their amendment with Solag on August 14, 1990, and San Clemente should take action on September 5, 1990. While providing for the unique situational agreements with each City an Solag, economics of scale will be allowed by working together. Revenue As part of the overall recycling program, the City will receive revenue from two sources. One source will be from the sale of recyclable materials collected by Solag and delivered directly to a buyer on the open market. The amount of revenue the City will realize from the sale of the materials will depend on residence participation rates and fluctuation in the marketplace prices for the material. The other source of revenue to the City will be from quarterly payments made by Solag Disposal as a diversion credit amount. This payment is derived from the fact that there will be a diversion of solid waste from the County landfill and a corresponding reduction in the amount of waste material to be hauled by Solag under the basic solid waste contract with the City. The quarterly payments will be equal to the per -ton gate fee at the County landfill at the time of collection multiplied by the number of tons of recyclable materials sold by Solag during that period. The revenue from these two sources will be fully utilized to partially underwrite the cost of the recycling program. AGENDA ITEM • • September 4, 1990 Page 4 State Mandated AB 939 AB 939 requires all Cities and Counties to prepare, adopt and implement a Source Reduction and Recycling Element which identifies how the jurisdiction will divert, through source reduction, recycling and composting, 25% of solid waste from landfill or incinerator by 1995, and 50% or the maximum amount feasible by 2000. The element must be submitted to the County by July 1, 1991, then approved by the California Integrated Waste Management Board. The Board may impose administrative civil penalties on the City or County of up to $10,000 per day for failure to develop an adequate Element or Plan. JPA for Solid Waste Management It is anticipated that, within approximately three months, the Staffs of three Cities, San Juan Capistrano, Dana Point and San Clemente, will propose to establish a Joint Powers Authority to deal with all existing and future integrated waste management matters. The purpose of a JPA would be to provide reliable, economical, integrated and environmentally sound waste management services to all of the residents of the tri -City area. Attached are the estimated costs associated with this JPA. It must be realized that these budget projections are extremely preliminary. More accurate numbers will be generated during the preparation of the Source Reduction and Recycling Element which will be prepared early in 1991. Costs of Recycling Program and State Mandates The costs of the first-year operations of a recycling program include those costs associated with the Solag Agreement, the costs of meeting AB939 mandates, including consulting costs, and the costs associated with a JPA. All of these costs are necessary and appropriate costs of providing solid waste services and should be recovered from user fees. A. The costs associated with the Phase I, identified in the Solag Agreement, would be $2.48/month per household for 1,000 households or $2,480.00 per month, $29,760.00 per year. B. AB 939 Compliance Costs - The costs involved with meeting the AB939 include supplies and contractual services. The total cost for AB939 compliance is $83,160.00. C. JPA Costs - These costs would include all costs associated with the development and implementation of a JPA for 9 months beginning January 1, 1991. The total JPA cost would be $45,170.00. Instituting the recycling program and meeting State mandates will require that our garbage collection fees be increased. It is Staff's intention to request City Council approval of a user fee increase at the next City Council meeting. Negative Declaration A negative declaration has been prepared for the curbside recycling program and approved by the Environmental Review Board on Tuesday, August 14, 1990. AGENDA ITEM • . September 4, 1990 Page 5 NOTIFICATION Solag Disposal, Inc. City of Dana Point City of San Clemente COMMISSION/BOARD REVIEW, RECOMMENDATIONS N/A FINANCIAL CONSIDERATIONS The costs for the collection of recyclable materials under the proposed agreement has been set by Staff and Solag at $2.48/month per household for a total Phase I cost of $29,760 in the first year. Additional costs of the recycling program include: A. AB 939 compliance costs which will be approximately $83,160.00; B. JPA costs which will be approximately $45,170.00. User fees will be used to offset costs of the mandated recycling program. ALTERNATE ACTIONS 1. Approve and execute the agreement with Solag Disposal, Inc, for the performance of curbside recycling services at the cost of $2.48/month per household. 2. Do not approve the agreement with Solag Disposal, Inc. for curbside recycling services. 3. Refer back to Staff for additional information. RECOMMENDATION Approve and execute the agreement with Solag Disposal, Inc. for the performance of curbside recycling services at the cost of $2.48/month per household. Respectfully submitted, City Manager GS/JAZ:cl Attachments 0 0 1990-1991 BUDGET SOLID WASTE MANAGEMENT - RECYCLING 3 Months 9 Months TOTAL 10-3-90 to 1-1-91 to 12-31-90 9-31-91 REVENUES Recycling Salvage (Based on $.0375 per lb. x 48 lbs per month per household x 40% participation rate) $2,160 $6,480 Landfill Diversion (Based on $17.75 per ton) $ 510 $1,530 Solag Cost Savings $ 50 $ 150 TOTAL REVENUE $2,720 $8,160 $10,880 EXPENDITURES 3 Months 9 Months TOTAL 10-3-90 to 1-1-91 to 12-31-90 9-31-91 SOLAG RECYCLING SERVICES ($2.48 x 1000 households per month) $7,440 $22,320 $29,760 TOTAL SOLAG COSTS $7,440 $22,320 $29,760 0 COMPLIANCE COSTS AS 939 3 Months 9 Months 10-3-90 to 1-1-91 to 12-31-90 9-31-91 SUPPLIES Maps and Blueprints (Route Maps for curbside recycling areas) $ 200 $ 130 TOTAL Postage $2,500 $ 600 $ 0 TOTAL SUPPLIES $2,700 $ 730 $3,430 CONTRACTUAL SERVICES Advertising (newspapers TV ads) Printing and Binding (public information) Accounting and Auditing (bi-annual audit) $ 650 $2,500 $ 0 Other Professional Services (consulting services) $19,000 $2,500 $1,500 $3,330 $51,000 Other Contractual Services $ 500 $ 0 TOTAL CONTRACTUAL SERVICES $22,650 $57,080 $79,730 TOTAL COMPLIANCE COSTS AB939 $25,350 $57,810 $83,160 0 0 JPA COSTS 3 Months 9 Months TOTAL 10-3-90 to 1-1-91 to 12-31-90 9-31-91 PERSONAL SERVICES Salaries Permanent Solid Waste Mgmt. Coordinator $ 0 $11,250 Salaries Part time - 20 hrs Books, Codes, Supplements $ 0 per week (typist clerk) $ 0 $ 5,250 Premium Overtime $ 0 $ 255 Auto Allowance $ 0 $ 1,200 Employee Benefits $ 0 $ 5,640 TOTAL PERSONAL SERVICES $ 0 $23,605 $23,605 SUPPLIES Office Supplies $ 0 $ 750 Books, Codes, Supplements $ 0 $ 170 Other Operating Supplies $ 0 $ 800 TOTAL SUPPLIES $ 0 $ 1,720 $ 1,720 CONTRACTUAL SERVICES Travel and Training $ 0 $ 500 General Liability Insurance $ 0 $ 5,000 Telephone and Telegraph $ 0 $ 600 Maintenence of Office Equipment $ 0 $ 375 Other Legal Services (JPA legal assistance) $ 0 $ 1,000 Rental of Buildings $ 0 $ 3,750 TOTAL CONTRACTUAL SERVICES $ 0 $11,225 $11,225 3 Month 9 Month 10-3-90 to 1-1-91 to 12-31-90 9-31-91 TOTAL OTHER CHARGES Dues and Subscriptions $ 0 $ 130 (magazines/associations) TOTAL OTHER CHARGES $ 0 $ 130 $ 130 CAPITAL OUTLAY Office Furniture & Equipment (computer printer, software) $ 0 $ 2,670 Chair $ 0 $ 150 Telephone (confrence) $ 0 $ 100 Calculator $ 0 $ 20 Desk $ 0 $ 700 File Cabinet $ 0 $ 350 Fax $ 0 $ 670 Copier $ 0 $ 3,330 Car Phone $ 0 $ 500 TOTAL CAPITAL OUTLAY $ 0 $ 8,490 8,490 TOTAL JPA COSTS $ 0 $45,170 $45,170 $147,210.00 3 MONTH 6 MONTH TOTAL TOTAL SOLAG COSTS $ 7,440 $ 22,320 $ 29,760 TOTAL COMPLIANCE COSTS $ 25,350 $ 57,810 $ 83,160 TOTAL JPA COSTS $ 0 $ 45,170 $ 45,170 TOTAL EXPENDITURES $ 32,790 $125,300 TOTAL REVENUE $ -2,720 $ -8,160 NET EXPENDITURES $ 30,070 $117,140 $147,210.00 CITY OF SAN JUAN CAPISTRANO PHASE I CURBSIDE RECYCLING PROGRAM AREAS • !!�■A!a Peat M:a rwi c k U, E t • • f r7 S • Certified Public Accountants REPORT ON FINANCIAL AND MANAGEMENT REVIEW of SOLAG Disposal, Inc. December 1991 SOLAG DISPOSAL, INC. Report on Financial and Management Practices December 1991 Table of Contents 2 0 4W A 7- Billings and Collections.......................................................................................... 2 General and Administrative Costs........................................................................... 5 LaborCosts............................................................................................................. 6 LandFill Gate Fees................................................................................................. 7 Methods for Allocating Expenses to Individual Cities ............................................... S Franchise Fee Calculation and Payment.................................................................... 9 Equipment Replacement Reserve.............................................................................. 10 ContractProfitability............................................................................................. 10 Compliance with Significant Contractual Requirements .......................................... 12 Management Practices and Procedures..................................................................... 13 Accounting Practices............................................................................................... 13 AccountingRecords................................................................................................. 14 Equipment Maintenance and Condition.................................................................... 14 Collection Routes - Procedures and Practices........................................................... 15 2 0 4W A 7- s AREPPW Peat Marwick 0 Certified Public Accountants Orange County Office Center Tower 650 Town Center Drive Costa Mesa, CA 92626 4P December 17,1991 Mr. Stephen Julian S City Manager City of San Juan Capistrano, California Dear Mr. Julian: 1 Member Firm of Kynveld Peat Marwick Goerdeler We have applied certain agreed-upon procedures, as discussed below, to the various records and . practices of SOLAG Disposal, Inc. for the eighteen month period ended June 30, 1991. This letter sets forth procedures and findings resulting from that review. In conducting our work we performed the procedures described below. Reviewed financial policies, practices and transactions in the following areas: Costs associated with the billing and collection of fees, including bad debt experience and resulting write-offs; • General and administrative costs; • Level of direct and indirect labor costs, including benefits; • Land fill gate fees; Method of allocating expenses to individual cities; • Franchise fee payments to each participating city; • Practices relating to the establishment of equipment replacement reserves; • Profitability of the contract with each participating city based on the allocation methods developed. . Reviewed management policies and procedures in the following areas: • Compliance with the individual Cities' significant contractual requirements; • General management practices and procedures; • Records management and accounting practices; • Maintenance practices and condition of equipment; Collection routes, procedures and practices. Our review was performed at the request of the cities of Dana Point, Laguna Niguel and San Juan Capistrano (the "Cities"). Our findings as set forth in the remainder of the report relate to all Cities unless specifically identified as only relating to one particular City. 1 Member Firm of Kynveld Peat Marwick Goerdeler Mr. Stephen Julian City Manager City of San Juan Capistrano December 17,1991 Page 2 BILLINGS AND COLLECTIONS r Procedure - Reviewed the costs associated with the billing and collection of fees, including bad debt experience and resulting write-offs. The Company bills and collects charges for all customer accounts. Billing is performed quarterly for residential units and monthly for commercial customers. The majority of customers are residential (about 22,800) and are processed on a computerized data base which is updated monthly. Billings are prepared in advance of the service period. Approximately three days before mailing the bills (on the 25th of the month before the beginning of the quarter), the administrative staff begins updating the customer data base to ensure all the customers receiving service will be billed. The Company uses postcards which are preprinted with all items except customers name and address. The postcards are two part with one kept by the customer as a receipt while the other is forwarded with payment as the remittance advice. The postcards are sorted by zip -code and batched into stacks of 250 for preferred mailing rate prior to being mailed. No envelopes are provided. In October 1990, the Company established a bank lock -box to which customers send payments directly. The lock -box service costs approximately $22,000 per quarter. For residential accounts, the bank deposits funds as received and posts payments to the Company accounts receivable files which are updated daily, via modem, at the Company. The bank then mails the remittance advices. For 46 commercial accounts, the bank only deposits the funds and forwards the remittance advices to the Company which posts to the accounts receivable subledger. By contracting this work at the bank, management believes there are cost savings in the staff reduction. Additionally, this allows the bank to keep records of these activities, which provides off-site storage for these Company transactions. If payment has not been received 45 days after billing, a reminder notice is sent to the customer. This S notice indicates that service will by stopped if payment is not received within an established number of days which varies by city. If payment has still not been received at the end of this period the customer is placed on the "stop list" This list is updated daily and given to all drivers before leaving for their routes. This stop list acts as the Company's control over its service population. Any newly developed areas are automatically placed on this list and service will not commence until a customer request is received. The Company employs an individual to "audit" the routes and verify that all customers receiving service are properly billed. Documentation of the routes audited is retained for future reference. The majority of customers pay within the first 45 days of billing (many within the first 20 days), hence, are not sent reminder notices. If a reminder notice is sent and no response is received, non-paying customers are first telephoned with a follow up person-to-person visit. Occasionally, the Company will refer a non-paying customer account to a collection agency, however, this is not common according to management. We noted that bad debts amounted to less than $5,000 per year which is less than 1% of revenue. 0 L", E 0 i 0 C] L1 Mr. Stephen Julian City Manager City of San Juan Capistrano December 17,1991 Page 3 Currently, the number of residential units serviced by the Company, including homeowner association residential units, for the three Cities is as follows: Residential units not provided refuse service or not billed 2_,163 22 4L There are various factors which could cause a difference between the number of residential units billed by the Company and the City's records, including: 1) Refuse collection is not mandatory making participation fully voluntary; 2) Some curbside customers are billed as commercial as they have contracted to have the commercial bins. 3) Not all residential dwellings in a City are occupied at any one point in time; and 4) Not all units receiving service are being billed. The residential disposal fees vary by City and are summarized as follows: Dana Point San Tuan Capistrano �Laguna Niguel Base rate $ 6.53 6.14 6.50 Recycling fee - 1.01 - Landfill gate fee 4_43 4.43 4_43 Total $10.96 11.58 10.93 The Company includes homeowners associations in its commercial billings cycle because the homeowner r associations are billed, not the individual residence. For these monthly billings, the Company obtains the number of occupied dwellings from the associations and bills accordingly. If the Company believes there is an inaccurate count of occupied units they will send a Company employee to "audit " the number of occupied dwellings prior to the billing. F] 9 Dana Point San Tuan Capistrano Laguna Niguel Residential units billed quarterly 7,344 4,904 10,566 Association units billed monthly 2.315 2.006 2-553 Total residential units billed 91659 66 10 1119 Number of residential units per Cary records 11 822 9 17,172 Residential units not provided refuse service or not billed 2_,163 22 4L There are various factors which could cause a difference between the number of residential units billed by the Company and the City's records, including: 1) Refuse collection is not mandatory making participation fully voluntary; 2) Some curbside customers are billed as commercial as they have contracted to have the commercial bins. 3) Not all residential dwellings in a City are occupied at any one point in time; and 4) Not all units receiving service are being billed. The residential disposal fees vary by City and are summarized as follows: Dana Point San Tuan Capistrano �Laguna Niguel Base rate $ 6.53 6.14 6.50 Recycling fee - 1.01 - Landfill gate fee 4_43 4.43 4_43 Total $10.96 11.58 10.93 The Company includes homeowners associations in its commercial billings cycle because the homeowner r associations are billed, not the individual residence. For these monthly billings, the Company obtains the number of occupied dwellings from the associations and bills accordingly. If the Company believes there is an inaccurate count of occupied units they will send a Company employee to "audit " the number of occupied dwellings prior to the billing. F] 9 • Mr. Stephen Julian City Manager City of San Juan Capistrano December 17,1991 Page 4 Result - Considering the staff time required to audit and update the customer base and process bills, we suggest alternative billing options be considered. These may include: i • Billing on a cyclical basis, with one-third of the bills processed each month. Because only one-third of the bills would be processed, fewer staff would be required for the task. • Utilizing a data center for the preparation of bills. Processing the refuse bills with water bills. • Include the refuse bills on the County property tax bills with the appropriate arrangements and payment of a processing fee. We recommend these suggestions be considered to improve cash flow and reduce operating costs. Further, we believe that 45 days is an excessive amount of time to allow for payment of customer bills. A payment cycle allowing 20 days for payment of the bill is more typical. Further, it appears that, while staff is quite busy during the quarterly billing cycle, these employees may be underutilized during the remaining two months of each quarter. We also recommend field audits be performed on a systematic cyclical basis and the results be documented and reviewed for propriety. These field audits should include the homeowner associations. 0 f r 0 If the billing and collections function for the approximately 22800 residential units were handled outside the Company, either by mandatory refuse service and inclusion on the property tax bills or by processing with the water billings, significant cost savings to the Company could result from cost reductions in areas such as: Estimated Potential qavingr. Bank lock box (residential only) $ 64AN Postage 13AW Invoices (postcards) 2,000 Staffing _34DW Total $113,000 Additionally, revenues could be expected to increase if disposal service were mandatory. i 0 E Mr. Stephen Julian City Manager City of San Juan Capistrano December 17,1991 Page 5 GENERAL AND ADMINISTRATIVE COSTS Procedure - Reviewed the general and administrative costs. General and administrative expenses were 11% of the Company's total expenses for the eighteen months -ended June 30, 1991. General and administrative expenses consisted of: Insurance (9%), office expense (9%), professional fees (12%), office salaries, not including management (20%), and management salaries (19%) and other (31%). Insurance consists of the cost of the Company's HMO plan for which all employees and their families are provided coverage. Office expense is made up of non- capitalizable costs relating to the operation of the business. Professional fees consists of accounting, (the yearly review), legal, and software consulting fees. Office salaries expense relate to the salaries paid to all office administrative staff. Management salaries consist of the President's, Vice President's, and General Managers salaries. We compared the Company's expense ratios to the other refuse haulers below: Ratios are expressed as a percentage of revenue: Result - General and administrative costs appear reasonable, however, with the modifications in the billing and collection processes discussed above, some labor costs savings could be realized. Further, we recommend that the Company include the president's and the general manager's salaries in general and administrative expenses to more accurately present the financial statements and parallel industry practices. i 0 Other Ratios: Refuse SOLAG Haulers Collection Costs (including dump fee) 90% 73% Selling, general and administrative 11i% 19% i 106% 92% The industry percentage of 92 indicates that expenses are 92% of revenues, thus providing an 8% margin. The SOLAG percentage of 106 indicates that expenses are 106% of revenues, thus reflecting a loss situation. Because the refuse industry is comprised of many conglomerate and integrated companies, the general and administrative costs are frequently allocated from a parent company and may include marketing and other dissimilar costs, resulting in industry statistics on general and administrative costs as a percentage of expense not being meaningful. However, our contacts of other refuse haulers provided the percentages cited above. noted that the Company includes the president's salary and a portion of the general manager's 1P salary in the collection costs rather than being included in general and administrative expenses. For salary the table above, these amounts have been included in general and administrative expenses. (See further discussion below in Labor Costs). Result - General and administrative costs appear reasonable, however, with the modifications in the billing and collection processes discussed above, some labor costs savings could be realized. Further, we recommend that the Company include the president's and the general manager's salaries in general and administrative expenses to more accurately present the financial statements and parallel industry practices. i 0 s Mr. Stephen Julian City Manager City of San Juan Capistrano December 17,1991 Page 6 LABOR COSTS Procedure - Reviewed the level of direct and indirect labor costs, including benefits. • We reviewed the Company's organizational structure noting a typical hierarchical structure. The Company is privately owned and the three top members of management are related. Management has stated that the current level of staffing is sufficient for the customer service required in the refuse business. Additionally, the Billing and Collection and General and Administrative • sections of this report address support staffing levels. Our analysis of direct labor, which includes the drivers, foremen, swampers (second man on residential trucks), mechanics, welders, and associated benefits, indicated that the Company expended 28% of total expenses on direct labor for the eighteen months ended June 30, 1991. Employees included in direct labor typically work fifty hour weeks. Included in the Company's collection costs is an account entitled "contract sweeper" (see Attachment 1). In discussions with management we noted this account is the result of contract services performed by a related company and includes amounts billed for the following : president's salary, approximately one-half of general manager salary and all of the mechanics' and welders' salaries. The reason for subcontracting mechanic labor is that it allows for a significant savings on workers' compensation • insurance premiums as the modification factor (adjustment for nature of business) is lower than it would be with a refuse disposal company. This company, Capistrano Sweeper Co., is owned by SOLAG's General Manager and was formed specifically to perform street sweeping and mechanical services for SOLAG. The Capistrano Sweeper Company pays their personnel and then bills SOLAG . For the eighteen months ended June 30, 1991 the total amount billed to SOLAG by Capistrano Sweeper Co. was $798,703 which is included in the contract sweeper account in Attachment 1 and is comprised approximately of the following salary amounts: President $ 36,000 General Manager 90,000 r Operations manager 30.000 Subtotal 156,000 Less: Total Capistrano Sweeper Co. (798,703 Mechanic's and welder's salaries 642,703 • Divided by number of mechanics and and welders + 14 Average eighteen month salary per mechanic and welder $ 45,900 • This eighteen months of salary represents an annualized salary of $30,600 including overtime and suggests that billings for subcontracted mechanics and welders labor are not unreasonable. 0 i Mr. Stephen Julian City Manager City of San Juan Capistrano December 17,1991 Page 7 Of the fourteen employees, three are full time welders who repair and paint bins. The remaining eleven are full time mechanics assigned to a fleet of 52 vehicles for a ratio of approximately 1 mechanic per 5 vehicles. Discussions with other organizations responsible for maintenance of large vehicles • (refuse trucks, buses, etc.) revealed that a ratio of 1 mechanic for 4 to 6 vehicles is not unusual. Management indicated that a typical workload per day for vehicle repairs is as follows: 1) One to two major vehicle repairs - one to three day projects. • 2) Three to four minor vehicle repairs - One to four hour projects. 3) Three to four vehicles receiving preventive maintenance - oil changes, brake inspections, tune ups, etc. Results - The structure and level of staffing for direct labor in operations appears appropriate. The level of staffing constituting indirect labor for administrative support appears excessive, as eight administrative staff are available to handle customer calls, billing, cash collections (walk-in receipts) and accounts payable. A review of staffing assignments and workloads coupled with modification of the billing process as previously discussed may result in opportunities to reduce administrative support costs. • LAND FILL GATE FEES Procedure - Reviewed the Company's land fill gate fees. The Company bases residential billings on an estimate of 390 pounds of rubbish collected per month. Included in the 390 pound factor is an administrative allowance of 4.4% or 17 pounds and a 373 pound factor for refuse collected. The Company's records indicate that the actual average pounds of residential rubbish collected per month is 273 pounds for the three Cities combined. The difference between the 373 pounds factor billed and the actual refuse collected of 273 pounds may be caused by fluctuations in refuse weight such as an unusually dry period, recycling or changes in customer habits. It should be noted that the administrative allowance is considered by the Company to be part of the landfill gate fee and thus the franchise fees paid to the Cities are not applied to this portion of customer billings. Had the administrative allowance been included in the base rate, franchise fees for 1991 would have been increased by approximately $48,000 for the Cities combined. Results - The current landfill fee structure which includes the administrative allowance factor is confusing and results in an inaccurate base rate fee. The base rate fee is, in effect, understated as it does • not include these administrative allowances which appropriately should be included in the base rate fee and subject to franchise fees. We recommend the Company restructure the landfill fees by removing the administrative allowances in landfill gate fee formula and reflect these costs in the base rate fee. Additionally, we recommend the Company monitor, on an individual city basis, the average annual or monthly pounds of refuse per customer and adjust the landfill billing to the customer to reflect the actual. The Company should maintain and monitor accurate landfill fee records including tons disposed and amount billed. • Mr. Stephen Julian City Manager City of San Juan Capistrano December 17,1991 Page 8 METHODS FOR ALLOCATING EXPENSES TO INDIVIDUAL CITIES Procedure - Reviewed the method of allocating expenses to the individual cities. • We noted that currently the Company does not have a method to allocate expenses to each city served. Many factors are involved in effectively allocating expenses to the individual cities - topography, demographics, mileage, number of accounts, type of accounts, customer requests, etc. One possible allocation method would be an allocation by weight (tons of refuse collected) for each of • the cities. This method would appropriately assign the city with the heaviest loads the costs associated with that additional weight. This information is readily available through the examination of the County dump ticket receipts. However, given the current route structure, this method may not be accurate as the commercial routes often span more than one city while residential routes are typically within only one city. • A second possible allocation method would be allocation by the number of miles serviced within a city. This method would appropriately distribute the costs associated with vehicle wear and distance from pick-up to the dump. This method would not incorporate the expenses caused by weight. Currently, the Company does not have records on the number of miles served. To incorporate this method the Company would need to measure distance and topography for all routes served. Once measured and implemented, continual additions to the records should be made for variations in routes or for special • pick-ups. A third possible allocation method would be based on the revenue received by City. This method is simple and easy to apply. However, it does not recognize or mitigate the effects of any distortions caused by inequitable rates and, in fact, tends to promote the continuation of such inequities (if any), if future rate adjustments are based on costs incurred and allocated. A fourth possible method would be to allocate costs based on the number of residential and commercial customers served within each City. The Company maintains records of the number of residential units and the number of commercial bins collected each month in all Cities. This method assumes that all customers are of equal distance from the Company's operations. • Results - We believe that a revenue based allocation is the most practical method to allocate expenses as this method is simple and captures the specific number of residential and commercial customers served (see Attachment 1). This method also weights to some extent the allocation according to the number of miles traversed, as is currently the situation whereby Laguna Niguel customers are charged slightly more than San Juan Capistrano because of their greater distance to the dump. We used this method to allocate the Company's costs below under Contract Profitability. We also allocate the Company's expenses based on the number of customers served (residential units and commercial bins) within each City (see Attachment 2). The result of this method was comparable to the results obtained using the revenue based allocation. 0 • Mr. Stephen Julian City Manager City of San Juan Capistrano December 17,1991 Page 9 • FRANCHISE FEE CALCULATION AND PAYMENT • Procedure - Reviewed franchise fee payments made to the City. We reviewed the source data supporting the components of the calculation and recalculated the City's franchise fee for the year ended June 30,1991. Residential fees are based on a fixed base rate plus a landfill charge or dump fee (see schedule of current rates charged to the three Cities under Billings and Collections). Franchise fees are calculated • as a percentage of base rate charges, excluding dump fees. The Company calculates and remits the City franchise fee on a monthly basis for Dana Point and on a quarterly basis for both San Juan Capistrano and Laguna Niguel. The residential franchise fee is calculated on the number of customers paying (units), not actual cash receipts, during the previous month or quarter multiplied by the base rate in effect during the period. This total is then multiplied by the franchise fee percentage. For example, if 1,000 customers paid during the month or quarter, with a base rate of $5.00 and a franchise fee percentage of 5%; the franchise fee to be remitted to the City would be as follows: (1,000*$5.00)*5% _ $250.00. The commercial franchise fee is based on actual base rate cash receipts which are then multiplied by the franchise fee percentage. For both the residential and commercial franchise fee calculations, the land fill fees billed and collected do not enter into the calculation. I Results - The Company's calculation of franchise fee payments is not in accordance with the franchise fee agreements for all three Cities. The Laguna Niguel and Dana Point franchise agreements state that the franchise fee is to be calculated based on "gross annual receipts." The San Juan Capistrano agreement stipulate that the franchise fee is to be calculated using "annual gross revenues." The Company is not calculating the franchise fee in accordance with either methodology. Rather, as • discussed above, the Company calculates the franchise fee based on the number of units paying in the preceding period. However, we recalculated the franchise fee based on actual cash receipts and the results approximated the amount computed by the Company. It should be noted that the recycling revenue remitted to the Cities is included in the Company's revenue and expense records. We recalculated the franchise fees for the three Cities, based on the method used by the Company, and r determined that this method had been incorrectly applied for the City of Dana Point. The Company calculated the franchise fee based on number of units paying in the preceding month as described above and dividing the result by three in order to derive a monthly (rather than quarterly) remittance amount. However, the remaining two-thirds of the franchise fee was not consistently remitted in subsequent months. This practice would be expected to result in a major underpayment to the City of Dana Point. However, the underpayment was offset by the Company erroneously applying the • franchise rate to billings made prior to the effective date of the franchise agreement and by a computer software error causing the calculations to be overstated. When informed of the error in calculation methodology, the Company recalculated the franchise fee for the period of January 1990 through September 1991. Based on the results of the recalculations, the Company submitted to the City $8586 in additional franchise fees. We reviewed these recalculations and agreed with the result. • Mr. Stephen Julian City Manager City of San Juan Capistrano December 17,1991 Page 10 EQUIPMENT REPLACEMENT RESERVE Procedure - Reviewed the Company's practices relating to the establishment of equipment replacement reserves. Currently, the Company does not set aside reserve funds for equipment replacement, nor is the Company billing the customer for an equipment reserve. Instead, the Company has an available line of credit at a bank which is used to fund new purchases. • The line of credit is $700,000 of which approximately $350,000 is available. During the past two years the Company has halted new vehicle purchases pending the local cities' decisions regarding recycling programs and the related vehicle requirements. Many of the refuse vehicles presently in use do not have the features necessary for recycling programs. Accordingly, it appears that the Company has been prudent to defer additional vehicle purchases. If a large capital outlay expenditure becomes necessary, the Company plans to fund the cost through new lines of credit. Additional credit lines could • be established through extending the existing contracts with participating Cities. Results - While it appears that the Company has acted in a prudent manner in deferring major capital replacement expenditures, the Company is not in compliance with the vehicle requirement as required by the Cities of Dana Point and Laguna Niguel. The Agreement specifies that no primary or replacement vehicle shall be in excess of 10 years old at any time after January 1, 1991. We noted two primary vehicles which were in their eleventh year (i.e.. 1981 vehicles) and twenty-six replacement vehicles greater than 10 years old. Additional vehicles could be financed through additional bank borrowings or lease purchase agreements with a manufacturer. • CONTRACT PROFITABILITY Procedure - We analyzed the profitability of the Company's contract with the City. We based our analysis on revenue generated by the City because the Company maintains records of revenue by City, however it does not maintain separate expense records by City. Results - The Company's total revenue can be allocated for the eighteen months ended June 30,1991 as follows: the City of Dana Point 25.56%, San Juan Capistrano 19.24%, Laguna Niguel 31.36%, Other 23.83%. Our allocation of expenses is based on the percentage of total revenue generated from service within each City as detailed in Attachment 1. Based on the Company's internally generated (unaudited) financial statements, revenues and expenses for the eighteen months ending June 30, 1991 were as follows: • • • Mr. Stephen Julian City Manager City of San Juan Capistrano December 17,1991 Page 11 Costs associated with the Company's recycling programs were detailed in a report dated June 3, 1991. This report indicates that there were approximately $140,000 of costs incurred by the Company to operate the recycling program for the six month period reviewed. These costs are not broken out separately in the Company's internally generated financial statements and, thus, are not separately displayed in Attachments 1 and 2. 0 17 San Juan Other Dana Point Capistrano Laguna Niguel Entities Total Revenue: 41 Residential $1,179,000 803,000 1,346,000 612,000 3,940,000 Commercial 1,650,000 1,327,000 2,123,000 776,000 5,876,000 Drop off boxes 1 376,000 283,000 460,000 184,000 1,303,000 Brown bins 2 53,000 40,000 66,000 26,000 185,000 Other 3 - - 1.439"000 1.439.000 41 Total revenue 3258.000 2.453.00093. 95.000 3.037.000 12.743.000 Expenses: Collection costs 1,907,000 1,532,000 2,322,000 1,702,000 7,463,000 Dump fees 1,024,000 771,000 1,256,000 955,000 4,006,000 Selling 151,000 114,000 185,000 140,000 590,000 0 General and administrative73 9.000 285.000 464,000 353.000 1.481,000 Total expenses43. 61.000 2,702,000 4,227,000 3.150.000 13.540,000 Net loss $ 203,000 249,000 232,000 113,000 797,000 I. Drop-off boxes consist of large bins typically used by contractors. These costs have been allocated based on revenue as no other detail is available. 2. Brown bins consist of medium size bins used mostly in temporary construction. These costs have been allocated based on revenue as no other detail is available. 3. Other revenue is comprised of revenue generated from: Leisure World, storage rental, Capistrano Unified School District and other miscellaneous income. 0 Number of customers per month: Residential (units) 9,658 6,910 13,119 Commercial (bins collected) 7,790 6,088 10,535 Tons (for year ending 40 June 30,1991) 23,955 20,394 40,572 Costs associated with the Company's recycling programs were detailed in a report dated June 3, 1991. This report indicates that there were approximately $140,000 of costs incurred by the Company to operate the recycling program for the six month period reviewed. These costs are not broken out separately in the Company's internally generated financial statements and, thus, are not separately displayed in Attachments 1 and 2. 0 17 Mr. Stephen Julian City Manager City of San Juan Capistrano December 17,1991 Page 12 • COMPLIANCE WITH SIGNIFICANT CONTRACTUAL REQUIREMENTS Procedure - We reviewed the compliance with the City's Franchise Agreement for Solid Waste • Collection and Disposal. The Cities franchise agreements had several significant contractual requirements. The following is a listing of these significant requirements which we reviewed for compliance: franchise fee calculation, insurance requirements, performance bond requirement, vehicle age requirement and customer complaint log requirement. • We reviewed and discussed our results of the Company's franchise fee calculation in the Franchise Fee Calculation and Payment section of this report. The insurance requirements are established in the individual City franchise agreements for various insurance coverages required to be maintained by the Company. The franchise agreements for the Cities • of Dana Point and Laguna Niguel state that the Company is required to carry the following insurance coverage per accident: general liability - $1,000,000; automobile liability - $1,000,000; workers' compensation - $1,000,000. The franchise agreement for the City of San Juan Capistrano states that the Company is required to carry general liability insurance of $1,000,000 combined single limit and a workers' compensation policy that "fulfills all the requirements of the Workers' Compensation Act of said State." • The performance bond requirement is the same for all of the three Cities and requires the Company to post a performance bond in the amount of $10,000 which shall be maintained throughout the duration of each City's franchise agreement. The vehicle age requirement for Dana Point and Laguna Niguel stipulates that no primary or • replacement vehicles shall be in excess of 10 years old at any time after January 1, 1991. The customer complaint log requirement is the same for all three Cities which specifies the Company maintain a customer complaint log and have it available for City review. Results: - The Company's calculation of the franchise fee was not in accordance with the agreements as • discussed previously. The Company was in compliance with all general liability, vehicle, workers' compensation and other insurance minimum coverages. Further, we noted that the Company has an umbrella insurance policy covering general liability and automobile insurance of $5,000,000 per occurrence or in total which is additional coverage and exceeds required minimums. • The Company is in compliance with the performance bond requirement for each City. The Company was not in compliance with the vehicle age requirement for Dana Point and Laguna Niguel. The Company has a number of vehicles exceeding the 10 year maximum age requirement, • specifically, 2 primary vehicles and 26 secondary vehicles (7 of which have disposal routes within the two Cities). 0 • Mr. Stephen Julian City Manager City of San Juan Capistrano December 17,1991 Page 13 • The Company was in compliance with the requirement to maintain a customer complaint log which is available for City review. MANAGEMENT PRACTICES AND PROCEDURES Procedure - We reviewed the Company's management practices and procedures. In reviewing cash management we noted that the Company has a non-interest bearing checking account • and line of credit at the same bank. The checking account is linked to the line of credit and any checking account balance over $50,000 is posted by the bank to pay down the outstanding line of credit amount. Conversely, the checking account will draw upon the line of credit on an as needed basis to cover Company disbursements. In the event the entire outstanding line of credit is repaid, the funds will be invested in a short-term interest bearing account. As noted under Billing and Collection of Fees, the Company has all cash receipts sent to a lock -box to maximize its cash balance and minimize its • interest expense. The Company issues checks weekly. All invoices pertaining to County dump fees and equipment or parts purchases are reviewed by the General Manager both upon receipt and after the related check is printed. All other invoices are reviewed upon receipt and payment by the Vice President. Company policy stipulates that checks require only one signature of either the General Manager or the Vice • President, as both have signing authority. After a check run is complete and before the checks are signed, the Vice President files away any "non-critical" checks (payment not required immediately per invoice terms). This file is reviewed weekly at the time of each check -run. The Company believes that it pays its bills at an average of sixty days from invoice date. The Company has a related party transaction with one affiliated company which affects the financial • status of the Company. The significance of this is disclosed under Labor Costs section of this report. Currently, the Company does not prepare regular employee performance evaluations Results - We agree the Company should not pay their bills until at or near their due date. However, we recommend that the payment date of an invoice be input into the accounts payable listing at the point • the invoice is received. This would ensure that each week's check run would include only checks relating to invoices which are due at that time. This would eliminate the current practice of having completed checks remaining in the office and the likelihood of not mailing a check when it is due. Further, we recommend the Company establish a policy for performing employee evaluations. These evaluations should be performed periodically or at a minimum, once a year. • ACCOUNTING PRACTICES Procedure - We reviewed the Company s accounting practices. We noted that computer files are backed -up nightly and maintained on site, but not in a fireproof • cabinet. Monthly, a back-up is made which is stored off-site. Internal financial statements are prepared monthly and reviewed by management quarterly. We reviewed the organization of the office staff and duties of each noting that there is minimal segregation of duties and a possibility for 9 • Mr. Stephen Julian City Manager City of San Juan Capistrano December 17,1991 Page 14 • management override. Additionally, we noted that monthly "book -to -bank" cash reconciliations are not documented. The Company does review the information provided by the bank for outstanding checks and deposits and an actual reconciliation of bank -to -book cash is performed. • Results - We recommend that the Company store the daily back-up tapes in a fireproof cabinet to help prevent the tapes from being destroyed. Additionally, we recommend that job responsibilities be reviewed in order to provide for appropriate segregation of duties, specifically separating the functions of handling cash and liquid assets from the functions of billing and accounting for assets. Finally, we recommend that the Company perform monthly "book -to -bank" cash reconciliations in a timely manner • so that an accurate amount of cash can be determined. ACCOUNTING RECORDS • Procedure - We reviewed the Company's accounting records. We noted that the Company maintains monthly cash receipts and accounts receivable listings which are segregated by both City and type of customer. Both of these reports are maintained on a quarterly basis for residential accounts. The Company maintains about one year of historical data on site and the remainder is stored off site. The Company uses an outside payroll service to perform its payroll function. Annually, the Company's accountants update the fixed asset records for the past year of fixed asset activity. Results - The Company's accounting records appear to be complete and retention practices appear to be adequate. • EQUIPMENT MAINTENANCE AND CONDITION Procedure - We reviewed the Company's maintenance practices and condition of the equipment. We noted that the Company's drivers inspect their vehicles and complete a pre -route inspection checklist each morning for critical items, which is signed and dated. • .7 The Company employs a full time California Highway Patrol certified vehicle inspector who monthly inspects each vehicle and completes the comprehensive critical item checklist certified by the California Highway Patrol. This checklist is detailed by tested vehicle components, such as brakes or steering linkage and the inspector specifies a pass or fail for each component tested on the critical item checklist. Currently, all vehicle maintenance work orders are prepared manually. However, the Company is in the process of implementing a maintenance and inventory system for their vehicles which will provide computerized work orders along with up-to-date information on each vehicle's maintenance history, next scheduled maintenance and other related information. • Files for employees who work on the trucks are kept at the yard. These files contain personnel information as well as information required to be communicated to the drivers. Monthly, the Company requests Department of Motor Vehicle ("DMV") information on all drivers. This DMV information 0 • Mr. Stephen Julian City Manager City of San Juan Capistrano December 17,1991 • Page 15 details any traffic citations, accidents or other items reported to the DMV. The information received is reviewed and reported items are discussed with individual driver and defined disciplining action taken, for example, minor traffic citations will result in a warning and a drunk driving citation will result in immediate termination. We reviewed the Critical Item Checklists of ten vehicles for proper completion and follow-up of failed items. We also reviewed the Company's truck files. Result - We noted that critical item checklists are properly completed and, in most instances, if a test item failed inspection one month it passed the following month indicating correction of the problem. We noted that the truck files tested included the critical item checklist and a maintenance log of all the work performed on the vehicle for every year since its purchase. We noted that the yard is secured nightly by a locked gate. The Company's files appeared neat and orderly. Since there is only one original of many items we recommend the Company keep duplicate records of maintenance and vehicle • registrations at an off-site location. COLLECTION ROUTES - PROCEDURES AND PRACTICES Procedure - We reviewed the Company's residential and commercial collection routes, procedures and • practices. We noted that most of the Company collections were in areas of close proximity. There are, however, a limited number of isolated areas for which collections appeared to be well off the principal route. The daily commercial collection routes were more disbursed than the residential routes. We were informed by Company personnel that the few areas in the residential collection routes which appear out of the way are due to customer request or other contractual requirements. Also, one of the Company's major goals with regards to residential routes is to minimize the route changes. In the future, the Company expects to service each City one day a week. In reviewing the Company's fourteen residential collection routes per day we noted that the average • number of units collected per route is 519, which calculates to 52 pickups per truck per hour, based on 10 hour days. Industry statistics are not available in this area due to the impact of such factors as type of vehicle (front load or back load), recycling activities, demographics, and level of service (curbside, front step, back of house, etc.). Result - Overall, we observed that the Company is collecting the City's waste in a reasonably efficient manner. Residential routes and commercial routes are efficiently designed. We recommend the Company account for the miles served, and the number of pick-ups per truck, which will assist in monitoring efficiency and establishing future rate adjustments resulting from increased service area. 0 • Mr. Stephen Julian City Manager City of San Juan Capistrano December 17,1991 Page 16 Because the above procedures do not constitute an examination made in accordance with generally accepted auditing standards, we express no opinion on any of the aforementioned financial data. In connection with the procedures referred to above, no matters came to our attention, other than those set forth above, that caused us to believe that the franchise fee remittances to the City of Dana Point should be adjusted. Had we performed additional procedures or had we performed an audit of the Company in accordance with generally accepted auditing standards, matters might have come to our attention that would have been reported to you. This report relates only to the franchise fee data specified above and does not extend to any financial statements of the Company taken as a whole. Very truly yours, KPMG Peat Marwick Margaret J. McBride, Partner 0 0 0 0 0 LI £ S E.E • � x � s� �s e$�- ➢o E'E EG 9$n �$ �� ig�L,3 E$ • - E ^ E ae;=�;; ii3sg�' RFs �Z .drgs9E8E Fs3 €$$ i � F g E o ... g F� r • t � iSivf �S:Si E LLE S 35 e S6_2 eggs e • U 8 8I 8 Rxk#R k` Lk^`e: eba'#!"• 7 ► #�ftf• e*Ae gee Fr Rte^ _"g 8 8 .�& 08 8 RAN'^8 ^^^ _^ _ 'RS 8 :5 c R,mm• Sm 8�n 8 - 'eoe8nswwe_wm„ _ R-: ::X9:9v2 e e gaa . e 11 1 1 6C s` `� F C e E 3 o S • €g3L 21 • � zzam oEi E E �� �y E -eF E��FycF� _ `e :R2 w E 3Fo^ 6E� n$s�_$owlfn a. N LL �`'.3•adi>•>•>•3`i a•2 _-E• e_e g�� F�9` •�'� 8 .0 mao $tl �t4 2 wc_ o eio=gt4o< O N V LI • :888 8 F388e� • i R •I f • �� � So d — • AR...........___._..aR •y _' __ e. ... S..:: _SS .... I rd^^ :1 � �aaelN q: 1s al . ..� _._ ... _ .=•�� :__� 1� _ .�se1" al 1. 1 II I II - — �dddd;: R 8 :w--V�r1 . R a _gti ...=tl::e_11 1a...._1 s n e a w$ 3 E:aC n Bag � _ •—� _:=-`� USE - 0 • ry� ip[p AIOAAIIO Y� mauueio 1961 1776 September 9, 1991 Mr. James Koutroulis Solag Disposal, Inc. 33161 Camino Capistrano, Suite G San Juan Capistrano, California 92675 Re: Curbside Curbside Recycling Services Agreement Agreement Dear Mr. Koutroulis: MEMBERS OF THE CITY COUNCIL LAWRENCE F SUC H H EIM KENNETH E FRIESS GARY L HAUSDORFER GIL JONES JEFF VASQUEZ CITY MANAGER STEPHEN 8 JULIAN At their regular meeting held September 3, 1991, the City Council of the City of San Juan Capistrano approved amendments to the September 4, 1990, Recycling Agreement. The amendments, including an extension of the agreement to June 30, 1992, are set forth in the enclosed Amendatory Agreement. A fully -executed copy of the Amendatory Agreement is enclosed for your files. If you have any questions, please let us know. Very truly yours, Cheryl Johnson /���Wr City Clerk L Enclosure cc: Douglas Dumhart 32400 PASEO ADELANTO, SAN JUAN CAPISTRANO, CALIFORNIA 92675 0 (714) 493-1171 September 11, 1990 Solag Disposal, Inc. P. O.Box 1100 San Juan Capistrano, California Re: Regyclina Agreement Gentlemen: s 92693 At their meeting of September 4, 1990, the City Council of the City of San Juan Capistrano approved the Recycling Agreement to implement Phase I of the City's curbside recycling program. The program is scheduled to begin October 3, 1990. A fully -executed copy of the agreement is enclosed for your files. An item setting the fee for the recycling program has been tentatively scheduled for the meeting of September 18, 1990. A copy of the agenda and staff report for that item will be forwarded to you. If you have any questions, please do not hesitate to call. Very truly yours, Cheryl oh son City Clerk Enclosure cc: Assistant City Manager 32400 PASEO ADELANTO, SAN JUAN CAPISTRANO, CALIFORNIA 92675 0 (714) 493.1171 MEMBERS OF THE CITY COUNCIL Q E� ANTHONY L. BLAND ■ ry LAWRENCE F. BUC HHEIM nlOAIORR4 KENNETH E. FRIESS 1961 GARY L. HAUSDORFER P HILLIP R. SCHWARTZE • CITY MANAGER STEPHEN B JULIAN 92693 At their meeting of September 4, 1990, the City Council of the City of San Juan Capistrano approved the Recycling Agreement to implement Phase I of the City's curbside recycling program. The program is scheduled to begin October 3, 1990. A fully -executed copy of the agreement is enclosed for your files. An item setting the fee for the recycling program has been tentatively scheduled for the meeting of September 18, 1990. A copy of the agenda and staff report for that item will be forwarded to you. If you have any questions, please do not hesitate to call. Very truly yours, Cheryl oh son City Clerk Enclosure cc: Assistant City Manager 32400 PASEO ADELANTO, SAN JUAN CAPISTRANO, CALIFORNIA 92675 0 (714) 493.1171