Public-Private Partnerships: A Proven Relationship for Managing Solid Waste
Given the strengths and expertise on both sides, the opportunity exists for the public and private sector to partner and create a system in which everyone benefits.
James E. O’Connor
Throughout the United States, municipal and county governments have realized the benefits of creating public-private partnerships to manage solid waste. The primary influences behind a municipality move toward privatization in the U.S. are the:
Pursuit of cost savings, given the pressures to not increase taxes
Ability to access new technologies while preserving capital expenditures
Desire to reduce risks associated with providing waste management services
For these very reasons, currently more than 75 percent of U.S. cities now contract all or part of their refuse collection and disposal services. This number has been increasing historically by 2 to 3 percent per year.
Roles and Responsibilities
Every successful public-private partnership requires a clear understanding of the roles and responsibilities of the partnering organizations. Claims that privatization of solid waste services will eliminate government involvement in the solid waste management process and put the public at risk are nonsense. Experience has proven that privatization actually requires an important regulatory role from the municipality.
Government cannot disengage from its responsibility to protect public health, safety and the environment. Therefore, the primary responsibility of a city official is to protect the public. In municipalities where solid waste services have been privatized, city officials serve as watchdogs by monitoring performance and enforcing contracts. They are the foundation for planning activities directly associated with a successful, long-term management of solid waste.
The job of the private sector is to fulfill the terms of the contract, which has proven to be a quality-assured, cost-effective solution to solid waste services. The investment of capital to purchase collection vehicles, hire staff and construct facilities is the risk the private sector acquires to ensure the collection and safe disposal of societal waste.
The private sector also plays a vital role in the planning process by providing advice and insight to professional planners. By privatizing, budgeting for services is also much more predictable as contracts are for a fixed amount. The single most important responsibility of waste collection firms is to respect the municipality as the “customer.” The goal is to always provide the customer with services that exceed the highest expectations.
In addition to each partner understanding its own particular responsibilities, successful public-private relationships have a clear understanding of the roles and expectations of the other partner. This typically begins long before a vendor is selected.
First, the municipal officials conduct a thorough evaluation and review of the solid waste services options. This may include considering the type of privatization that best suits the needs of the municipality. It is critical for a municipality to understand all of its costs of operation so that when they decide to privatize, they can be sure that they understand the financial impact to their actions.
Next, the municipality must create a well designed, fair and complete procurement process. Unfortunately, there appear to be more problems in this phase than anywhere else in the privatization process. The desires of the municipality must be explicitly detailed in the bidding document. One will usually include the specifics of what the municipality desires relative to service, i.e. one time per week MSW collection, with every other week recycling, with the vendor supplying carts for xx number of homes. In addition, the municipality would like protection from irresponsible bidders and will require a bid bond and a performance bond equal to usually half or the entire amount of the contract value. Other special services such as brush pick-up and community clean up days are also generally included.
If a municipality is privatizing, one of the biggest desires is to have the contractor interview and hire the present workforce which is relatively standard. In addition, they want to be out of the waste business so they want the cost of disposal and transport of waste all to be the responsibility of the vendor. Discounts for senior citizens are also another common desire. Finally, most cities would like to see predictability in their pricing throughout the term of the agreement for budgeting purposes so common tools such as the CPI are used to escalate the prices proposed or they will ask for a price for each year of the contract.
A clear definition of the scope of work required is imperative. Simply relying on a low price bid does not always lead to the best solution and often can cause a privatization to fail as expectations are not clearly defined.
Solid waste collection can involve an array of different services. Successful privatization requires that government define which of these services should be transferred to the private sector and those they may decide to keep.
Once the scope of service is defined, public officials need to clearly define minimum service-level requirements. This includes such matters as frequency of collection, permitted hours of operation, insurance and bonding requirements, health and safety restrictions, permissible service complaint levels and other basic service parameters. Leaving room for interpretation only leads to confusion and frustration later in the relationship.
Finally, once a contract is signed, both sides need to work diligently to be fair throughout the life of the contract. Make no mistake; the hard work for both the contractor and the municipal officials commences following vendor selection. Successful public-private partnerships use the contract as a guardrail on how to manage the arrangement as opposed to using the contract as a baseball bat.
There is no single best way to structure the contracting of solid waste and recycling collection services. However, in any contracting decision, the twin goals of service quality and competitive cost should guide the design of the bidding process and the delineation of contract details. Ultimately, long-term success of contracting depends on depoliticizing the contracting decision as much as possible, using clear quantitative and qualitative performance standards and clearly spelling out the responsibilities of the public and private sectors.
Successful public-private partnerships are often referred to as “win-win” relationships. Examining the “wins”, we see that the public sector benefits when they are able to provide quality services at lower costs by using their purchasing power to strike favorable terms with private waste collection firms.
The private sector “wins” are measured by profitability—the return that a company realizes on invested capital. Good general managers of waste collection companies carefully and diligently work to ensure that quality services required by the contract are being delivered with the utmost efficiency to ensure a profit. Carelessness or a lack of attention to the delivery of quality service can result in a financial as well as a public relations disaster.
Experienced, business-savvy public sector administrators know that the ability to lower organizational costs and improve the quality of service is related to route density typically found in residential waste collection. The length of contract and specific requirements for insurance, equipment, staffing, billing and reporting are other factors that can also influence the price of service.
There have been many “win-win” relationships over the years in the solid waste industry. The private sector has proven its ability to provide cost-effective solid waste services. Subsequently, municipalities have saved millions of taxpayer dollars without adversely impacting the quality of service to residents or the safety of their communities.
Creating a Partnership
In the end, environmentally sound solid waste management is a service for which local government is held responsible. Providing service that exceeds the highest expectations of the customer in a cost-effective manner is the responsibility that lies with the company they choose. Government is there to protect public health, which means ensuring that the job gets done right. The private sector partner is responsible for fulfilling their contractual obligations and meeting and exceeding the expectations of the communities in which they serve.
Given the strengths and expertise on both sides, the opportunity exists for the public and private sector to partner and create a system in which everyone benefits—a true “win-win” relationship.
Jim O’Connor is the chairman and CEO of Republic Services, Inc. (Phoenix, AZ), the second largest provider of waste and recycling services in the U.S. Jim was named CEO and a member of the Board of Directors of Republic Services, Inc. in 1998, after a 26-year career with Waste Management, Inc. He assumed the chairman of the Board position in January 2003. For five consecutive years, since 2005, Jim has been named the Best CEO in the Environmental Services category by Institutional Investor magazine. He holds a Bachelor of Science degree in accounting from DePaul University in Chicago, IL. For more information on Republic Services, visit www.republicservices.com.