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Page | 15 SBWMA Recology Negotiations FAX Report 4/20/17 <br /> <br />The FAX and TAC committee participants expressed satisfaction with the current scope of services, however, <br />enhancements were requested. The most significant of these included: <br /> Providing recycling, organic, and bulky waste services to the residential component of mixed use <br />development. <br /> Improving public education and technical support services to commercial customers. <br /> Modifying the compensation adjustment methodology to: <br /> provide greater stability and predictability; <br /> ensure that the allocation of costs fairly affects each Member Agency’s rates; and <br /> simplify the adjustment process and explanation of rate changes. <br /> Considering “clean fuel” vehicles when the replacement of the existing fleet occurs. <br /> Providing reports that are easy to read, useful and not redundant. <br />Recology also identified areas where it wished to see changes (Note: not all of Recology’s requests were <br />accepted). The most significant of these included: <br /> Increasing the current Base Contractor’s Compensation to reflect Recology’s actual higher costs of <br />operations (True Up) during the remaining term of the current Agreement. <br /> Converting to an annual compensation adjustment methodology th at adjusts compensation to <br />account for actual costs. <br /> Adding additional fees to “Attachment Q” that capture the cost of services (e.g., relocation fee). <br /> Provide a cap and additional compensation for bulky item collection. <br /> Allowing Recology to retain all revenues from customer billings. <br /> Reducing the number of performance standards and related liquidated damages. <br /> Reducing reporting requirements. <br />The driver for many of Recology’s request was, in part, due to their stated decrease in their profitability during <br />the past seven years. Recology has also stated that, if this current trend line were to continue, their division <br />could operate at a loss by this end of the current term of this agreement. The current Recology franchise <br />agreement has compensation based on adjustments using different industry indices (e.g. Consumer Price <br />Index for fuel) and independent of cost factors (e.g. labor rates ). In the last seven years many of the <br />Member Agencies have experienced significant growth in their commercial sector, and thi s growth <br />was not factored into the current compensation model. As an example, for every new business added, <br />Recology incurs the expense of providing service, but the new revenue is retained by the individual <br />member agencies. To date, Recology has effectively managed these new and additional costs by evaluating <br />their operations and streamlining efficiencies to make up for any losses , but the company’s senior <br />management has stated that they have now hit a point of diminishing returns. The findings outlined in section <br />3.6 and Attachment C of this report provide two levels of independent review corroborating Recology’s <br />operational efficiencies. <br />The following sections describe the results of the negotiations. <br />7.A - Page 25