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7C Page 16 ATTACHMENT 5 Summary of Contractor's Compensation Adjustment Methodology and Rate Setting The RFP required proposers to submit costs stated in 2008 dollars. The process to adjust these costs to the start of the contract in 2011 and from 2011 forward is primarily based on using CPI type indices and the current collective bargaining agreements. The only other adjustment to the costs, besides the annual CPI type index adjustments, is related to service level changes. The proposed costs were based on customer service level data in 2008. The costs to start the contract in 2011 will be based on customer service levels in place in 2010. Then, the only other adjustment to costs based on changes in service levels will occur in 2012 when setting compensation for 2013 and subsequent years. On July 1 of each year the company will submit an application for its compensation for the upcoming year. The application will adjust the company's costs based on the indices and where applicable in the early years, the changes in service levels. The application will also include estimated pass-through costs such as disposal costs and franchise fees. The allocation of costs to participating Agencies will be substantially similar to the current process. The SBWMA and the Agencies will review the application and submit comments if revisions are needed. The Agencies will then set their rates for the following year based on the revenue requirement contained in the approved application. The application will be submitted to the SBWMA Board of Directors in September for approval and transmittal to the Member Agencies for their respective meetings in October. Figure 1 below provides a simple flow chart of how costs will be adjusted to establish compensation for the first year of the contract. Table 1 lists the cost categories and respective indices used to annually adjust these costs both for the first year and future years of the contract. Page 1 of 3