Today's Orlando Sentinel Lake Section has several articles by Martin Comas on the current, single vendor contract for garbage pickup and processing in Lake County.
The waste (or trash) collection and processing vendor is Covanta, which under a prior business name, locked the County into a single vendor services contract in 1985 that resulted in the County issuing $79-million in bonds to build a plant owned by Covanta. The stupid government practice was that the plant will not belong to the County when the bonds are paid off in 2014.
It illustrates a problem with government management of similar projects, because they got locked into a long term contract which is, in my opinion, a method used by vendors to prevent competition and fix the prices they receive. When I lived in California, that practice was also used in the 1980's by the national firm Waste Management to push out local waste collection firms from being able to bid on trash collection contracts for years. The way they do it is get the local government to issue bonds to pay for an expensive facility, which the County must then agree to provide a monopoly services contract to the vendor to generate residential and business garbage collection fees to pay escalating vendor processing fees (due to the new, improved, costly technology) for decades. In California, this practice virtually wiped out the local, low cost trash collection firms, and eliminated competitive bidding.
It appears this practice was implemented here, and as Comas's article points out, then magically one approving County Commissioner then lost an election and was hired by the vendor at $65,000 per year in a marketing position. And, the worst part is that under the current Lake County agreement, the County funded and taxpayer paid facility belongs to Covanta, so the County cannot open up bids and switch vendors to provide the services. Were the County staff and officials brain dead to agree to such an agreement?
Larger regional and nation service vendors are masters at negotiating government contracts that exclude future competition for years. I once worked for a national firm with 40 concrete pipe manufacturing plants. They designed a patented process for making concrete pipe used for underground sanitation systems that met certain technical requirements. Then they had junkets for County and City engineers to "educate" them on the importance of the new technology and why ONLY that technology should be specified in bid documents for sanitation pipe in new housing developments and under streets. The result is the engineering specifiers wrote such terms in new contract bid specifications, and local, one plant competitors would excluded from bidding, thus our HIGH margin products were the only ones that contractors could use to meet the contract requirements. That is how it works, and any government staffer or elected official that allows such anti-competitive practices to be used in contracts should be terminated. The same goes for teacher consulting agreements, phone systems, computer operating systems and other costly systems.
THEN, according to Comas, the vendor and County renegotiated the contract in 2004 to slightly reduce trash collection fees. I am certain there were some other contract revisions that were beneficial to the vendor. In California, I once saw a bonding agency for the LA County owned huge Marina del Rey marina complex was about to expire after payoff of the bonds, but it was magically extended for another purpose after a bonding house pushed through the extension so they could sell more bonds.
Additionally, since we are talking garbage collection here, a personal issue. I live in an unincorporated area in Tavares where trash is picked up on Mondays and Thursdays. Conveniently, there are probably 7 Mondays a year that are holidays, and Thursdays fall on Thanksgiving and Xmas, so the collection firm takes the day off. So, if my residence doesn't get the same actual number of pickup days as people down the road that have collections on Tuesday and Friday (I think), shouldn't my taxes be lower? I feel a personal investigation coming on...
So, here are my Lessons Learned Observations for the current Lake County staff and Commissioners regarding trash collection services and contracts:
1) Get better negotiators for contracts. If staff or the agency attorney are not skilled negotiators at the same level as those used by the vendor, retain one. There should have ALWAYS been the ability to retain ownership of any County and taxpayer paid facilities. This is a classic government waste situation, and eliminated all competition for waste collection services for 30 years.
2) In all contracts, watch out for anti-competitive sections designed to eliminate future competition for services. By acception such contract provisions, officials are clearly indicating they are rubes in the world of contracts. Many times this is done through defining narrow technical specifications (can anyone say Motorola first responder radios?) or in this case, by building an expensive facilitiy with taxpayer funding guarantees (i.e. the County must provide a certain level of trash to the waste facility) so the County must keep providing waste to the Covant facility to ensure bond payoff AT ANY COST.
3) Don't accept vendor provided statistics or "cost" figures without having your own AGGRESSIVE cost accounting analyst to review them and ensure they are not biased.
4) Ensure there is an ethics policy that prevents any County employee OR elected official from working for vendors for a period of at least TWO years, or no closer than 200 miles. Mandate that all employees AND elected officials sign such an agreement and it specifies clear sanctions and fines if violated.
5) Ensure all vendor agreements also contain an agreement NOT to hire or retain "consulting" services of any agency employee or elected official during any time the contract is active, and not for a period of at least two years after the contract ends. Specify fines and legal sanctions to be implemented if the section is violated.
6) In cases where long term services contracts are established, specify a sunset period of 3 years or less when the agency can go to bid for services.
7) Always separate vendor service agreements from facility or asset funding programs and make sure to specify in contracts that the County or agency can bid out the services or "project management" portion at specified intervals, such as every three years.
8) Elected County or agency officials should always ensure that the contract be coordinated with a written, internal policy that staff must provide objective, continuous analysis of competitive statistics related to the contract. Thus, if a contract comes up to bid after a three year stated interval, staff must provide adequate, objective, independent analysis of facts related to prior vendor service, comparable data from other similar agencies, and internet research to determine that the agency is used current, and not outdated decision analysis methods and data for making new bidding decisions.
9) Always ensure that the contract contains a right to conduct full, detailed audits and analysis of internal vendor systems and accounting to ensure reporting is accurate and internal overhead charged to the project is not excessive. (For example, I once reviewed the internal processes of a firm providing $45-million in advertising services to an auto maker, and their internal "cost" included routing work through four different internal departments which each had a high overhead charge. That practice greatly increased the internally billed "cost" to the customer. Similar methods are used by utilities, which build expensive, separate internal departments to increase utility costs so they can earn higher profits set by regulatory authorities.)
10) Since the construction cost of the waste facility will be paid off in 2014, the County should aggressively position themselves to negotiate for lower trash processing fees that do NOT include construction costs in them. This is where the County needs a professional outside analyst to uncover all this, and not rely on less experienced internal staff. They also need to watch out for proposals by the vendor the renegotiate the agreement and refinance the remaining bonds for lower fees to they can get a longer anti-competitive contract.
Below, at the link are two Orlando Sentinel articles on the Covanta Waste processing contract - the first explains the Covanta contract, and the big article on how, in the current economic crisis, there isn't enough garbage, so the county may be forced to pay to offset the lower volume of garbage being processed.
Thanks to reporter Martin Comas for providing enough information for me to comment on this issue. He also wrote a third article in todays Feb 15 Orlando Sentinel Lake section on page J7 on "Lake officials plan for future trash" but it was not available electronically, so if you have the paper, also read that.
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$200M incinerator deal took Lake to cleaners, critics say
OKAHUMPKA
- It's a deal that many have called the biggest boondoggle in Lake's
history because when the bonds are paid off for the Covanta Energy
garbage-burning plant in June 2014, the county will not own the plant.
It's also a deal that forced higher garbage rates and taxes on residents and businesses to cover all those costs.
Because of today's slumping economy, it's particularly painful.
"Under that crazy contract, it hurts," County Commission Chairman Welton Cadwell said.
In 1985, county commissioners approved bringing a power-producing garbage incinerator into the area.
At that time, the county was moving toward requiring all Lake residents and businesses to have mandatory garbage collection. But land for a new landfill was becoming increasingly expensive, and county officials became concerned about poisoning the county's freshwater supplies from the Floridan Aquifer with all that new trash. The federal government also was urging municipalities to look for alternatives to building new landfills.
After years of back and forth negotiations about fees and who would own the plant, county commissioners in August 1988 voted unanimously to build the garbage incinerator in Okahumpka for Ogden Martin Systems of New Jersey, which later became Covanta Energy.
"Let's go have a party," then-County Commissioner Jim Carson said after the vote.
The contract was backed with $79 million in county bonds and a Lake promise to supply garbage and pay Ogden Martin's operating costs.
Carson later took a $65,000-per-year marketing job with Ogden Martin after he lost a re-election bid.
The new facility was expected to burn at least 130,000 tons -- about 90 percent -- of the county's garbage a year and generate enough steam to create electricity for more than 5,000 homes.
The facility burned its first trash Aug. 21, 1990.
After garbage fees continued to skyrocket for residents, Lake and Covanta Energy hammered together a new agreement in 2004 that restructured the county's financing of the incinerator.
Among the savings to the county were a reduction in the annual cost of operations and maintenance by about $209,592 and the elimination of a projected $1 million bonus to Covanta for diverting ash produced by the trash-burning plant.
County commissioners then were able to cut garbage fees for unincorporated Lake residents by $6.50 to $174 per household. In September 2004, they also reduced the property-tax rate slightly.
Covanta's chairman, Sam Zell, is also chairman of Tribune Co., publisher of the Orlando Sentinel.
Martin E. Comas can be reached at [email protected] or 
352-742-5927
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Less garbage could cost Lake
OKAHUMPKA
- Drop something into the trash in almost any part of Lake County and
it likely will be hauled off to the Covanta Energy incinerator plant, a
massive steel-and-concrete structure.
Inside, large mechanical
claws pick up tons of trash dumped on the plant's floor by garbage
trucks. The garbage then is dropped into a furnace where it is burned
and the energy turned into electricity. It's like watching a hungry
beast -- five stories tall -- feed itself.
But county officials
worry that residents and businesses might not be generating enough
trash to feed the voracious monster because people are buying less
stuff because of the slumping economy -- a situation that could burn up
a lot of tax dollars if it's not rectified.
Determined to avoid that, county commissioners this month met with officials from Lady Lake, Fruitland Park, Mount Dora and Eustis, and county staff also met with representatives of Waste Management, to implore them to dump their garbage at the Covanta facility.
According to a complicated deal crafted almost two decades ago, Lake County must deliver at least 163,000 tons every year -- an average of 3,134 tons every week -- of garbage to Covanta's waste-to-energy plant in tiny Okahumpka. The tonnage is calculated on a monthly average. If the county falls short, it stands to lose thousands of dollars.
Consider that from Oct. 1 to Dec. 31, the county collected about 16 percent less garbage than the same period a year ago. Lake is on pace to deliver about 157,000 tons of trash at the end of this fiscal year -- a nearly 4 percent shortfall.
Because Covanta depends on Lake's trash to deliver electricity to Progress Energy, the county stands to lose as much as $544,000 every month in electric revenues if it falls far short of that tonnage requirement.
"It's something that we're really concerned about," County Commissioner Jennifer Hill said. "But I think after meeting with these cities, it gets us to where we need to be."
The incinerator's annual cost for the county is about $7.5 million, which comes primarily from property taxes and tipping fees.
Here's how the financing works:
*On top of delivering all that trash, the county is on the hook for about $16 million a year for the plant. That includes about $6.9 million toward the bond debt used to finance construction of the $79 million facility; about $7.7 million a year to Covanta to operate the plant and process the garbage; and about $1.4 million for insurance, taxes and other costs.
*In return, Lake receives about $8.3 million a year in electric revenues from Progress Energy generated from burning the trash. The county also receives other revenues from Covanta and interest from a trust fund, about $250,000.
*The $7.5 million or so from the county is needed to make up the difference.
According to the agreement, if Covanta falls below 70 percent of the total electricity it must deliver to Progress in a monthly average, then the county loses $544,000 in electric capacity revenues for that month. That's money that Lake uses to pay back the county's bond debt.
The county also would have to pay about $1.40 to Covanta for every ton short of 163,000 tons.
"Everybody is seeing this reduction in solid-waste delivery, but few people realize what kind of impact that will have here in Lake County," said Jeff Cooper, the county's contractual-services administrator.
Commissioner Linda Stewart said she met with officials in Eustis and Mount Dora this month, urging them to direct Waste Management to deliver their trash to Covanta's incinerator. Hill met with Fruitland Park officials, and commission Chairman Welton Cadwell visited Lady Lake. County officials met Thursday with Waste Management.
The company had been delivering most of the trash from those cities to a transfer station in The Villages and then to a landfill in Georgia. Most other Lake cities -- including Leesburg and Clermont -- already send their trash to the Okahumpka plant.
"We're trying to be cooperative," said Jim Myers, Eustis' finance director. "Let's be honest. If Lake County gets hit with these extra costs [and decreased revenues] then everybody in Lake County is going to get hit."
Martin E. Comas can be reached at [email protected]
