Proposed Supplemental Agreement #1 FCC Recycle Processing Services Contract

Transcription

1 Memrandum DATE February 20, 2019 CITY OF DALLAS TO Hnrable Members f the Quality f Life, Arts & Culture Cmmittee: Sandy Greysn (Chair), Mark Claytn (Vice Chair), Rickey D. Callahan, Jennifer S. Gates, Sctt Griggs, B. Adam McGugh, Omar Narvaez SUBJECT Prpsed Supplemental Agreement #1 FCC Recycle Prcessing Services Cntract At the February 25, 2019, Quality f Life, Arts and Culture Cmmittee meeting, staff will request the Cmmittee s supprt fr a supplemental agreement t an existing vendr cntract fr the prcessing f single-stream recycling material. Based n recycling cmmdity market declines ver the last 14 mnths, staff believes this cntract amendment t temprarily adjust hst fees n nn-guaranteed/nn-city material, is mutually beneficial t the City and vendr and supprts the lng-term success f this public-private partnership. This amendment will imprve the vendr s ability t maintain and btain cntracts fr nn-city recycling materials and mre fully utilize the recycling facility s prcessing capacity t help ffset verall facility perating csts. In cnsideratin fr temprary hst fee adjustments, the vendr has agreed t extend ur current favrable cntract term by 3 additinal years. This amendment will nt impact ur residential recycling services r negatively impact the baseline revenue assumptins f the riginal cntract, as nn-guaranteed tns were nt cnsidered. Backgrund On September 9, 2015, the City Cuncil apprved a 15-year cntract with Fment de Cnstruccines y Cntratas, S.A. (FCC) t design, cnstruct, perate and manage a new $20M+ state f the art recycling facility at the City s McCmmas Bluff Landfill. The cntract als allws fr cnditinal cntract extensin ptins frm 1 t 10 years (if bth parties agree). The new facility fficially began peratins n January 2, The City benefits frm this cntract because FCC prcesses the recyclable materials cllected by the Sanitatin Services Department with revenue sharing and at n cst t the City if prcessing csts exceed the revenue share. Since beginning peratins, the recycling cmmdity markets have changed cnsiderably. The largest imprter f recycling cmmdities in the wrld, China, has established tariffs n the imprt f recyclables, has begun banning certain recyclable imprts, and is placing tugher restrictins n imprting recyclables that exceed strict cntaminatin limits. These restrictins have created an excess f available material and have caused cmmdity prices t tumble acrss the U.S. Additinally, prcessing csts have increased t meet new exprt standards. Mixed paper values have drpped by ver 90% since the beginning f this cntract and cardbard (OCC) has drpped 50% frm its highs. These tw materials alne make up ver half f the City s residential stream. Recycling cmmdity markets have declined in the past, but current cnditins are prjected t remain lw fr an extended perid. FCC and ther market analysts believe that new glbal markets and U.S. markets will be able t replace much f the demand fr recycling cmmdities previusly filled by China, but it culd take several years fr this t ccur. T remain cmpetitive during this adjustment perid and stem nging financial lses, FCC has asked the City t Our Prduct is Service Empathy Ethics Excellence Equity

2 DATE February 20, 2019 SUBJECT cnsider temprarily amending their cntract related t a prtin f the hst fees paid t the City fr nn-city tns prcessed at the facility. FCC currently pays the City a $15 per tn hst fee n all nn-city recycling prcessed at the facility and FCC guarantees specific annual quantities. FCC has requested the City apprve a temprary hst fee adjustment perid f three years, with tw 1-year renewal ptins, if market cnditins remained depressed. They have requested a variable, market-based hst fee that wuld nly be applied t nn-city tns abve cntractually guaranteed tns. FCC believes that withut this amendment, they may nt be able t remain cmpetitive and cntinue several shrt-term cntracts that prvide hst fee revenues t the City abve the guaranteed tns. FCC has als requested a mdified hst fee that wuld be applied t clean pre-segregated material prcessed at the MRF (e.g., clean OCC that is baled and sld). Due t the current hst fee requirements, FCC has nt been able t pursue this market segment which culd aid in ffsetting facility perating csts and prvide additinal nn-city tns abve guaranteed vlumes. Attached t this mem is a summary f key cntract terms and prpsed cntract amendment changes. In cnsideratin fr the temprary hst fee adjustments, FCC has agreed t extend the current 15-year cntract term fr an additinal three years (18 years ttal) withut additinal cnditins. They als agreed t guaranteed hst fee tns f 28,000 annually during the extended perid. The guaranteed tns prvide an additinal hst fee value f apprximately $1.3M t the City. The City s cntract with FCC is likely ne f the mst favrable recycle prcessing cntracts t have been awarded natinwide ver the last five years and certainly ne f the best, if nt the best, in Texas. Under current market cnditins, it is estimated that all majr Texas cities are currently paying fr recycle prcessing services. Dallas cntract, with this requested amendment, remains revenue psitive. Since the lng-term success f this partnership is in the best interest f the City and FCC, staff requests cmmittee supprt fr apprval f this supplemental agreement. If yu have any questin, please cntact Kelly High, Directr f Sanitatin, at Jey Zapata Assistant City Manager Attachment c: T.C. Bradnax, City Manager Chris Cas, City Attrney (Interim) Carl A. Smith, City Auditr (Interim) Bilierae Jhnsn, City Secretary Prestn Rbinsn, Administrative Judge Kimberly Bizr Tlbert, Chief f Staff t the City Manager Majed A. Al-Ghafry, Assistant City Manager Jn Frtune, Assistant City Manager Nadia Chandler Hardy, Assistant City Manager and Chief Resilience Officer M. Elizabeth Reich, Chief Financial Officer Laila Alequresh, Chief Innvatin Officer Directrs and Assistant Directrs Our Prduct is Service Empathy Ethics Excellence Equity

3 Prpsed supplemental agreement #1 prpsed changes in bld Material Recvery Facility Backgrund FCC Recycle Prcessing Services Cntract Apprved n September 9, 2015 FCC t design, build, perate and manage a new material recvery facility at the City s McCmmas Bluff landfill Land at McCmmas Bluff Landfill made available fr the facility FCC invested ver $20M in building the new facility The term fr the peratin and management f the facility cmmenced n January 1, 2017 fr a 15-year term (t 2032) with ptins t renew at mutually agreed upn terms fr up t an additinal 10 years. Hst Fee n Nn-City Tns (prpsed amendments) FCC pays a $15 per tn hst fee n all nn-city tns prcessed at the facility Subject t annual CPI increases Year 1 guarantee f 5,000 tns Year 2 guarantee f 10,000 tns Year 3 guarantee f 15,000 tns Year 4-15 guarantee f 28,000 tns per year Fr a perid f three years, beginning this cntract year (year 3), any mixed recycling tns abve the guaranteed hst fee tns, will be paid based n mnthly recycling cmmdity market cnditins. This amendment wuld allw fr tw additinal 1-year extensins based upn market cnditins at the end f the 3-year perid City Manager s apprval required fr annual extensins f the reduced rates Variable hst fee rates established based n mnthly blended values Hst fee wuld range frm $ $17.50 per tn Mnthly Blended Value fr such mnth (based n average mnthly actual sales price) Applicable Hst Fee fr such mnth (Per Tn) $ r mre $17.50 $ $ $15.00 $ $ $12.50 $ $99.99 $10.00 $ $94.99 $7.50 $ $89.99 $5.00 $ $84.99 $4.00 Belw $80.00 $3.00 Fr a perid f 3 years, beginning this cntract year (year 3) any clean presegregated material culd be prcessed at the facility with a hst fee f $2.50 per tn. Clean pre-segregated material (e.g., clean warehuse cardbard) is minimally prcess, essentially baled and sld by FCC. This amendment wuld allw fr annual renewals fr prcessing f this new cmmdity fr the term f the cntract City Manager s apprval required fr annual renewal 1

4 Prpsed supplemental agreement #1 prpsed changes in bld Cntract Term (prpsed amendments) 15-year primary cntract term, with cncurrent grund lease Extensin ptins frm 1-10 years. N mre than 10 years ttal At the terminatin f the cntract, the building wnership transfers t the City. Equipment wnership is maintained by FCC Estimated $22.8M in revenue ver the 15-year cntract term Based n revenue share t City, educatin cntributin and guaranteed hst fee revenues (nn-guaranteed hst fee tns nt included) 3-year extensin f primary cntract term with n changes in base cntract FCC has agreed t guarantee 28,000 tns f nn-city tns fr each year f the 3-year cntract extensin Estimated additinal revenue - $1.3M Fr any extensin ptins related t prcessing mixed recyclables, in additin t the prpsed three years, the primary cntract term will be extended by an equal amunt with cntinued guaranteed annual tns and n ther base cntract changes Prcessing cst and Revenue Share (n prpsed changes) $70.84 per tn prcessing fee (subject t annual CPI increases) 50/50 revenue share n sale f cmmdities If prcessing csts exceeds revenue share, the City des nt pay Public Educatin Cntributin (n prpsed changes) FCC pays $1 per husehld per year (based n 250k hmes) t be used fr the City s utreach and educatin effrts 2

5 Changes in blended value since January 2017 Fiber market changes since January