Has your community historically contracted with private companies to provide MSW services? Have your elected officials recently directed you to solicit competitive service proposals for the first time? Whether you are an old hand or a new venturer into the contracting area, consider these five commandments of outsourcing.

By Constance Hornig and Kathi Mestayer

1. Thou Shalt Make an Informed Decision
2. Thou Shalt Have Keen Competition
3. Thou Shalt Have a Specific, Detailed Request for Proposals
4. Thou Shalt Have a Comprehensive Service Contract
5. Thou Shalt Monitor Performance
The Four Commandments of Contracting

The decision is made: outsource. Staff and City Council or the Board of Supervisors are in agreement to secure solid waste management services from a third party (public or private) by competitive proposals. As you structure, implement, and administer your procurement, consider the following five commandments.

1. Thou Shalt Make an Informed Decision

Benchmarking lays the foundation for informed decision-making (see "Outsourcing Decision Criteria" in Elements 2000). Although it might be difficult, predetermine an acceptable range of acceptable price proposals and reserve the right to reject all proposals.

But beyond establishing benchmarks, solicit information about prospective service providersí qualifications, such as comparable service experience, references, litigation history, financial creditworthiness, vertical integration, criminal conduct, environmental history, and contract representativesí professional qualifications.

Be specific about proposersí experience with the type of program you are procuring; for example, Describe the rollout of an automated yardwaste collection program for a demographically similar community (or other community in your local geographic area), including cart and vehicle procurement (manufacturer, sizes, material content, warranties, cost, order time), public education (manner, timing and content of program notice, quantity and handling of questions and complaints), a timetable, participation, and contamination data.

Consider asking for a list of all MSW service contracts and projects in your area, with references and phone contacts, so that you can choose the municipal contract administrators to call rather than limit yourself to references preselected by the proposer. Draw on the collegiality of your municipal peers and colleagues. Learn from their experiences not only with the proposer, but with negotiations, contractual provisions, and implementation.

Request a list of pending, settled, or otherwise concluded mediation, arbitration, or litigation from the past three to five years for the proposer and its parent companies with respect to public procurement appeals, municipal contract disputes, and waste designation (flow control). Litigation with respect to workersí compensation, liability insurance claims, etc. are usually extensive, onerous for a proposer to collect, and of uncertain value to you - unless insurance premiums are a pass-through cost. Include your city attorney or county counsel in the review of disclosed disputes.

Remember to request financial information with respect to not only the proposed contractor, but also the parent company that will guarantee the contractorís performance and financial obligations. (Donít let them submit parent financials but no parent guarantee!) Financial strength is difficult to evaluate since many large companies not only have billions in assets, but also billions in debt or contingent liabilities (e.g., closure and postclosure funding, landfill cleanup costs, Securities and Exchange Commission (SEC) and shareholder litigation over accounting issues). For such large companies, in addition to securing public filings made with the SEC, you might want to ask for copies of the named financial analystsí most recent reports and disclosure of specified financial ratios over a prescribed historical period to date to allow you to make more informed relative comparisons. Involve your chief financial officer or treasurer in the review of financial information.

Where you own or contract with materials recovery facilities, composting facilities, or landfills, you might fear that a proposerís stated corporate policy of vertical integration could result in the export of materials or waste from your facilities to theirs. Ask for a listing of facilities in your wasteshed and landfills in locations accessible via long-haul transportation. The proposer should include information to support any stated unavailability of listed facilities for import (e.g., permit limitations and local zoning restrictions).

Staff and elected officials might be concerned about prior instances of bribery, antitrust or price-fixing violations, or other criminal conduct of the proposer and of the officers and directors of its parent companies who shape the corporate ethic. You should solicit information about past criminal conduct.

Environmental history might matter to your community from a policy perspective (you want to do business with good environmental citizens) as well as a financial one (the cost of paying fines or funding remediation could impact performance under your contract).

Request for Proposals (RFPs) almost always request information on the professional qualifications of the individuals assigned to your contract. While a good working relationship with your contract administrator can make the difference to you, as staff administrator, between helpful or stressful service, remember that there is little if no assurance that any named individual will remain employed with your contractor or assigned to your contract over the contract term. (This may reduce the evaluative weighting of this selection criteria.) Instead, build approval of the project manager into your award process and contract.

Sometimes municipalities solicit this listed information from proposers as part of a preliminary Request for Qualifications (RFQ) in order to establish a short list of proposers, and other times they include it in the RFP that also solicits proposersí price and acceptance/exceptions to contract terms. Some communities fear that if the short list is announced in advance, the procurement will become mired down or even derailed by the protests of disgruntled, eliminated proposers. You can avoid this if the RFQ is submitted simultaneously with the RFP. Evaluation criteria can first be applied to the qualifications (e.g., 20% comparable experience, 20% references, 5% litigation history, 20% financial creditworthiness, 15% vertical integration, 5% criminal conduct, 5% environmental compliance, 5% professional qualifications) to determine qualified proposers, then to their proposed business transactions (e.g., 75% price, 25% acceptance of or exceptions to proposed service contract). A disadvantage of simultaneous submission of the RFQ and RFP, however, is that proposers must expend the time and expense of preparing their price proposals and contract review-and-comment, not knowing whether or not they will be short listed. In any event, build time into the process for clarifications.

2. Thou Shalt Have Keen Competition

Even before you begin the procurement process, as part of your decision to outsource you should evaluate whether you have at least three bidders who might not only propose lower prices, but also accept other more favorable terms. Such terms include lower escalators, cheaper termination-for-convenience buyout prices, tighter default provisions, and more risk assumption (e.g., labor disputes) (see "Outsourcing Decision Criteria" in Elements 2000). Test the waters again before issuing an RFP, through distribution of an Expression of Interest or more informal calls to potential proposers, and think through your options if competition is not adequate.

3. Thou Shalt Have a Specific, Detailed Request for Proposals

Describe Your Desired Scope of Service in Detail. Sometimes municipalities reason that they are outsourcing services because they need or want the benefit of outside expertise and therefore pick their proposersí brains for diverse service solutions. This "fishing expedition" approach risks two potential pitfalls. First, proposers might feel that you are seeking free advice at their expense and that you might not follow through with a contract award. Second, too much variability in service programs makes it infeasible for you to objectively compare cost proposals on a strictly dollar basis, and defending contract awards in a public forum becomes more difficult. Therefore, in order to secure apples-to-apples comparisons, it is best to specify the scope of services (e.g., frequency of collection, materials collected, type of containers), although the manner of providing services (e.g., whether waste, recyclables, and yardwaste collection is done with three trucks or two) may be left to the proposer. If you do give proposers free rein to brainstorm, require that they provide a bid based on a prescribed service scenario as a precondition to their individualized scope. (You may want proposers to bid on alternative scopes, although that increases their cost of preparing proposals and could discourage participation, thereby reducing competition.)

Establish Evaluation Criteria and Their Relative Weight. You are more likely to secure proposals responsive to your needs and to preclude eliminated proposersí appeals if you disclose your evaluative criteria and process. Of course, you should reserve the right to consider additional criteria, but by disclosing the relative weight that you are giving to assorted elements of the proposal (e.g., qualifications, price, or contract terms), you can give the proposer a feeling of greater comfort and assurance that the process is fair and unbiased - that you are not going through the motions of a competitive procurement as mere window dressing when you (or your elected officials) have a strong predilection for an existing contractor, a local proposer, a particular technologyÖa large campaign contributor.

Insist on a Paper Trail. Name a procurement contact representative, whether it be a staffperson or an outside consultant. This step eliminates the possibility of giving conflicting information to proposers. In addition, require all questions to be submitted in writing and responses to be delivered in writing to all potential proposers. This might seem distastefully distrustful and unnecessarily onerous, but it is surprising how words can be interpreted in the light of a personís preferences and desires. It reduces miscommunication and consequent frustration - even indignation.

Consider Limited-Contact Rules. Naming a single procurement contact yields benefits beyond reducing inconsistent positions. It can prevent proposers from meeting with elected officials. Although any impropriety, such as bribery, will not be prevented by limiting proposer contacts, the municipalityís procurement team will be empowered. No proposer can make an end run around staff and consultants and eviscerate the carefully crafted, objective evaluation criteria laid out in the RFP.

Reserve Your Rights. A cursory review of most RFPs will show you a number of provisions intended to maintain your procurement flexibility and protect you from damages. For example, reserve your right to reject all proposals, amend the terms of the proposal or issue supplemental proposals, and negotiate with the top two proposers simultaneously. Make clear that proposals are submitted at the sole cost of the proposer. Prescribe the time period for which proposers must honor their price.

Append Your Contract That Details Your Proposed Business Deal. After qualifications are ranked, price and deal terms remain. Proposers should be required to sign a statement accepting contract terms or state their exceptions and propose alternative language as part of their submittal. One evaluative criteria should be the acceptance of, or conversely exception to, the service contract that articulates and memorializes the business transaction.

4. Thou Shalt Have a Comprehensive Service Contract

The number of price adjustments could prove to be in direct proportion to the lack of detail in the scope of services and other risk-allocation factors laid out in an appended contract. Levels of insurance deductibles, indemnification for all but the sole negligence of the municipality, assuming the risk of strikes, dismounting to roll out cans for the disabled and elderly, posting public relations signs on trucks, including public relations materials in bills, the scope of the municipalityís assignment consent rights - these sorts of details can cause the proposer to increase its bid, deter negotiations, and delay consummating the contract. Revisiting price becomes problematic. It might diminish the negotiating teamís credibility in the eyes of elected officials and the public. It might trigger complaints, even suits, by losing proposers. Even if your RFP makes clear that you can terminate negotiations with a top-ranked proposer and recommence with the next in line, your project timeline might not allow you to start again, and if lack of service specificity caused the breakdown, then the same ambiguities or gap will likely resurface with the second-ranked proposer.

In sum, the goal of a comprehensive contract should be to detail the partiesí mutual expectations, prescribe resolution protocols to potential disputes, and incentivize good performance but establish consequences for nonperformance.

5. Thou Shalt Monitor Performance

Finally, your contract should include measurable performance standards that you can monitor. For collection agreements, this may include missed pickups, litter, providing service outside permitted hours of operation, complaints, or failure to submit reports on time. For landfill operation, it might include compaction standards; for materials processing, it might include throughput, recovery, and marketing guaranties. Many service providers might feel that they are required by contract to collect and maintain unwieldy amounts of data and generate reports that no public contract administrator will ever read. One way to address this is to attach report forms to the RFP as an appendix. But ultimately, knowledge is power, and data and reporting are necessary to enable you to ascertain compliance with performance standards. The public official has the responsibility to know that the ratepayers are getting value for their money.

Elected officials who do not manage operations sometimes feel that once the municipality outsources, then the municipality is relieved of all obligation or responsibility for contracted services. But the municipality nevertheless not only remains responsible for public health and safety, it must ensure that the public is getting the full value for which it bargained and achieved through a costly and time-consuming competitive procurement. In situations when the contractor will be paid directly by the customer, you might consider requiring the contractor to reimburse the municipality not only for the procurement costs, but also a specified sum to fund a contract administrator on staff so that the municipality need not fight each year to include that salary in the budget.

Keep these five commandments in mind when you next undertake a competitive procurement - and good luck!

Constance Hornig is an attorney based in Los Angeles, CA.
Kathi Mestayer is a consultant based in Williamsburg, VA.

MSW
Nov/Dec 2000