I. DEVELOP AN ANNUAL CONTRACT ADMINISTRATION CALENDAR
Between Excel spreadsheets and scheduling software, you have more tools than ever to set up a calendar containing the time of your MSW contractor’s every reporting and renewal performance obligation that occurs regularly and routinely. Leaf through your contract and note every relevant obligation on your calendar. To double-check, use the global search function on your work processing program for such words as “submit” or “deliver,” which are associated with reporting, and “secure” or “maintain,” which pertain to insurance and performance assurance. For example:

• check liability insurance renewals
• check performance bond, letter of credit, or other financial assurance renewals
• check compliance with employment and labor-related obligations
• confirm that permits remain current

(1) Protect your local government from municipal liability—check liability insurance renewals. One of your most important contract administrative functions is that of making sure your contractor timely renews its general and auto liability policies. This may seem self-evident, but it bears repeating because the risk is high. Your hauler might be the one to log service subscriptions, bill customers, and collect fees, but if its collection vehicle is in an accident, then you—as contracting entity with perceived deep pocket—are likely to be named as a party to suit. If a car delivering self-hauled rubbish backs into the pit of your transfer station under contract operation, you will certainly be sued in any consequent action.

At the commencement of your contract, note your contractor’s policy expiration dates on your contract administration calendar. Your contractor will secure a performance bond or other performance assurance that applies particularly to your project and contract, and therefore it may run conterminously with your contract year (such as a calendar year or July 1 fiscal year). But your contractor’s insurance policies probably cover all of your contractor’s operations, and their renewal dates will not coincide with your contract year. (Consider an endorsement to make all limits apply to you.)

Compare the certificate of insurance (COI) with your contract requirements. Remember that your contractor does not generally submit the actual policy, and, even if it did, you might find it difficult to ascertain that the policy meets all your contractual prescriptions. (You can require that your contractor instruct its broker to provide you with a letter stating that the policy complies.) And check that the broker has provided sufficient information on the COI for you to determine that the policy covers your contractual requirements, including:

• naming your contract if necessary to secure “insured contract” coverage status under the policy for your MSW services agreement (indemnity obligations, for example),
• identifying each required ISO policy form or confirmation of its equivalency to ISO policy forms required under your contract (such as “general liability ISO form CG 00 01 [occurrence] or its equivalent [and not CG 00 02 claims made),
• stating that the insurer must give you a cancellation notice (with no “best efforts”) and that language such as “failure to do so shall impose no obligation or liability of any kind upon the insurer, its agents or representatives”, is deleted, and
• stating deductible limits (or more importantly, self insured retention / SIR levels).

Make certain not only that the effective date coverage begins at least as early as your contract term, renewal dates are presently effective and the coverage amounts sufficient, but that the policy still contains the requisite endorsements attached to the COI on separate pages (whose policy numbers should match the policy numbers listed on the COI) such as:

• additional insured status,
• waiver of subrogation,
• making insurance primary (and not contributing)
• naming your contract, if necessary, to secure coverage under the policy.

Remember that COI does not give you any rights to make claims under the liability policies. It is merely informational. You must be named on the endorsements in order to secure your coverage.

Check A.M. Best ratings (online) to confirm that the insurers meet any size and credit rating requirements in your contract, such as A VII. (The letter represents the insurer’s rating; the Roman numeral, its size. Explore A.M. Best’s web site for an explanation of ratings and size.)

Check that all “claims made” policies have a retroactive date no later than the date of your contract. “Claims made” means that a policy covers only insured events that occur and are filed during the policy term. (Pollution policies are especially likely to be written on a “claims made” basis. But neighbors’ nuisance actions or Superfund suits for leaky landfills may occur far in the future after your disposal contract has long expired and contractual relationship ended. “Claims made” pollution policies intended to cover you for landfill liability should ideally provide a continuing obligation that survives termination to keep you on as an additional insured. But this poses a practical challenge to administer and enforce, especially since your contractor may go out of business, dissolve, or merge with or be acquired by another company. And pollution policies frequently have very high self-insured retentions (SIRs) in the millions of dollars, which means that you must look to your contractor, not the insurer, to reimburse you for that amount of claims. Lastly, your contractor’s pollution policy may have an “insured versus insured” clause that—unless removed by endorsement—would prohibit you, as an additional insured, from making claims against the principal insured, your contractor. Therefore, as a supplement or alternative to being an additional insured, you might investigate non-owned disposal (NOD) facility coverage for pollution liability arising out of your private contractor’s disposal facilities.

Retain the contractual right to pay your contractor’s overdue premiums. Even though you may not intend to step in, since the stakes are high you lose nothing by keeping that option open. Make certain that your contract allows you to recover the cost from your contractor, including by liquidating performance assurance. (For the nervous: Include specific language of disclaimer that you have no obligation to secure the insurance.)

(2) Ensure continued performance assurance—Check performance bonds, letters of credit, and other financial assurance. Don’t risk your garbage piling up in the event that your contractor becomes bankrupt or suffers labor disturbances. Make certain that your performance assurance remains current. (And secure letters of credit rather than performance bonds, where possible. You can immediately draw down a letter of credit issued by a bank and hire another contractor to step in on a temporary basis, though probably at a premium price that you should project when you size your assurance. By contrast, you may suffer time-consuming claims processing— or even contest—if you call on a performance bond.)

Check the following items in your performance bonds:

• you are named as the payee (you’d be surprised that sometimes another party is named!)
• the surety is licensed to transact business (“admitted”) in your state
• the surety has the requisite A.M. Best rating
• the bond is conditioned on contractor’s performance of all terms and conditions of the agreement, including payment of any fees it owes you (such as franchise fees) and liquidated damages (for breaches, such as failure to collect)

• Prohibition against the surety substituting a new contractor that you have not chosen or approved for your defaulting contractor, and, conversely, requirement that the surety pay your money

This last condition is commonly found in performance bonds that are primarily intended to complete building infrastructure. Since you are not contracting for the construction of a building pursuant to plans and specifications but rather securing service from a contractor with whom you will have an ongoing relationship over a term of years, you can require that the performance bond prohibit the surety from substituting another service provider, one that may not have the experience, references, or environmental record that you evaluated when you awarded your contract to the defaulting contractor. Rather, your performance bond can require that the surety must provide payment of money to you so that you—not the surety—can both secure substitute services and recover your contractually prescribed damages and fees.

Check the following in a letter of credit:

Termination date—Ideally the letter of credit should expire when you certify to the issuing bank that (1) your contract has expired; (2) a period of 180 days or other bankruptcy preference period has passed since you terminated your contract, such as for default; (3) your contractor has substituted an alternative letter of credit or other security document acceptable to the you; or (4) your contractor does not owe you any money. However, many letters of credit may be in effect only for a year, like insurance, and must be renewed or replaced.

Draw conditions—Ideally the letter of credit should specify instances in which you can draw upon it, such as in the event that (1) your contractor defaults; (2) your contractor is unable to regularly pay its bills as they become due; (3) your collection contractor fails to timely pay the applicable tipping fees at any MSW facility, such as a MRF, landfill, or other disposal facility; or (4) your contractor fails to pay an insurance deductible or self-insured retention. However, many contracts may require that you can draw on the letter of credit only if your contractor defaults.

(3) Support public policy—Check employment and labor-related obligations. Check compliance with the following obligations, either through certification or reasonable spot checks:

Local policies— Your elected body may have established policies with respect to your contracts and contractors that result in “boiler plate” provisions in your contracts, such as

• state law provisions regarding eight-hour workdays, overtime, and employment of persons in a local job training or relief program
• providing notices to employees (such as with respect to the Federal Earned Income Credit
• posting a list of parents that are delinquent in child support payments
• posting fact sheets on how to safely surrender babies
• compliance with ILO Convention Concerning Minimum Age for Employment (child labor)
• Equal Employment Opportunity certification, and development and implementation of a mandated health and safety program
• current workers compensation coverage; meeting any contractually prescribed employment performance standards that promote safe operation, such as not receiving any OSHA “failure to abate” notices, satisfactory vehicle test ratings from the state highway patrol or other regulatory authority, and maintaining an experience modification factor used to calculate your contractor’s worker’s compensation insurance premium (i.e. 1.25 or less).

(4) Confirm that permits remain current— Examples for a collection contractor include local collection/haul permit, business license, and special waste/ e-waste/tire collection permits. Examples of facilities are myriad: CUP, water, air, storm runoff, and solid waste. If you are feeling especially diligent, check your own permitting department (such as health and safety) and other permitting agencies for violations or notices of violations . . . or at least get your contractor’s compliance warranty in its reports.

II. REVIEW REPORTS
Invest time up front to create the performance and operations report format you want— Filling in the table, chart, or other form will not only save your contractor time and money (which should be reflected in lower service fees) but your administrative time and costs as well. (Providing excel spreadsheet provides uniformity and speeds your review . . . especially from multiple contractors.) If you initially outline your expectations and itemize your requirements, you will likely spend less time later going back to your contractor with requests for corrected, revised and supplemental information.

Knowledge is power, and it is tempting to request detailed information. But find the balance between obtaining necessary information and burdening your contractor. Contractor’s consumed time translates into higher rates for you or your rate payers.

In your contract administration calendar, create a tickler file that reminds you when reports are due. (Your contract might provide for liquidated damages assessed for each tardy day.). When you receive the report, check the following:

• Timely submission—Your contract might contain general rules of construction with respect to time extensions for days that fall on weekends or specified holidays, or it might articulate the rule for counting periods prescribed in days (such as “within 15 days after the end of a month”). For example, “days” could refer to calendar days, to days on which your offices are open for business, or to days on which your contractor is open for business—or a separate definition for each of these three, for use with respect to different obligations in the contract.
• Completeness of information—This task is where you can save time by reviewing completeness of a form you provide rather than paging back-and-forth between your contractor’s report and the required reporting provisions in your agreement.
• Consistency of information—For example, check that an annual report does not conflict with earlier quarterly / monthly reports.
• The math, at least on a spot basis— It’s gratuitous advice to counsel double-checking your contractor’s calculations of performance guaranties, such as recycling rates, that may affect payment of a bonus, or of indexed rate adjustments that may increase rates.
• Proper certifications or warranties—For example, a route supervisor may have to sign a report about operations, but a chief financial officer  will sign for gross receipts that serve as the basis for your franchise fee.

If your contractor (or its parent guarantor) files quarterly (Form 8-K) or annual (Form 10-K) or other special reports required by the Securities and Exchange Commission (SEC), you can read them online. Although they are intended to provide disclosure for investors, you can learn considerable amounts about your contractor’s business strategies, pending major regulatory actions (such as SEC investigations), and financial health and prognosis. Some of these may be directly relevant to your contract (such as to a criminal conduct clause). Others may be indirectly helpful to you in your contractor relations, especially as you approach times for extensions or renewals.

III. AUDIT RELEVANT RECORDS
 Your contract may obligate your contractor keep records within your jurisdiction for your audit convenience, or otherwise provide you with copies “promptly” on request. (Your contract might provide that if no other time for performance is specified, “promptly” means a specified number of defined working days.)

Targets for audit include:

• Financial statements—Many reasons justify including financial record-keeping requirements and audit rights in your contract. First, your rate adjustment protocol may be cost-based, and your contract may require your that contractor keep a record of costs and expenses of providing contract services separate from its other costs and expenses attributable to other operations. (See http://www.forester.net/mw_0506_legal.html, “Preserving the Benefits of Your Bargain: Rate Adjustment Options,” in MSW Management Elements 2005). Second, your contractor may owe you payment of fees based on a percentage of gross customer receipts. A collection contractor might collect on your behalf assorted regulatory fees from customers that the contractor bills and receives, forwarding the proceeds to you. A MRF, transfer station, landfill, or WTE facility operator may collect tipping fees and self-haul fees on your behalf.
Your contract probably limits when (advance notice, contractor’s office hours) and how often (once each year) you can audit financial records. It might give you (or your consultants) the rights to review the accountant’s audit plan and work papers and to meet with contractor and its accountant to ask them questions.
• Form of financial reports—Your contract may require that contractor supply audited reports, not merely compiled or reviewed; keep financial records on a contract basis; or provide consolidated reports.
• Shared recovered materials sales revenues— Your contractor may market your community’s recyclables through an affiliated broker that commingles or aggregates your materials. If your recyclables collection or MRF agreement contains revenue sharing provisions, it may provide that your contractor has to sell recyclables at maximum available market price. Then your audit may seek to determine whether your contractor has attributed the contract revenues (or losses) to prices the affiliate got on the spot market or long-term agreements it may have, depending on which prices were lower, resulting in less revenues to share.
• Tonnage—Depending on the type and terms of your contract, tonnage may have significant financial or regulatory compliance implications. For example, you might compensate a facility operator all or in part by the volume of materials tipped and accepted. As another example, you might have to report refuse, recyclables, and yardwaste tonnage to regulatory authorities to substantiated mandated diversion . . . or pay fines. With respect to collection, unless your contract prohibits interjurisdictional routes and commingling, it might specify an agreed protocol for allocating tonnage between you and other jurisdictions. Similarly, if your hauler owns the MRF where it processes your recyclables, your contract might specify a protocol for conducting characterization studies that are statistically valid (how often, how many) to allocate disposed MRF residue to your community.
• Customer subscription records, customer service charges, tipping records, and invoices—In addition to corroborating gross receipts (see “financial statements” above), you may want to audit customer information. Your collection contract may contain sanctions for mischarging customers, either by mathematical error or by application of the wrong rate. You might compensate a MRF, transfer station or disposal facility operator or service provider based on tons that the operator or provider itself has weighed. (Alternatively, you might want to operate the scale house to avoid this conflict of interests.) Your contract may require that your contractor keep original invoices, tipping receipts, and so forth (in paper or e-files) for a prescribed period of time to enable you to conduct these audits.
• Route audit (if you do customer billing and pay collections contractor)—If you pay your collection contractor from property taxes, assessments or utility bills, customer payment delinquency of shortfalls becomes your risk. Your contractor might be providing service at illegal converted garages or other set-out sites that don't have billing addresses on your records . . . and you pay your contractor even though that “customer” does not pay you. The same asymmetry can occur with respect to the level of service. Your contract might require that your contractor conduct route audits on a prescribed timetable, such as one-fourth of routes every calendar quarter, to cross-check actual service against billing records.

IV. PRESERVE YOUR RIGHTS.
At least once a year, perhaps in conjunction with reviewing your contractor’s annual report or performing rate adjustments, comb through your contract for all instances where you must give your contractor notice in order to preserve or exercise your rights, such as the following:

• Date by which you must exercise your right for term extensions (and watch out for “evergreen” renewals that roll the term forward automatically—usually many years in advance of expiration—unless you take affirmative action not to renew).
• Give prescribed form of notice of breaches that might start the clock running for contractor cure periods or your ability to exercise your contract remedies and enforcement rights (assess damages, draw on performance assurance, or suspend or terminate the contract).
• Check accuracy and currency of names, addresses and contact information. Examples include a denominated contractor,
  to whom and where you must give official “notice” prior to exercising your remedies, and the individual or entity named for service of process within your state.

V. EVALUATE CONTRACT COMPLIANCE AND CONTRACTOR PERFORMANCE
Re-read your contract—At least once a year, also perhaps in conjunction with reviewing your contractor’s annual report or performing rate adjustments, read through your contract to refresh your recollection on the details of contractor’s obligations and your rights. For example, you might have forgotten details, such as the requirement that your contractor send you copies of generic customer correspondence for review before mailing, or those details giving you the right to consent to changes in named “key” personnel or to paint or replace decrepit dumpsters within a certain number of days of your request.

Check compliance—Similarly, peruse the lists of liquidated damages and specified breaches/defaults that your contract provides, note which ones your contractor may have incurred or committed . . . and correspondingly consider which types of noncompliance matter most to you and your elected officials (such as disposing of greenwaste, failing to keep the truck queue short at the landfill, or routinely leaving skid marks on the streets as the side-loaders stop and start. Liquidated damages are intended to grab your contractor’s attention and motivate it to remedy problems, not to “punish” them or raise additional revenue.

Conduct customer satisfaction surveys and reports— Sometimes the contract requires you to conduct a customer satisfaction survey in specified intervals or at required times. Other times, the contract may require an (annual) status report or presentation to elected officials on the state of MSW programs and services.

VI. INVEST TIME IN A FIELD VISIT
Get out of the office and visit the MSW facility or follow a collection vehicle or drop in at other offices. If a picture is worth a thousand words, a visit is worth a lot of reports. You might meet support staff (such as accounting) that you e-mail or call by phone daily (or at least, frequently) but otherwise never see. You might better understand the problems your contractor faces (contaminated recyclables on the sort line, backup of self-haul vehicles, or over-flowing carts). You also might observe areas for improvement (leaky trucks, dilapidated dumpsters, dangerous cross traffic on the tipping floor, etc.).

VII. FURTHER ASSURANCES: BE VIGILANT FOR NEWS EVENTS
Your contract may give you assorted rights that are triggered in certain events, such as:

• Merger or acquisition of your contractor (and/or its parent guarantor), sale of substantially all its assets, or other change in control their that may trigger your consent rights for substitution of service provider/credit support.
• Financial announcements and news releases with respect to your contractor (and/or its parent guarantor)¸ such as downgrading corporate stock or bond ratings or decrease in earnings that might violate a financial covenant in your agreement (especially guaranty).
• Criminal conduct—if your contract gives you certain remedies in the event of specified “bad boy” conduct (such as conviction or no-contest plea of felonies or listed actions—antitrust, securities, etc.) of specified persons or entities, such as contractor, its officers and directors, and named representative under your contract. (For example, remedies may include replacing the offending person.)
• Further performance assurance, where your contract gives you the right to ask for additional performance security (such as an increased letter of credit) in certain events that could presage contractor’s financial problems and/or service default. Examples may include:
• Labor unrest (including work stoppage or slowdown, sick-out, picketing, lock-out or other concerted job action) in excess of specified number of days.
• Failure to pay bills, such as a tipping fee at any solid waste management facility, any insurance deductibles or self-insured retention, any employee’s wages, and any other bill for over a prescribed number of days.
• Fines, penalties, or civil or criminal judgment or order in excess of a specified amount of customer service charges/gross receipts under the contract (such as more than the past three months).

Be alert for news releases and broadcasts that might trigger the exercise of your rights.

VIII. PRIOR TO CONTRACT EXTENSION OR RENEWAL 
You might have the sole option to extend you contract, your contractor might have the right, or you may both agree to extend it.

As the time approaches to exercise your option, check your right to review records and conduct audit.

For example, compensation might be a key determinant for contract renewal. If you have been adjusting the contractor’s compensation by a bundle of indices for several years, and have the right to require audited financial records, before extending your agreement you might ask for the audited financials far enough in advance so that your contractor can prepare them and you can review them before you have to exercise—or lose—your renewal option.

As another example, service quality might be an issue. If you have the right to review customer complaint records, you might review them to determine the number and type that have occurred. Your contract might give you the right to conduct a customer satisfaction survey and have your contractor reimburse you for all or a portion of the cost.

And as a final example, environmental quality might be topmost on your elected officials’ mind. Especially with respect to facility operation, if you have the right to review permits and related correspondence with respect to compliance, you might do so in order to be prepared to substantiate—or allay—fears that contractor is a polluter.

Your contractor may have the right to an extension upon demonstrating that it meets certain super-performance criteria or preconditions, such as increased diversion, low assessed liquidated damages, timely payment of fees, few and minor permit violations, etc. Start compiling and reviewing the information you need to substantiate satisfaction of those preconditions as soon as possible in advance of the extension date, so that if your contractor has not met its preconditions you will have time to evaluate and exercise your own possible option to extend or to procure another contract with a new contractor.

POST CONTRACT FOLLOW-UP
It ain’t over until it’s over, as the saying goes. Make a list of your contractor’s obligations that continue even after the contract has expired at the end of its stated term or been terminated for breach or convenience. As a contract administrator, distribute copies to your counsel and department head to help ensure that, even if you retire or move, someone else will be aware of your contractor’s continuing duties and your surviving rights. Some of the rights and contractor obligations that your contract explicitly provides to continue (i.e., “survive” termination), may include all the acknowledgements, representations and warranties that the parties make in the contract,
all indemnities, and contractor’s payment obligations (or your claims for payments), such as:

• regulatory fees the contractor has collected on your behalf;
• franchise, contract administration fees or other fees that contractor owes you;
• damages (both liquidated and compensatory); and
• reimbursements for money you spent to secure alternative performance by a third party when your contractor did not meet its obligations.
 

With respect to records, the following may be included:

• giving you prescribed notice of destruction of disposal records (that could limit your liability in event of Superfund litigation);
• giving you a copy of records, or allowing you to copy, inspect, and audit specified records (such as information with respect to disposal or gross receipts for final franchise audit);
• submitting final, complete reports;
• securing certificates of insurance and endorsements that meet prescribed insurance coverage (for example, endorsements extending coverage of claims made insurance policies for you as additional insured);
• procuring an inventory of service assets that you are acquiring (for example, collection carts or MRF equipment) and providing you with related documentation (such as warranties, operations and maintenance manuals, or maintenance logs); and
• clean facility or site to the state it was when your contractor first operated or occupied it (for example, at the end of a MRF operating contract or land lease for a buy-back/drop-off center site), wear and tear excepted.

In summary, invest the time in creating a “tickler” calendar when you first execute your contract to remind you when insurance, bonds/letters of credit and permits expire and must be renewed and reports are due. Also, create a template for the form of required reports to facilitate your contractor’s preparation and your review. Check reports for timeliness, completeness, consistency, mathematical accuracy, and inclusion of required warranties or certifications. Occasionally scan the filings that your contractor might submit to the SEC.

Audit targeted records, such as financial statements, shared revenues, tonnage, and gross receipts, as relevant to your transaction. If you bill customers and pay the contractor, require a route audit to compare your billing records with level and location of service that contractor is actually providing.

At least annually, preserve your contract rights by reviewing your contract for notices of extensions or breaches that you must give. Make sure the names and contact information for a contractor representative or notice or service of process recipient are all current. Re-read your contract to refresh your recollection of your rights and detailed contractor obligations, and check the lists of liquidated damages and breaches/ defaults. Conduct a field visit.

Be alert for news releases and broadcasts that might trigger the exercise of your rights, such as contract “transfer” consent, criminal conduct clauses and securing additional performance assurance (i.e. in events of strikes, failure to pay tip fees or fines, penalties, or civil or criminal judgments in excess of specified amounts).

Check your right to review records (such as customer complaints, permit compliance) and audit records (such as financial accounts) well in advance of any optional renewal notice date.

Distribute to your counsel and department heads a list of contractor’s obligations that continue after expiration or termination of your contract, such as reps and warranties, indemnities, outstanding payment obligations, records maintenance (e.g., disposal, gross receipts), submitting final reports, providing annual COIs or endorsements (i.e., to provide you with continued protection under claims-made policies), inventories of assets you are acquiring, and returning facilities or sites to required states or standards.

And finally, remember: P rivatization, outsourcing, or private contracting does not signify that you have delegated your municipal responsibility to protect health and safety. If you don’t do everything on this checklist, don’t berate yourself. Give it to your elected officials to illustrate why responsible contract administration takes  time . . . but attentive contract administration better ensures that you and your residents and businesses get what your bargained for and counted on.