Time to Tender or Extend

Time to Tender or Extend

The potential for the Blue Box Program to transition at any time to an Individual Producer Responsibility (IPR) system has put pressure on municipal staff and contractors to manage contracted operations significantly beyond their original terms. Repeated contract extensions have pushed contractors to operate their equipment well into the late stages of its lifespan at a time when equipment upgrades are required to address new market standards. In other instances, the terms and conditions that were set in contracts as long as ten years ago no longer make sense, or at the very least, can have very different implications and sometimes unexpected or costly effects. Worse yet, municipalities often find that they have allowed negotiations of an extension to go on so long that they are left with insufficient time to issue an RFP or tender and must then accept the demands of their current contractor to keep their service flowing.

The last six months of contract negotiations across Ontario have identified a number of critical steps municipal staff are encouraged to keep in mind as their contracts reach an end.

Planning and adherence to a strict timeline is critical

Take a look at the Sample Timeline on the CIF Centre of Excellence – Procurement – Resources page. CIF staff generally recommends an 18 month timeline for completion of a procurement process, subject to the complexity and size of the service being purchased. Providing insufficient time for the market to develop good proposals can result in limited response and the municipality having to accept higher pricing or less than optimal terms.

TaskWeeks
Project Initiation2
Collect Baseline Data2
Determine Program Methology4
Prepare RFP Document8
RFP Open8
Evaluations & Negotiations4
Report to Council8
Contract Award2
Contact Start Lead Time32
Total70

Mark Williams, Technical Representative at Walinga Inc. advises: “From order to delivery for a small fleet of new recycling trucks, municipalities should budget a minimum of ten months.”

Developing a municpality’s RFP in parallel with current contract extension negotiations creates options. It is critical however, to set a firm date to switch focus from negotiations to going out to the market for a new contract. A well thought out timeline will help you establish that date.

Pro Tip

Time lag due to procurement of new equipment can vary substantially between suppliers. Earlier this year contractors were warning of up to 18 month delays for delivery of certain truck configurations. Check with local suppliers and consider allowing used equipment in the initial phases of a contract to facilitate short start up timelines. Don’t forget to also factor in council meeting schedules, staff vacations, legal and purchasing department input, prestart P&E and other program impacts.

Be reasonable with contract extensions

Extensions to operating contracts can often take them well past ten years leading to performance issues with equipment and other challenges. While most contractors are willing to work with municipalities to negotiate a successful extension, it is reasonable to expect them to want to update their contract terms to account for current market conditions and higher operating costs associated with equipment approaching end of service life. Many municipalities have encountered ‘sticker shock’ in recent negotiations due to factors such as the impact of China Sword on marketed material value, labour shortages and insurance costs. As noted during the 2019 CIF Spring Consultation, contractors were regularly reporting labour cost increases of up to 15% on average, processing cost increases of over 35% and more recently, insurance increases of seven to ten fold. Notwithstanding this situation, municipalities are encouraged to do their due diligence before accepting these price increases and CIF staff members are always available to discuss current market trends while recognizing that we cannot share information about individual municipality’s or contractors pricing, terms and conditions.

Finally, it is also important to recognize that municipal procurement rules may prohibit extension of a contract, despite the interest of both parties, if the increase in costs is sufficiently large to trigger a public procurement process. Municipal staff must always check the limitations of their own municipal procurement policy before entering into negotiations.

One particularly contentious point of discussion this year has been the interpretation of contract definitions such as ‘allowable contamination’ and ‘acceptable materials’. Many of the definitions written into existing contracts become challenging a decade later given all the market, material and technological change that has happened. Flexibility and a focus on both party’s interests when negotiating an extension can help to facilitate a successful outcome.

Planning ahead

With all the uncertainty currently in play, municipalities are encouraged to ensure they have talked through transitional planning with their contractor, legal and purchasing departments and given careful consideration to agreements using fixed standards for compensation. Ensuring both parties have a common understanding of transition and change management clauses and compensation structures for marketed commodities based on the use of indices such as the CIF Price Sheet or Secondary Materials Pricing Indices, can avoid frustration afterwards. Commodity pricing can and does change dramatically over the term of a contract so both parties must understand the risks of selected indices or pay structures prior to signing any new contracts or extensions.

Bottom line

These are certainly challenging times but, when it comes to recycling services procurement, the clock is always ticking and the worst thing you can do is be unprepared.

Contact CIF Staff

CIF staff are always ready to help.  We encourage you to contact any member of the team to discuss your issues and questions.