Properly equipped

New infrastructure and services will need to be put in place if we’re going to progress from sending about 60 percent of our nation’s solid waste to landfills to something closer to zero waste to landfill. The capital requirement is significant—$60 billion to $180 billion might be a reasonable estimated range. This will be a significant undertaking, and someone will need to make the investment.

Infrastructure can be sponsored and put forward by the public sector in response to its responsibilities for managing waste and protecting public health or by the private sector in response to market- or policy-driven demand for new equipment, facilities and services. This article focuses on the public sector.
 

Building blocks

In the late 1970s, under President Jimmy Carter, the U.S. Environmental Protection Agency (EPA) managed the Urban Grant Planning program. This program provided technical assistance and grant funding for the planning and implementation of recycling and resource recovery (waste-to-energy) projects. The focus was on proper planning, procurement and funding for local governments and regional agencies to bring about changes to their local solid waste management systems. These efforts provided the foundation for what we now call public-private partnerships (P3s), then known as full-service contracting.

Proper planning for procurement has a greater chance for achieving results that are wins for the public and the private parties involved compared with the more traditional public works architect/engineer procurement approach.

Proper planning entails key project building blocks for a service to be put in place in a reasonable time frame.

What is a reasonable amount of time? It can vary, depending upon the type. For infrastructure requiring significant capital—such as mixed waste processing, anaerobic digestion, waste to energy or other emerging conversion technologies—the timeline might be three to five years (or as long as “forever,” meaning it doesn’t happen at all).

The long timeline includes the planning, procurement and negotiation process; contracting activities with other parties for site and takeaway agreements; permitting; and project financing activities. The design, build, startup and commercial operation may take another one to three years, depending upon the complexity of the infrastructure. This timeline presents an inherent problem because local government officials and leadership sponsoring the effort often serve terms that are shorter than the timeline.

Development strategies and tactical activities need to be constantly planned and executed as the process moves forward. What is really happening is the development and implementation of a major, sustainable business that needs to be managed reliably with predictable economics and in a manner that protects the environment locally as well as in a macro sense. This is not an easy undertaking and requires a dedicated level of effort supported by experienced advisers with a broad range of skills.
 

Procurement process

Early on, decisions need to be made as to the procurement approach, ownership preference and risk allocation for the service agreement.

Procurement can take several approaches. Because of the many new technologies and the numerous developers offering them, many exploratory procurements start with a request for information or an expression of interest. These ask for general information and ideas; little project planning and development effort is put into a specific project. The hope is that the request will bring forward ideas that can be considered and developed further.

The single greatest fatal flaw of a potential procurement activity may be not having a site identified and provided by the public agency for the project. If the region already provides the services desired, those may be included. But if no sites are provided, or more than one is, delays and high development costs are likely.

Another approach to procurement is issuing a request for qualifications (RFQ) as the first and only step to selecting a developer for the project. After selection, the project is to be defined with the selected proposer based on concepts presented. Either with or without a site in mind, this approach can lead to time delays because most of the project building blocks have not been addressed. In this approach, the public attempts to shift the cost of project development to the private sector rather than taking it on itself.

When the RFQ is used to qualify proposers to respond to a second-stage request for proposal (RFP), the public sector is forced to think about what it wants. It has the opportunity and time to address some of the aforementioned project building blocks and to define the project so it can attract the right kind of contractors with the desired technology and services.

The public sector also can use the time during the RFQ stage to engage the public about the need for new infrastructure and to educate about what is available and the expected outcomes. The public sector also can take time to identify and develop some of the potential partners for product. For example, if the public sector has identified and developed a customer for refuse-derived fuel (RDF), the project should include producing that product. If a district energy business or system is interested in being interconnected and is close enough to a potential site, the procurement should then be focused on that. Through this approach, the RFQ responders can be evaluated and short listed with a more specific project outcome in mind.

The ensuing RFP should include detailed information concerning:

• the available site;
• a draft service agreement;
• a draft of the land lease;
• the extent of the public agency’s commitment to waste supply and if yard waste and organics will be included;
• whether the contractor is allowed to provide a facility larger than the public agency’s need;
• the future plans for current and planned recycling infrastructure and services that are to coexist with the new infrastructure;
• alternative customers and products that can be considered;
• specific pricing for these products;
• special local purchasing requirements for local/minority hiring, etc.; and,
• schedule objectives for moving forward with the project.
   

The draft service agreement is an important document and is not to be overlooked or glossed over. It will influence how the proposers frame their projects or if they decide to propose at all. It needs to address major risk areas and allocate them accordingly. Proposers need to price the risks the public agency asks them to take.

If a contractor takes risks, ensure it has resources to back its operation.
 

The service fee

A private contractor’s fee has various components, many of which can be “deal” driven based on the terms of the procurement and service agreement. The formula also will be reflective of the time period during which the project was implemented.

The operation and maintenance component often is multifaceted. Management fees, return-on-equity and risk-factor elements also are applied when the private contractor provides services and/or it is a privately owned facility.

The level of profit included in the calculations typically depends on the degree of risk allocated to the private party, the certainty of a long-term contracting relationship and the level of revenue sharing included. For greater levels of revenue sharing, lower profit margins typically are included. These terms are subject to negotiation if procurement procedures allow for competitive negotiation.
 

Evaluation

The individuals reviewing RFQs and RFPs must be appropriate and qualified. Some larger organizations prefer to have procurement professionals, i.e., staff from a purchasing agency, not a solid waste management agency, evaluate the RFQs and produce a short list. In the next stage, solid waste professionals evaluate the RFPs. Organizations with small staffs should still seek team members outside the immediate agency to create a review process that is transparent, in-depth, defensible and produces the desired result.

Evaluation team candidates include procurement staff, solid waste managers, colleagues from sister agencies, outside consultants or members of established advisory committees. If allowed by law, colleagues from neighboring jurisdictions or membership organizations also can be helpful. (Elected officials are not recommended as they likely will have to cast a vote for or against the team’s decision.)

Learning opportunity

At the Renewable Energy from Waste (REW) Conference, Nov. 16-19, 2015, in Orlando, Florida, a half-day preconference workshop, “Planning for Success: Public Sector Planning and Implementation of Waste Conversion Projects,” describes how to approach new projects to maximize return and the many risks that need to be addressed in structuring the project agreements. This is a great opportunity to learn from and exchange ideas with industry experts in a workshop setting.

The author is president of Gershman, Brickner & Bratton Inc. (GBB), Fairfax, Virginia, and can be contacted at hgershman@gbbinc.com. GBB’s Elizabeth Rice, Kate Vasquez and Eric Weiss provided research support. A version of this article first ran in the May/June issue of Renewable Energy from Waste, a sister publication to Recycling Today.