By George Pardon
This Monday, the Cypress City Council will vote on increasing the trash rate by another $1.01 per month based on the consumer price index. Prior to the increase approved in January, the residential rate was $16.17 per month. As such, if this is approved, since January residential rates will have increased $6.28 per month or 38.8%.
While some Council Members say we have a great rate compared to other cities, comparing our rate to other cities’ rates can be very misleading as rates do not provide an appropriate ‘apples to apples’ comparison. Cypress received several competitive bids for trash services in 2014. Valley Vista was awarded a ten-year contract to begin in July 2015.
Less than 2 years later, Valley Vista came back to the City requesting a rate increase and relief from reimbursements required in the contract. Valley Vista made the request pursuant to the Extraordinary Adjustment section of the contract. An independent review of their request by R3 Consulting concluded that an Extraordinary Adjustment was not justified. The August 2017 City Council stated that ‘Unfortunately, the current Franchise has become financially unsustainable for VVS which creates uncertainty regarding the future of trash collection in Cypress.’
I recently asked the City Clerk for a copy of any and all audits the City has performed pursuant to Section 8.04 of the Valley Vista agreement which provides the City the right to audit Valley Vista’s payments, operations and financial records. The response from the City Clerk stated that ‘the City has determined that there are no records responsive to your request.’ Rather than taking the contract back out to bid, the City Council made substantial changes to the contract in August 2017 without even conducting an audit although R3 consulting stated that Valley Vista’s problems resulted from “inaccurate estimates by the Collector of its cost of operations”.
The amendments made to the contract by the City Council in August 2017 included the following:
-Graffiti Removal Services
Section 6.08 of the original contract stated ‘Collector shall remove graffiti, at its sole cost and expense, use and furnish all labor, supervision, equipment, materials, and transportation necessary for the satisfactory performance of graffiti removal services to public and private properties in the City of Cypress.’ The rationale in the agenda to remove this requirement stated: Contracting for graffiti removal service outside of the Franchise will enable VVS to focus on the efficient collection of solid waste. The City maintained a separate graffiti removal contract when Republic Services was the trash Franchisee and the annual cost is estimated to be $110,000. It is also recommended VVS continue to provide graffiti removal service under the terms of the Franchise while the City secures a graffiti removal contractor, but no longer than December 31, 2017.
-Bulky Item Collection
Under Republic Services, residents received two free bulky item collections each year. The VVS Franchise increased free bulky item collection to 12 items per year and, in doing so, created a significant cost for VVS and the potential for the service to be abused. Adjusting bulky item collections from 12 items to two items per year, while maintaining two citywide Clean Up Days and free Christmas tree collection, will provide residents a high level of service and strengthen the Franchise. Should a customer need more than two bulky items collected, outside a citywide Clean Up Day, they would be charged $52.37 per item.
-City Fees
Beginning with FY 2015-16 the VVS Franchise provided the City new Franchise-related revenue of $213,000 above what Republic Services paid. These Expenditure Reimbursement Fee revenues are unrestricted and represent less than one percent of the General Fund. They are adjusted annually for inflation and budgeted at $223,000 in FY 2017-18. Releasing VVS from these new fees will strengthen the Franchise while maintaining the same Franchise Fee the City received from Republic Services.
-Extend the Franchise Term to June 30, 2027
The current 10-year Franchise expires June 30, 2025and provides the City Council with the option to extend the Franchise for one two-year term and two one-year terms (a total of up to four years). Exercising the two-year extension provides VVS additional certainty and strength with lenders and financial institutions.
These amendments were made without a bid. More substantial changes were made in 2021 including adding another 10 years to the term of the agreement along with substantial price increases. While the City Council now states that the City could incur substantial penalties if they were to go out to bid, the question remains as to why the City didn’t rebid the contract in 2017 with full knowledge that the contract was financially unsustainable for Valley Vista. Why did they extend it in 2017 for 2 years and again in 2021 for another 10 years?
In a 2019 article by Teresa Santin regarding renegotiating a public contract after the award, she makes some excellent points:
1) Modifying contract terms after bid opening could impair the sanctity of the sealed bid process and otherwise undermine open and honest competition, which protects the public and other bidders from favoritism and fraud.
2) With these principles in mind, a “substantial” deviation or modification of a contract post-award impermissibly affords the winning bidder a competitive advantage. A modification is substantial if it affects the amount of the bid and affords a bidder an advantage not allowed to the other bidders.
3) Substantial modifications after bid opening include waiving or renegotiating any aspect of the contract affecting the price.
Teresa Santin is an Associate at Brouse McDowell LPA practicing primarily in the area of construction and real estate litigation, both in commercial and residential contexts.
Los Alamitos went out to bid recently and evaluated 7 bids from 7 different companies yet Valley Vista submitted the highest residential rate. You might understand how they could come in 2nd or 3rd but 7th out of 7? Besides a great rate, the Los Alamitos contract also provides the city with $125,000 reimbursement for street services. Again, the rates the city compares us to is not an ‘apples to apples’ comparison. We would need to be told what reimbursements or services each of these cities receives besides simply trash pick-up which is pretty much what Valley Vista provides.
In a 2011 presentation by city attorneys made to the League of California Cities, the following was stated: ‘The purpose of requiring governmental entities to open the contracts process to public bidding is to eliminate favoritism, fraud and corruption; avoid misuse of public funds; and stimulate advantageous market place competition.’
It’s really just that simple. This contract should not have been extended from the original 10 years to the current 22-year term and most likely should have been rebid in 2017 when it was determined that the contract was not financially sustainable. Actions like these cause many residents to question what else goes on behind closed doors.
