SR 08-14-2018 3H
City Council
Report
City Council Meeting: August 14, 2018
Agenda Item: 3.H
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To: Mayor and City Council
From: Susan Cline, Director, Public Works, Resource Recovery & Recycling
Subject: Second Modification to Agreement with Allan Company for Recycling
Services
Recommended Action
Staff recommends that the City Council authorize the City Manager to negotiate and
execute a second modification to Services Agreement #9012 (CCS) with Cedarwood-
Young Company, d/b/a Allan Company, a California-based company, to extend the
agreement for recyclable materials processing services for one additional year in an
amount not to exceed $302,000.
Summary
The City contracts with Allan Company to process recyclable materials. Since 2017, the
recycling industry has suffered from a decrease in markets and a drastic decline in
pricing due to the ban of recyclable commodities by China, the largest importer of
recycled materials in the world. Allan Company has asked the City for an adjustment to
the existing payment structure in light of current market conditions and has agreed to
extend the term for a one-year period. Staff recommends that the City Council approve
a second modification to extend the term and to authorize payment in an amount not to
exceed $302,000.
Discussion
The City’s Resource Recycling and Recovery Division hauls Santa Monica’s curbside
and commercial recyclable materials to Allan Company for processing at the City Yards
pursuant to the terms of a Services Agreement authorized by the City Council in 2008
(Attachment A). Under this agreement, Allan Company pays the City a minimum rate of
$27.50 per net ton of recyclable materials processed and $4,960.45 in monthly rent
(2018 rate). Annually, the Allan Company processes up to 12,000 net tons of recyclable
materials for the City and pays the City over $300,000 per year.
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China’s National Sword Import Policy
Historically, California has relied almost exclusively on exporting recyclable materials to
foreign markets because domestic markets have not emerged. Over 60% of California’s
recyclable materials had been exported to China. However, China began to implement
various programs to restrict foreign waste imports in an attempt to reduce environmental
pollution and protect human health leading to its National Sword Import Policy in July
2017. This policy severely reduces China’s import volume of recyclable materials, bans
the importation of 24 recyclable commodities, imposes unprecedented contamination
standards for allowable commodities, and increases inspections of recyclable
commodity imports. Recycling processors, including Allan Company, are being
overwhelmed by this policy as they are unable to sell all the materials they receive.
Modifications to the Services Agreement
Representatives from Allan Company approached City staff for adjustments to the
payment structure due to these global changes. The Services Agreement allows for an
adjustment of the rate based upon the market rate of comparable regional facilities. City
staff from the Public Works Department and City Attorney’s Office, with assistance from
the Finance Department, examined the market conditions, reached out to other
municipalities, compared Allan Company’s proposed rate adjustments with similar
comps and recycling bids from other California cities, and analyzed various alternatives
and the resulting financial impacts. While once a source of revenue, many cities are
now faced with the reality of having to pay for recycling processing.
Based upon information provided by Allan Company and due diligence performed by
City staff, the following changes are proposed to the Services Agreement:
1. Extend the term by one additional year up through June 30, 2019;
2. Modify the recycling rate and lease rate as follows:
July 1, 2018 through August 14, 2018
City to receive $0 per net ton of recyclable materials (a change from
$27.50/ton)
City to receive $0 in rent (a change from $4,960.45/month)
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August 15, 2018 through June 30, 2019
City to pay $25 per net ton of recyclable materials
City to receive $0 in rent
3. Refund half of the signing bonus upon the execution of the amendment and
the remainder upon termination. This is a slightly different refund schedule
than set forth in the Services Agreement, and it takes into consideration the
extension of the term by an additional year; and
4. The installation of the berm or other similar storm water mitigation efforts on
the premises to be performed by the City.
Staff recommends all of these proposed terms as fair, equitable, and prudent
considering all financial and operational factors, and Allan Company has agreed to this
proposal. Additionally, the continuation of the recycling services at the City Yards for
one additional year will provide a savings of approximately $500,000 in transportation
costs since Allan Company processes the recyclable materials on City property without
the need to transfer recyclable materials to an off-site processor.
To accommodate the City Yards Modernization Plan, Allan Company needs to vacate
the City property by June 30, 2019. Staff anticipates going out to bid for recyclable
materials processing services in early 2019, which will give the City an opportunity to
reassess market conditions and the best service delivery model at that time.
Past Council Actions
November 25, 2008
(Attachment A)
Award agreement with Allan Company for recycling services
Financial Impacts and Budget Actions
Staff seeks authority to modify the amount of the agreement with Allan Company to
include the elimination of recycled materials and rent revenues plus the estimated one-
year cost of recycling processing and a 20% contingency.
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Agreement Modification Request Budget Actions: Allan Company
Agreement # FY 2018-19 Approved
Revenue Budget
Modified Revenue
Amount
FY 2018-19 Budget
Div. Account #
FY 2018-19 Revised
Revenue Budget
9012 $333,800 ($333,800) 54500001.415870 $0
$58,500 ($58,500) 54500001.409710 $0
Contract Authorized
Amount
Modified Request
Amount
FY 2018-19 Budget
Div. Account #
Total Revised
Contract Budget
$0 $302,000 54500002.550010 $302,000
Under the 2008 Services Agreement, a signing bonus in the amount of $526,000 must
be returned to Allan Company upon termination of the contract. The loss in revenue, the
increase in expenditure, plus the repayment of the signing bonus is anticipated to
adversely impact the Resource Recovery and Recycling Fund balance by up to $1.2
million in FY 2018-19. At the time of this report, staff anticipates the fund to be self-
sustaining through FY 2020-21, although the cost of the new recyclable materials
processing contract and the yet to be determined project cost of the City Yards
Modernization Plan may further impact the health of the fund. Staff is closely monitoring
recycling services costs and preparing for a rate study to take place in FY 2018-19 to
analyze the need for potential rate increases consistent with our Zero Waste Plan in FY
2019-20.
Prepared By: Yvonne Yeung, Principal Administrative Analyst
Approved
Forwarded to Council
Attachments:
A. November 25, 2008 Staff Report (Web Link)
B. Allan Company Oaks Initiative Form
ATTACHMENT TO CITY OF SANTA MONICA
OAKS INITIATIVE DISCLOSURE FORM
CEDARWOOD-YOUNG COMPANY,
A CALIFORNIA CORPORATION DBA ALLAN COMPANY
As of July 13, 2018
3.NAMES OF TRUSTEES, DIRECTORS, PARTNERS AND OFFICERS
Trustees:
None, except for retirement plan trustees and the like.
Directors of the organization
Stephen A. Young, Chairman of the Board
Jason A. Young
Donald R. Rogers
Michael Ochniak
Partners
None
Officers of the organization
Jason A. Young, CEO and President
Stephen A. Young, Secretary
Michael Ochniak, Chief Financial Officer
Donald R. Rogers, Vice President, Sales and Marketing
Richard Hubbard, Vice President,Operations
Adam Holt, Vice President
Francisco Del Rincon, Vice President, Northern California
Yun Koo, Vice President, Export
4.NAMES OF THOSE WITH MORE THAN A 10% EQUITY, PARTICIPATION
OR REVENUE INTEREST
Stephen A. Young, Jason A. Young
REFERENCE:
Modified Agreement
No. 9012
(CCS)