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In the last year or so, some municipalities and material recovery facility (MRF) operators have been renegotiating their recyclables processing contracts because of market fluctuations that have affected the value of recovered commodities. These fluctuations, which include declines in the value of mixed paper and plastics related to China’s National Sword customs inspection regime and import bans that are scheduled to go into effect at the start of 2018, have thrown off the economics that formed the foundation of the revenue agreements in these contracts.

Michael Timpane, speaking during the Contracting Control session at the 2017 Paper & Plastics Recycling Conference, suggested contracts take into account the price of the sorting and cleaning services that MRFs provide. For recycling to be successful, he said, it must be based on a fee-for-service model.

Timpane works out of Florida as a principal and vice president of process optimization and material recovery for Ann Arbor, Michigan-based consultancy RRS.

The 2017 Paper & Plastics Recycling Conference, hosted by the Recycling Today Media Group, was in October in Chicago.

Timpane addressed a number of other areas that MRF operators should take into consideration when they head to the negotiation table.

Increasing residue

Timpane said municipal recycling services have evolved to compete with the convenience of solid waste services with the introduction of single-stream collection. The number of single-stream programs has tripled in 15 years, with more than 3,000 municipalities offering this service. MRF capacity has more than doubled in that time, he added.

While this method of collection has increased participation and diversion, it also has increased residue rates, which average 18 percent, at single-stream MRFs.

Regarding the performance of single-stream MRFs, he said they “clean to minimum standards” but “have a hard time getting to maximum standards.”

Evolving stream

The changing recycling stream is making the MRF’s job of sorting commingled recyclables more challenging. Newspapers, glass containers and steel cans are decreasing in prevalence. Meanwhile, corrugated containers; polyethylene terephthalate (PET) bottles and jars; other forms of plastic packaging; and plastic bags, sacks and wraps are increasingly more common, Timpane said. These items tend to be less valuable than the materials they are supplanting, however.

Given the changing nature of the recycling stream, a MRF should audit incoming material once or twice annually, he suggested. This enables the MRF to refresh its revenue basis based on its actual experience. Haulers, MRFs and communities should use audit results to enforce the allowable materials residents are placing in their recycling bins. Timpane also advised that new agreements between MRF operators and municipalities include charge-backs to the municipality or hauler for contaminated single-stream material that is delivered to the MRF.

The composite average price for recyclables as of Oct. 1, 2017, was $71 per ton, declining from $104 per ton as of May 1 of that year, he said. Timpane added that commodity pricing declines 1.3 percent per year naturally, according to data from the World Bank, because of improvements in exploration, extraction and substitution. Longer contracts, therefore, present more risk related to commodity pricing.

Escalating costs

The evolving material stream and increased contamination have contributed to escalating processing costs at MRFs. Timpane said MRFs’ processing costs have increased by nearly 40 percent in the last eight years. These factors also have contributed to the growing complexity of these facilities. Modern MRFs require qualified management, more linear feet to accommodate sorting systems and more peripherals and types of machinery.

Timpane urged MRF operators to fix their floor pricing based on their profits rather than on their costs. He also advised basing minimum performance on the presence of available recyclables in the incoming material stream and not on total incoming tonnage, which will include nonrecyclables. “If based on inbound materials, you are never going to get to your number,” he said.

Educating the resident

Education is essential to successful recycling programs because of residential turnover and the changing material stream, Timpane said. “Single-stream contamination has and will worsen without it.”

However, he added, education can suffer during bad commodity years, which presents a risk to the municipality in the form of culpability for poor quality and risks to the hauler in the form of lower revenue or higher fees from the MRF.

Contracts should include funding for education enforcement, Timpane said, adding that “municipalities are the only ones that can enforce education.” He suggested including a clause in the contract specifying that enforcement activity falls to the municipality. “Community-based social marketing is best way to do this,” Timpane said.

Incorporating additional best practices

Timpane offered a number of best practices that he said are not used consistently in contracts. These included the right to reject material and refuse service at the MRF. This is important when excessive contamination or dangerous materials are present in incoming loads. Contracts also should define what the MRF is unable to accept and how these materials should be handled if they are delivered to the plant. Such clauses are “rarely used but essential,” he said, and also can encompass unsafe driver behavior.

Contracts should specify inbound and outbound material specs and minimum grades to be made.

Contracts also should specify inbound and outbound material specs and minimum grades to be made, he advised.

While contracts commonly include language related to force majeure disruptions, Timpane said acceptable instances should be spelled out and should include market disruptions, work stoppages and changes to law, such as the establishment of pay as you throw and changes to existing bottle deposit systems.

Additionally, he advised setting limitations on tours and other special services, which can interfere with the efficient operation of the MRF.

Timpane suggested including language in contracts specifying quarterly or more frequent meetings between the MRF operator and the municipality. The MRF operator should use these meetings as a forum to provide feedback on quality, volume and markets to the municipality. However, he added, feedback shouldn’t be restricted only to these meetings.

Municipal recycling contracts “do not run by themselves,” Timpane said, but require ongoing maintenance in the field, at the office and with customers. He advised attendees to “talk to your customers a lot,” urging them to make “that extra call.”

The author is managing editor of Recycling Today and can be contacted via email at dtoto@gie.net.