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Commissioners left out of $1.63M contract dispute (01/13/2013)
By Sarah Squires

Winona County began a county-wide curbside recycling program in December, 2011. It was the first in the state to attempt to provide the service to even the most rural residents, and problems began almost immediately.

In June of 2012, the full county board was given a summary of several issues, for example, the contractor was having difficulty servicing residences on the most remote rural roads, and some city residents needed service in the alleys that required more labor.

The summary presented to the full board, however, did not fully reveal the most significant problem with the recycling contract. The contractor, Veolia Environmental Services, believed that under the new contract, it had the right to bill the county $900,000 more than the original $730,000 contract because of ambiguous language that dictates how services at commercial and multi-family sites would be charged. County employees became aware of the new $1.63 million annual price tag from Veolia in January 2012, just over a month into the five-year contract.

Documents obtained by the Winona Post show that county employees deliberated for months with Veolia officials on the issue prior to updating the full board in June. Veolia was told by county staff members that the board would probably give the company more money, but only if the increase were requested for a reason other than the contract language, so as to avoid violating Minnesota's bidding laws.

The county board, with commissioner Marcia Ward dissenting, voted in November 2012 to give the firm an additional $58,000 annually, above the original $730,000 contract price. The increase was not attributed to the actual contract dispute (see sidebar page 7a). The full board had not been given a complete account of the recycling issues.

The real dilemma

In January 2012, county staff members were presented with the first invoice for the new contract, and that is when the trouble began.

County staff members were under the impression that under the new contract, charges for commercial and multi-family pickups would be the same as under old contracts for that kind of service—Veolia would charge the county $25 per stop, rather than $25 per container. Commercial and multi-family recycling stops frequently involve as many as 10 or 20 containers, so a charge for each recycling tote emptied would mean a $900,000 increase in the contract price.

Veolia officials held that the contract was written so that the $25 fee would be applied to each recycling container, and that the contract language was different from previous contracts.

Winona County Planning and Environmental Services Director Jason Gilman responded to Veolia concerning the invoice in February and again in March 2012. He said it was surprising that the per-container fee was being applied. "This has not been the previous practice, nor was it the county's intention when awarding the contract that we would be paying $25 per container, rather than $25 for collection at each center," he wrote to David Schneider of Veolia. "It seems unlikely to us that a contract amendment of over $900,000 per year (an increase of almost 2.5 times of previous contracts) would be so casually anticipated due to the slight and inexplicit change in verbiage you have suggested. Winona County's intent is to maintain our positive relationship with Veolia and for that reason we are willing to discuss potential [contract] amendments and additions for additional services.

"However, understand that a broad re-interpretation of the contract would not be fair to other previous bidders and could result in a new bidding procedure for the county contract," Gilman wrote.

Schneider responded with a suggested per-container fee of $11.35 per monthly pickup, which would still produce an increase in the contract price. He said that while it was unreasonable to expect the county to pay $25 per container, "I believe we can all agree it is unreasonable to expect one cart to be serviced for the same rate as 10 or 20 carts." He also asked that the five-year contract be immediately extended for another five years, and asked that several other fees be clarified in the contract.

Gilman responded in March, stating that the county would be willing to provide a 10 to 15 percent increase in the contract price, provided the increase was for additional services like alley pickup—and not because of the disputed contract language. "Keep in mind that the county is not at liberty to redraw the contract as it would cause concern about due process and our bidding obligations under Minnesota law," he wrote.

Throughout March and April, Schneider and Gilman corresponded by e-mail, with Schneider proposing price changes for the commercial and multi-family pickup and other services that would have increased the annual price to more than $1 million. Gilman continued to assert that the county would not be willing to pay more than 10 or 15 percent over the original contract price, and only for added services, not for the multi-family and commercial contract language dispute.

By June, Veolia had altered its request for more money to meet the expectations Gilman described: the extra money would be for alley service and for additional labor for difficult to service rural residences. The cost, as proposed by Veolia in June, was up to $150,000 more than the original contract.

That month, the county board was given an update from county staff on several issues with the recycling service, although the disputed contract language was not mentioned.

In August, Gilman sent an e-mail to Mark Vinall, a Veolia employee, which stated he had discussed the situation with county administrator Duane Hebert and other staff members in order to "get their impression based on the feedback they received from the board. They have all indicated that even $100,000 will likely be unacceptable to the board," he wrote. "Perhaps we need to discuss a more moderate increase ($50,000 or less) to see what changes would need to be made without changing the material intent of the contract.

What the board was told

During the June meeting with the full board, commissioners were told that Veolia had trouble with the following: "labor needed for tight areas such as alleyways and small business services," accessing difficult areas in rural settings, such as rough gravel roads, and "costs associated with certain facilities having higher cart counts." The board was also told that a third-party contractor had distributed recycling containers to small businesses that had not been included in the original contract, and that Veolia had still been providing those businesses with recycling services.

Gilman said in an interview with the Winona Post that the board chair and vice chair were told of the contract dispute over commercial and multi-family services, including the $900,000 increase Veolia had imposed.

When asked why the full board was not made aware of the situation, Gilman said it was because the request from Veolia for an additional $900,000 "went away." He said that if the company had continued to demand the inflated price, he would have approached the full board. He was also adamant that his communication with Schneider about how much more the board would be willing to pay—and for what—did not constitute negotiation. "That's what I was pointing out to [Veolia representatives]" he said. "If you have any chance of convincing the board [to provide] additional funding, it's probably going to be in that neighborhood of 10 to 15 percent, and it has to be for that added service. That's not negotiating. That's what I feel is the obvious."

Commissioner Marcia Ward, who voted against nearly every recycling contract proposal, said she was troubled that the full board was not informed of the contract dispute. "None of this information was provided to me," she said of the $900,000 dispute. Ward also said the fact that county employees elected to handle the dispute themselves made her uncomfortable. "I think [that dialogue] went way over the realm of their authority," she said.

Gilman said the information was provided to the county administrator, board chair and vice chair. "It's not like we weren't communicating with board members," he said, adding he felt badly if any commissioner not apprised of the situation was unhappy with the way the issues were handled.

Over the next few months, the board was told by county staff members that Veolia had been providing service to some residents in the city of Winona in alleys, and discussions focused on that added labor. Board members were told there were some blocks in Winona that would be difficult or impossible to service at the curb, although the contract did not include any provisions for residents to have alley service.

Alley service: how did we get here?

Questions were raised by board members and county staff members about why Veolia began collecting recyclable goods in alleys at all, given that the original contract did not provide for that service.

The Winona Post reviewed over 750 e-mails between county staff members and Veolia officials during 2012. Several e-mails suggested that residents initially began putting recycling containers in alleys because Winona County's web site said Veolia would provide alley service.

In June, Veolia representative David Sonnentag sent an e-mail to Winona County Sustainability Coordinator Anne Morse, stating that the county needed to do something to stop more residents from moving recycling containers to the alleys. "We need your assistance to STOP the additional alley service and change your web site [from reading] that Veolia will provide alley service; this is causing a big part of the problem," he wrote. "Remember, the only reason to allow for alley service is if a resident does not have access to curbside. The contract is for curbside," he added.

By August, Veolia had requested that county staff members count the number of blocks in the city of Winona that were receiving service in alleys rather than at the curb. In an August e-mail to Gilman, Vinall threatened to stop providing alley pickup if the contract dispute was not resolved by September.

Morse used aerial photographs of the city in order to attempt to estimate how many blocks included homes that did not have a driveway connected to the street, although it is unclear whether the total she came up with—241 blocks—was a true representation of the number of city blocks actually receiving alley services. Gilman said during an interview the 241 number was "as certain as we can be."

In an Auguste-mail to Veolia, Gilman wondered how alley service began in the first place. "I have no record of any official action by the county to pay for additional costs associated with these services," he wrote. "Not having a change order immediately executed upon changes in service puts the county in a difficult situation with the customers today who now expect alley service." In response to questions from Veolia about how much more money the board might be willing to pay, Gilman said, "It is also not for me to judge what level of additional costs might be palatable to the elected body, only to advise you that any proposed change order puts the county's reserve funds in jeopardy and the opinion of staff based on the board meeting you attended, would not be well received."

After the county provided Veolia with the number of blocks believed to be receiving alley service, Veolia asked that the county provide the number of houses receiving alley service so that the company could use the number in its request for more money.

"Veolia should be in a better position to provide accurate information on actual stops per block, since this is the basis for your request for additional labor/costs," Gilman replied in a September e-mail to Veolia representatives. "I find it inconceivable that Veolia wouldn't have this information to understand its actual costs incurred if it is the basis of your request and I will not send a staff person to follow each of your vehicles so that you can draft a change order."

In November the county board, with Ward dissenting, approved a $58,000 increase to the contract for alley services.

Other service issues

Of the 750 e-mails between Veolia and county employees reviewed by the Winona Post, there were hundreds of resident and business complaints forwarded to Veolia by county staff members. Many of the complaints required repeated communication from county employees before the issue was corrected, and some residents did not have their recyclable goods picked up for weeks or months during 2012.

Morse handled most of the communication with Veolia employees regarding complaints about services. In February 2012, she sent an e-mail to a Veolia employee expressing concern that an "overwhelming" number of residents not receiving service would prompt complaints to county commissioners. "In truth, the lengthy list of roads not being serviced that was provided me at the meeting at your offices a few weeks back is overwhelming, and represents a substantial number of homes that now need to be addressed on an individual basis," she wrote. "You should know that I have only dealt with a fraction of them at this point. There are many more difficult [complaint] phone calls on the horizon for [you] and me, and I don't think we're going to be able to weather them successfully. I don't think I am being in any way alarmist in my comments below. Having worked on the county's recycling program since 1988, I've seen numerous challenges worked through, and some not. What my experience has taught me is that the responsive[ness] of commissioners to residents' complaints is the basis for all of the dramatic changes in county programs made in those 24 years. Once calls start being made to commissioners by the rural residents whom we've told we won't/can't service, which is likely already happening now, changes come swiftly, and the way in which problems are resolved are generally out of our control."

Morse also offered a potential solution in the e-mail to problems with remote rural residential service. "You know, one of the compromises that the residents who live in some of the most challenging spots have offered is that since they know full well that big snow storms make their driveways difficult, and sometimes impassable, that they just not get serviced on those days. They said they would understand, and live with that. Is that at all within the realm of possibility for some of the locations? I've been told 'no' to this suggestion, but it's hard for me to believe it might not be possible," she wrote. "I wonder if compromises such as this might be one way out of this very sticky wicket we find ourselves in."

Veolia officials worked on mapping a route to be serviced by a smaller truck that could navigate more difficult or narrow roadways for much of the year. Gilman said he believed that route has been determined and those residents were now receiving services. Additionally, he said he felt Veolia was becoming more responsive to complaints than it had in the past.



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