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HomeMy WebLinkAboutCC Resolution 11164 (HF&H Rate Review 2003)RESOLUTION NO. 11164 A RESOLUTION AUTHORIZING AN AGREEMENT WITH HILTON, FARNKOPF & HOBSON, LLC TO PERFORM A REVIEW OF MARIN SANITARY SERVICE'S 2003 RATE APPLICATION. THE CITY COUNCIL OF THE CITY OF SAN RAFAEL RESOLVES as follows: The CITY MANAGER and CITY CLERK are authorized to execute, on behalf of the City of San Rafael, an agreement with Hilton, Farnkopf & Hobson, LLC for Refuse Rate Review of Marin Sanitary Service's Rate Application for the 2003 calendar year a copy of which is hereby attached and by this reference made a part hereof. I, JEANNE M. LEONCINI, Clerk of the City of San Rafael, hereby certify that the foregoing resolution was duly and regularly introduced and adopted at a regular meeting of the City Council of said City held on Tuesday the 3rd day of September, 2002, by the following vote, to wit: AYES: NOES ABSENT COUNCILMEMBERS: Heller, Miller, Phillips and Vice -Mayor Cohen COUNCILMEMBERS: None COUNCILMEMBERS: Mayor Boro JEANNE M. LEONCINI, City Clerk Finance Work File/Council Material/Resolutions 2002/City/Hilton Audit 2003 a : aJ I., L ��o� AGREEMENT FOR: Review of Marin Sanitary Service's 2003 Rate Application This Agreement is made and entered into this 3rd day of September. 2002, by and between the CITY OF SAN RAFAEL (hereinafter "CITY"), and Hilton Farnkopf and Hobson, LLC _hereinafter "CONTRACTOR"). A. CITY. The City Manager shall be the representative of the CITY for all purposes under this Agreement. The Assistant City Manager, Ken Nordhoff, is hereby designated the PROJECT MANAGER for the CITY, and said PROJECT MANAGER shall supervise all aspects of the progress and execution of this Agreement. B. CONTRACTOR. CONTRACTOR shall assign a single PROJECT DIRECTOR to have overall responsibility for the progress and execution of this Agreement for CONTRACTOR. Robert D_ Hilton is hereby designated as the PROJECT DIRECTOR for CONTRACTOR. Should circumstances or conditions subsequent to the execution of this Agreement require a substitute PROJECT DIRECTOR for any reason, the CONTRACTOR shall notify the CITY within ten (10) business days of the substitution. CONTRACTOR shall perform the duties and/or provide services as described in Exhibit "g" attached and incorporated herein. CITY shall cooperate with CONTRACTOR in his performance under this agreement and shall compensate CONTRACTOR as provided herein. WEIIIIIIIINK01 ► 61 -All 1115C► For the full performance of the services described herein by CONTRACTOR, CITY shall pay CONTRACTOR an amount NOT to exceed $64,745, including the cost of local business license taxes as described in Section 20. Payment will be made monthly upon receipt by PROJECT MANAGER of itemized invoices submitted by CONTRACTOR. The term of this Agreement shall commence upon the date of execution of this agreement and shall end on March 31, 2003. COPY 3-MMEMSTWITUTINI •► A. Discretionary. Either party may terminate this Agreement without cause upon thirty (30) days written notice mailed or personally delivered to the other party. B. Cause. Either party may terminate this Agreement for cause upon ten (10) days written notice mailed or personally delivered to the other party, and the notified party's failure to cure or correct the cause of the termination notice, to the reasonable satisfaction of the party giving such notice, within thirty (30) days of the receipt of said notice. C. Effect of Termination. Upon receipt of notice of termination, neither party shall incur additional obligations under any provision of this Agreement without the prior written consent of the other. D. Return of Documents. Upon termination, any and all CITY documents or materials provided to CONTRACTOR and any and all of CONTRACTOR's documents described in paragraph 7 below, shall be delivered to CITY as soon as possible, but not later than thirty (30) days after termination. �eltrJl �l �: � � a ► � ► The written documents and materials prepared by the CONTRACTOR in connection with the performance of its duties under this Agreement, shall be the sole property of CITY. CITY may use said property for any purpose, including projects not contemplated by this Agreement. Upon reasonable notice, CONTRACTOR shall make available to CITY, or its agent, for inspection and audit, all documents directly related to CONTRACTOR'S performance of its duties under this Agreement. CONTRACTOR shall fully cooperate with CITY or its agent in any such audit or inspection. The parties agree that they shall not assign or transfer any interest in this Agreement nor the performance of any of their respective obligations hereunder, without the prior written consent of the other party, and any attempt to so assign this Agreement or any rights, duties or obligations arising hereunder shall be void and of no effect. A. During the term of this Agreement, CONTRACTOR shall maintain, at no expense to CITY, the following insurance policies: z 1. A comprehensive general liability insurance policy in the minimum amount of one million ($1,000,000) dollars per occurrence for death, bodily injury, personal injury, or property damage; 2. An automobile liability (owned, non -owned, and hired vehicles) insurance policy in the minimum amount of one million ($1,000,000) dollars per occurrence; 3. If any licensed professional performs any of the services required to be performed under this Agreement, a professional liability insurance policy in the minimum amount of one million ($1,000,000) dollars to cover any claims arising out of the CONTRACTOR's performance of services under this Agreement. B. The insurance coverage required of the CONTRACTOR by section 11. A., shall also meet the following requirements: 1. The insurance shall be primary with respect to any insurance or coverage maintained by CITY and shall not call upon CITY's insurance or coverage for any contribution; 2. Except for professional liability insurance, the insurance policies shall be endorsed for contractual liability and personal injury; 3. Except for professional liability insurance, the insurance policies shall be specifically endorsed to include the CITY, and other entities in the Franchisors' Group, their officers, agents, employees and volunteers as additionally named insureds under the policies; 4. CONTRACTOR shall provide to PROJECT MANAGER, (a) Certificates of Insurance evidencing the insurance coverage required herein, and (b) specific endorsements naming CITY, and other entities in the Franchisors' Group, their officers, agents, employees and volunteers as additional insureds under the policies; 5. The insurance policies shall provide that the insurance carrier shall not cancel, terminate or otherwise modify the terms and conditions of said insurance policies except upon thirty (30) days written notice to CITY's PROJECT MANAGER; 6. If the insurance is written on a Claims Made Form, then, following termination of this Agreement, said insurance coverage shall survive for a period of not less than five years; 7. The insurance policies shall provide for a retroactive date of placement coinciding with the effective date of this Agreement; 8. PROJECT MANAGER and the City Attorney shall approve the insurance as to form and sufficiency. 3 C. If it employs any person, CONTRACTOR shall maintain worker's compensation and employer's liability insurance, as required by the State Labor Code and other applicable laws and regulations, and as necessary to protect both CONTRACTOR and CITY against all liability for injuries to CONTRACTOR's officers and employees. D. Any deductibles or self-insured retentions in CONTRACTOR's insurance policies must be declared to and approved by the PROJECT MANAGER and the City Attorney. At CITY's option, the deductibles or self-insured retentions with respect to CITY shall be reduced or eliminated to CITY's satisfaction, or CONTRACTOR shall procure a bond guaranteeing payment of losses and related investigations, claims administration, attorney's fees and defense expenses. CONTRACTOR shall indemnify, release, defend and hold harmless CITY, and other entities in the Franchisors' Group, their officers, agents, employees and volunteers, against any claim, demand, suit, judgment, loss, liability or expense of any kind, including attorney's fees, arising out of or resulting in any way, in whole or in part, from any acts or omissions, intentional or negligent, of CONTRACTOR or CONTRACTOR's officers, agents and employees in the performance of their duties and obligations under this Agreement. MOD 6*16110NUTAIN CONTRACTOR shall not discriminate, in any way, against any person on the basis of age, sex, race, color, religion, ancestry, national origin or disability in connection with or related to the performance of its duties and obligations under this Agreement. CONTRACTOR shall observe and comply with all applicable federal, state and local laws, ordinances, codes and regulations, in the performance of its duties and obligations under this Agreement. CONTRACTOR shall perform all services under this Agreement in accordance with these laws, ordinances, codes and regulations. CONTRACTOR shall release, defend, indemnify and hold harmless CITY, and other entities in the Franchisors' Group, their officers, agents and employees from any and all damages, liabilities, penalties, fines and all other consequences from any noncompliance or violation of any laws, ordinances, codes or regulations. CITY and CONTRACTOR do not intend, by any provision of this Agreement, to create in any third party, any benefit or right owed by one party, under the terms and conditions of this Agreement, to the other party. 4 i�rsrr.� All notices and other communications required or permitted to be given under this Agreement, including any notice of change of address, shall be in writing and given by personal delivery, or deposited with the United States Postal Service, postage prepaid, addressed to the parties intended to be notified. Notice shall be deemed given as of the date of personal delivery, or if mailed, upon the date of deposit with the United States Postal Service. Notice shall be given as follows: TO CITY: Mr. Kenneth A. Nordhoff, Assistant City Manager City of San Rafael 1400 Fifth Avenue P.O. Box 151560 San Rafael CA 94915-1560 TO CONTRACTOR: Mr. Robert D. Hilton, President Hilton Farnkopf and Hobson, LLC 2175 North California Boulevard, Suite 990 Walnut Creek, CA 94596 16. INDEPENDENT CONTRACTOR For the purposes, and for the duration, of this Agreement, CONTRACTOR, its officers, agents and employees shall act in the capacity of an Independent Contractor, and not as employees of the CITY. CONTRACTOR and CITY expressly intend and agree that the status of CONTRACTOR, its officers, agents and employees be that of an Independent Contractor and not that of an employee of CITY. A. The terms and conditions of this Agreement, all exhibits attached, and all documents expressly incorporated by reference, represent the entire Agreement of the parties with respect to the subject matter of this Agreement. B. This written Agreement shall supersede any and all prior agreements, oral or written, regarding the subject matter between the CONTRACTOR and the CITY. C. No other agreement, promise or statement, written or oral, relating to the subject matter of this Agreement, shall be valid or binding, except by way of a written amendment to this Agreement. D. The terms and conditions of this Agreement shall not be altered or modified except by a written amendment to this Agreement signed by the CONTRACTOR and the CITY. E. If any conflicts arise between the terms and conditions of this Agreement, and the terms and conditions of the attached exhibits or the documents expressly incorporated by reference, the terms and conditions of this Agreement shall control. �• - The waiver by either party of any breach or violation of any term, covenant or condition of this Agreement, or of any ordinance,law or regulation, shall not be deemed to be a waiver of any other term, covenant, condition, ordinance, law or regulation, or of any subsequent breach or violation of the same or other term, covenant, condition, ordinance, law or regulation. The subsequent acceptance by either party of any fee, performance, or other consideration which may become due or owing under this Agreement, shall not be deemed to be a waiver of any preceding breach or violation by the other party of any term, condition, covenant of this Agreement or any applicable law, ordinance or regulation. The prevailing party in any action brought to enforce the terms and conditions of this Agreement, or arising out of the performance of this Agreement, may recover its reasonable costs (including claims administration) and attorney's fees expended in connection with such action. 1-1111PUFWRI► Plain 9 so 1:4 im FEE CONTRACTOR shall obtain and maintain during the duration of this Agreement, a CITY business license as required by the San Rafael Municipal Code. CONTRACTOR shall pay any and all state and federal taxes and any other applicable taxes. CONTRACTOR's taxpayer identification number is 94-3097242 and CONTRACTOR certifies under penalty of perjury that said taxpayer identification number is correct. The laws of the State of California shall govern this Agreement. 6 n HILTON FARNKOPF 6t HOBSON, LLC Advisory Services to Municipal Management 2175 N. California Boulevard, Suite 990 Walnut Creek, California 94596 Telephone: 925/977.6950 Fax: 925/977-6955 utaw. hf h-consultants.com August 22, 2002 Copy by facsimile; original by mail /Mr. Kenneth A. Nordhoff Director of Administrative Services City of San Rafael 1400 Fifth Avenue San Rafael, CA 94915-1560 Mr. Jeff Rawles Manager Special Projects County of Marin 3501 Civic Center Drive, Room 404 San Rafael, CA 94903-4155 Ex. ,it A San Francisco Los Angeles Sacramento Portland Robert D. Hilton, CMC John W. Famkopf, PE L. Scott Hobson, CPA Laith B. Ezzet, CMC Ms. Jean Bonander City Manager City of Larkspur 400 Magnolia Ave. Larkspur, CA 94939 Mr. Rabi Elias Public Works Director Town of Ross 31 Sir Francis Drake Blvd. Ross, CA 94957 Mr. Barry K. Hogue Mr. Allen H. Petrie District Manager District Manager Ross Valley Sanitary District Las Gallinas Sanitary District 2000 Larkspur Landing Circle 300 Smith Ranch Road Larkspur, CA 94939 San Rafael, CA 94903 Re: Proposal to Perform a Review of Marin Sanitary Service's Application for 2003 Rates Dear Ms. Bonander and Messrs. Nordhoff, Rawles, Elias, Hogue and Petrie: Hilton Farnkopf & Hobson, LLC (HF&H) is pleased to present this proposal to perform a review of Marin Sanitary Service's (MSS) application for rates to be effective January 1, 2003. Background In 1995, the Cities of San Rafael and Larkspur, the Town of Ross, the Ross Valley and Las Gallinas Sanitary Districts and the County of Marin (the Franchisors) adopted a new methodology that would be used to set MSS's rates f%6ceiVed fuse AUG 2 6 2002 HILTON FARNKOPF & HOBSON, LLC Marin Sanitary Service's Franchisors Group August 22, 2002 Page 2 collection and disposal as well as recyclable and yardwaste collection and processing. The methodology is based on a detailed review (performed every three years) with summary reviews (based largely on the detailed review, the use of indices and the review of a few key matters such as revenues and disposal costs) during the intervening years. In 2000, the last detailed review was performed. In 2001, rates were set using the "Indexed Method" and developed a method for allocating costs among the Franchisors based on the relative costs of providing services rather than on the revenues received from providing service. In 2002, MSS proposed to provide services to the City of San Anselmo, and it is anticipated to receive the franchise for this City in September 2002. Also in 2002, MSS proposed to provide services to the North Area of the Ross Valley Sanitary District and a decision on the award of that franchise is anticipated during September 2002. Services to these service areas may start as early as November 2002. These expansions of service, and the need to allocate MSS's costs among the Franchisors and these new jurisdictions, will make even more important the proper allocation of MSS's costs among the jurisdictions it services to ensure that the Franchisors are not paying a share of the costs to service San Anselmo and perhaps the North Area of the Ross Valley Sanitary District. For 2002, we have been asked to: Perform the review using the index method and consider the effect of MSS's additional service area(s) on the costs to be charged the Franchisors; Allocate costs both on the basis of the costs of providing service as well as the historical revenue method among the Franchisors and between the Franchisors and the new service areas; and, Assist in developing a strategy for moving from the historical revenue -based method of cost allocation to the cost -of -service -based approach while minimizing the effect on individual Franchisor's rates in any single year (i.e., phasing in the new approach over two or more years). Scope of Work and Schedule We will perform the following tasks related to the review of MSS's Application. S:\Clients\S\San Rafael\San Rafael\ 2002\ Rate Review\ Pro posal\ Pro p03RateslndexV1081902.doc recycled rL> paper =E=E HILTON FARNKOPF & HOBSON. LLC Marin Sanitary Service's Franchisors Group August 22, 2002 Page 3 Task 1: Determination of Index Values and Preliminary Meeting with MSS 1.1 For each index used for adjusting expenses, we will obtain and document the most recent value and calculate the index's value 12 months ago. We will provide these results to MSS for their review and comment. 1.2 We will meet once with MSS management to discuss the values and calculations and any differences between its calculations and ours as well as to discuss any unusual matters (e.g., pilot two -sort versus three -sort recycling services and new service areas) that may affect MSS's financial results of operations and, therefore, its application. Task 2: Pre -Fieldwork 2.1 We will meet once with MSS management to receive the application and discuss the review schedule. 2.2 Thereafter, we will review the application to ensure that it is complete and in compliance with the methodology. Task 3: Review of Revenues HF&H will review MSS management's projection of collection and non - collection revenues for the 12 -month periods ending December 31, 2002 and 2003. We will compare the results to MSS's audited financial statements for rate year 2001 and year-to-date revenues for 2002 and request explanations for variances. Task 4: Review of Expenses 4.1 HF&H will review the appropriateness of MSS management's classification of expenses into the various expense categories. 4.2 We will review MSS management's calculation of rate year 2003 indexed expense and compare it to the calculated expenses for 2002- S:\Clients\S\San Rafael\San Rafael\ 2002\ Rate Review\Proposal\ Prop03RatesIndexVl081902.doc ,ecycled L j papa HILTON FARNKOPF & HOBSON, LLC Marin Sanitary Service's Franchisors Group August 22, 2002 Page 4 established in our prior report and the calculated changes to the indices determined in Task 1. 4.3 We will review MSS management's projection of other expenses including: Depreciation/ Lease Expense and Interest Expense projections will be reviewed by evaluating the reasonableness of MSS management's estimates for these expenses based on historical trends and MSS management's plans. Disposal and Recyclables/Yard Waste Processing Expense will be reviewed by evaluating the reasonableness of MSS management's estimates for these expenses based on historical trends, management's plans and adjustments to disposal and processing rates. 4.4 Because of the anticipated expansion of MSS's services into San Anselmo and its potential expansion into the North Area of the Ross Valley Sanitary District, both of which are anticipated to be decided during September 2002, we will analyze their effect on MSS's general and administrative, supervisory and other non -direct costs. Task 5: Review of Projected Profit HF&H will review MSS management's calculation of projected profit for compliance with the procedures and mathematical accuracy. Task 6: Review of Revenue and Expense Allocations HF&H will review the appropriateness of MSS management's allocation of revenues and expenses among the Franchisors and the new service areas, in accordance with the procedures developed last year. We will discuss with MSS management approaches for the implementation of these new procedures and attempt to develop a single recommended approach to the Franchisors. S:\Clients\S\San Rafael\San Rafael\ 2002\ Rate Review\Proposal\ Prop03RateslndexV1081902.doc recycled L) paper =E. HILTON FARNKOPF & HOBSON. LLC Marin Sanitary Service's Franchisors Group August 22, 2002 Page 5 Task 7: Review of Adjustments 7.1 We will meet once with MSS management to review our adjustments to their calculated and projected revenues and expenses and their allocation among the Franchisors based on the recommended implementation method developed in Task 7, obtain management's comments, review any additional material and amend our adjustments. 7.2 Thereafter, we will meet once with the Franchisors Group to present our adjustments to MSS's calculated revenues and expenses and its allocation among the Franchisors based on the recommended implementation method developed in Task 7. Task 8: Communicate Findings 8.1 HF&H will distribute a copy of our initial draft report documenting our findings and recommendations for review by MSS management. Thereafter, we will meet once with MSS management to present and obtain its comments regarding our initial draft report. 8.2 We will make any appropriate adjustments to our initial draft report and present a preliminary draft to the Franchisors. 8.3 Based on comments from the Franchisors, we will amend the preliminary draft report and issue the final report. Task 9: Engagement Management We will prepare and amend detailed workplans, monitor engagement progress, and provide sufficient resources to ensure timely completion of the engagement, review analytical results and interim findings, review the draft and final reports, and respond to questions regarding the progress of the engagement and other issues. S:\Clients\S\San Rafael\San Rafael\ 2002\ Rate Review\Proposal\ Prop03RatesIndexV1081902.doc recyi e0 LJ paper HILTON FARNKOPF & HOBSON, LLC Marin Sanitary Service's Franchisors Group August 22, 2002 Page 6 Limitations Every approach to an engagement is limited in its scope. The major limitations regarding our proposed scope of work are: • The scope of work described above is different than an audit of financial statements performed in accordance with Generally Accepted Auditing Standards, which is performed by MSS's auditor. • The tasks presented above will be performed in a manner that will allow us to achieve the objectives of the review in a cost effective manner. We will rely on MSS's auditor with regard to matters related to MSS's internal controls. Our testing of MSS's application (using judgmental samples of transactions and analytical procedures) will only be for the purpose of providing evidence that allows us to reach conclusions and recommendations regarding MSS's application. • Our review will be conducted in accordance with the Rate Index Methodology adopted by the Franchisors Group. This methodology includes the review of MSS management's projection of the future results of operations. We will review these projections for reasonableness and propose adjustments as appropriate. We accept no responsibility to update these adjusted projected results after the date of our report. Additionally, the projections result from assumptions regarding future events and management's planned response to them. Frequently, future events do not occur as anticipated and the difference can be material. We have not anticipated meeting to discuss the impact of MSS serving the new service areas with representatives of San Anselmo or the Ross Valley Sanitary District. We would be pleased to do so on a time -and -materials basis. Further, we have neither included in the scope of our work modifications to any of the individual Franchisor's rates nor rate structures. Such modifications may be desirable to help adjust to the implementation of the new cost allocation methodology. If any of the Franchisors would like us to perform these S:\Clients\S\San Rafael\San Rafael\ 2002\ Rate Review\Proposal\ Prop03RateslndexV1081902.doc —Y—d C> paper HILTON FARNKOPF & HOBSON LLC Marin Sanitary Service's Franchisors Group August 22, 2002 Page 7 modifications to their rate structures, we would be pleased to do so based on arrangements made with the requesting Franchisor. Finally, we have not included in the scope of our work presentations to the Franchisors' governing bodies. However, we would be pleased to do so based on arrangements made with the requesting Franchisor. Firm and Proposed Enzazement Team Qualifications Since it founding nearly 15 years ago, Hilton Farnkopf & Hobson, LLC has been providing independent solid waste rate review services to municipalities throughout California and the West Coast. Of particular relevance to this engagement, HF&H has been the Franchisors' consultant in this area for more than seven years. During that period, we have helped the Franchisors to substantially reduce the cost of the review through changes in methodology, while ensuring that both the customers' rates and MSS's level of profit are reasonable. I will be responsible for directing the project and will perform all sub -tasks related to the project management task described above, as well as attending all meetings with the Franchisors and key meetings with MSS management. I have been the Engagement Director and substantially involved in each of these annual reviews since 1995, and I am well known to both the Franchisors and MSS management. During the past 20 years, I have assisted more than 100 municipalities with nearly 400 solid waste consulting engagements, most of which have involved the cost of solid waste services. I will be assisted by less senior, experienced staff at lower billing rates who will perform certain tasks under my direction. The most significant of these staff members are Jim Arnstein and Sterling Luke. • Jim Arnstein will serve as Engagement Manager under my close supervision. Mr. Arnstein will supervise and review the work performed by the staff assigned to the project to ensure that it is performed in accordance with the proposed scope of work; our detailed work plans and meets the City's objectives. Mr. Arnstein has a B.A. in Economics from the University of California at Berkeley and an M.B.A. with a S:\Clients\S\San Rafael\San Rafael\ 2002\ Rate Review\Proposal\ Prop03RateslndexVl081902.doc recycled iLj Paper HILTON FARNKOPF & HOBSON. LLC Marin Sanitary Service's Franchisors Group August 22, 2002 Page S concentration in Finance from Columbia University Graduate School of Business. He has ten years of solid waste management consulting experience including rate setting reviews, financial analysis of new solid waste programs, financial feasibility studies, litigation services and profitability analyses of haulers' financial statements. Mr. Arnstein gained this experience as an independent financial consultant and as a Senior Associate and Manager with Coopers & Lybrand. While in these positions, he also provided financial planning and advisory services to management, investors, lenders, intermediaries, and legal counsel on merger and acquisition, business restructuring, reorganization, and litigation support engagements. Mr. Arnsteiri s background also includes several years with Wells Fargo Bank as a commercial loan analyst and officer. Sterling Luke will serve as Engagement Analyst. Under Mr. Arnstein's direct supervision, Mr. Luke will perform certain data gathering, organization and analyses tasks. Mr. Luke has participated in this review for the past two years. Mr. Luke has an M.A. and a B.A. in History from San Jose State University. Prior to joining HF&H two years ago, Mr. Luke had two years experience as a financial analyst and supervisor at the Port of Oakland. He also has more than 20 years experience as an internal bank auditor, performing operational, financial, and administrative audits, as well as writing feasibility studies for audits of foreign bank branches, teaching internal training classes, and completing various special projects for management. Fees Based on our last Rate Index Methodology and my current understanding of the additional matters to be considered during this review and the level of effort necessary to address them, I estimate our professional fees and out-of-pocket expenses for the scope of work described above to be $64,745, as shown on Attachment A. As in the past, we will bill you in accordance with our standard rates and practices as described in Attachment B up to the $64,745. It is possible that the level of effort S:\Clients\S\San Rafael\San Rafael\2002\Rate Review\Proposal\ Prop03RatesIndexV1081902.doc recycled L) Odpe! HILTON FARNKOPF & HOBSON LLC Marin Sanitary Service's Franchisors Group August 22, 2002 Page 9 to perform the review and address the additional matters may exceed our estimate and, if so, we will contact you immediately and before proceeding to obtain your approval or direction. Also, it is possible that our level of effort will be less and, if so, we will of course bill you the lesser amount. Proposed Schedule • HF&H Provides Indices and Meets with MSS September 16 • MSS Submits Application September 23 • HF&H Commences Field Work September 30 • HF&H Completes Field Work October 31 • HF&H Reviews Results with MSS November 1 • HF&H Reviews Results with Franchisors November 4 • HF&H Provides MSS Draft Report November 8 • MSS Provides Comments on Draft Report November 12 • HF&H Presents Recommendations to Franchisors for Comment November 15 • HF&H Delivers Final Report December 2 • Boards/ Councils Receive Report and Adopt Revised Rates December • Rates Effective January 1 The performance of our review in accordance with the schedule described above is dependent on: • The ability of MSS management to prepare its application and respond to questions in a timely manner; and • The ability of the Franchisors to provide necessary direction and comments to draft work products in a timely manner. We anticipate that neither MSS management nor the Franchisors will have difficulty performing in the manner we have assumed. S:\Clients\S\San Rafael\San Rafael\ 2002\ Rate Review\Proposal\ Prop03RateslndexV1081902.doc ,ecyc ea L> paper HILTON FARNKOPF & HOBSON LLC Marin Sanitary Service's Franchisors Group August 22, 2002 Page 10 Thank you for this opportunity to again be of service to you. If you have any questions, please call me at 925/977-6952. Very truly yours, HILTON FARNK/OPFr& HOBSON, LLC Robert D. Hilton, CMC President Attachment A: Estimated Hours, Professional Fees and Out -of -Pocket Expense Attachment B: Standard Hourly Rates and Billing Arrangements Copies to: Mr. Joe Garbarino, Jr., Marin Sanitary Service Mr. Joe Garbarino, Sr., Marin Sanitary Service Ms. Patty Garbarino, Marin Sanitary Service Ms. Mardell Sarkela, Marin Sanitary Service S:\Clients\S\San Rafael\San Rafael\ 2002\ Rate Review\Proposal\ Prop03RateslndexV1081902.doc recycled L, paper Attachment A Marin Sanitary Franchisor's Group Review of MSS Application for 2003 Rates S/Clients/S/San Rafael/2002/Rate Review/Proposal/Prop Fee v1 082002 Hours by Task and Staff Member ITask IDescription Hilton Arnstein l l Luke l AdminTotal l f Hourly Ratel $ 230 $ 155 $ 130 $ 75 n/a 1 Preliminary Activities 1.1 Determine Indices Values 1 4 1.2 Preliminary Meeting 4 4 Task Subtotal 13 2 Pre -Field Work 2.1 Receive Application from Company 4 4 2.2 Review Application for Compliance 4 4 8 Task Subtotal 24 3 Review of Revenues 4 16 8 Task Subtotal 28 4 Review of Expenses 4.1 Classification of Expense 2 8 0 4.2 Calculation of Indexed Expenses 1 4 8 4.3 Review of Other Expenses 12 48 32 4.4 Review Impact of Service to New Areas 8 8 Task Subtotal 121 5 Review of Projected Profit 1 2 Task Subtotal 3 6 Review of Allocations 24 24 16 Task Subtotal 64 7 Review of Adjustments 7.1 Review with MSS Management 4 4 2 2 7.2 Review with Franchisors 4 4 Task Subtotal 20 8 Communicate Findings 8.1 Prepare Initial Draft and Meet with MSS Management 8 12 8 6 8.2 Prepare Preliminary Draft and Meet with Franchisors 4 6 1 8.3 Prepare and Distribute Final Report 4 6 1 Task Subtotal 0 9 Engagement Management 12 16 0 2 Task Subtotal 28 Total Hours 101 170 86 12 369 Fees $ 23,230 $ 26,350 $ 11,180 $ 900 $ 61,660 Out of Pocket Expense $ 3,085 Total Budget $ 64,745 S/Clients/S/San Rafael/2002/Rate Review/Proposal/Prop Fee v1 082002 Attachment B HILTON FARNKOPF & HOBSON, LLC STANDARD HOURLY RATES AND BILLING ARRANGEMENTS) (Effective July 1, 2002) Professional Fees Hourly rates for professional and administrative personnel are as follows: Position President Senior Vice President & Vice President Senior Manager Senior Associate Associate Administrative Staff Direct Expenses Standard charges for common direct expenses are as follows: Automobile Travel Document Reproduction (over 25 pages per run) Facsimile Telephone Public Conveyances Postage Overnight Mail and Couriers Rate $230 $200 $175 $155-$170 $110-$135 $70-$75 0.365 cents per mile 15 cents per page No charge No charge Actual Actual Actual I Litigation Support and Expert Witness Services are not covered by this schedule of fees and expenses. Billing Policies Our policy is to bill for our services and direct expenses based on the standard hourly rates of the staff member assigned, multiplied by the time required to perform the client -related tasks, plus the subcontractor services as described above. In implementing this policy we adhere to the following practices: We round to the nearest one-half hour (e.g., if two hours and 50 minutes are spent on a task, it is recorded as three hours, if two hours and 10 minutes are spent on a task, it is recorded as two hours). A minimum charge of one-half hour is charged for any client work performed in a day. We attempt to schedule travel time before and after normal work hours and we do not bill for this time. If travel occurs during normal work hours and we can use public conveyances, we attempt to use the time productively for the benefit of the client or for another client and this time is billed to the appropriate client. If we must travel during business hours and cannot use the time productively or use a public conveyance, we bill the time to the client on whose behalf we are traveling. • Because public meetings (e.g., Board of Supervisors, City Council, and Board of Directors meetings) generally occur after business hours and are not conducted in accordance with strict schedules, our standard policy is to bill a minimum two-hour charge. • We do not mark up out-of-pocket expenses, however, we may charge administrative or professional time related to the provision of the goods and services associated with these charges. Costs for outside consultants and subcontractors are billed at actual cost plus a 15 percent administrative fee. • Mileage fees are based on the round-trip distance from the point of origin. • If a client's change to a previously scheduled meeting results in penalties being assessed by a third party (e.g., airline cancellation fee), then the client will bear the cost of these penalties. While no minimum fee for a consulting engagement has been established, it is unlikely (given the nature of our services) that we can gain an understanding of a client's particular requirement, identify alternatives, and recommend a solution in less than twenty-four hours. Hilton Fariikopf & Hobson, LLC 2 Insurance We maintain the following policies of insurance with carriers doing business in California: • Comprehensive General Liability Insurance ($1,000,000) • Workers' Compensation ($1,000,000) • Professional Liability Insurance ($1,000,000) All costs incurred in complying with special insurance, licensing, or permit requirements, including but not limited to naming client as an additional insured and waiver of subrogation, become the responsibility of the client and are not included in the fees for services or direct charges but are billed in addition to the contract at cost, plus any professional or administrative fees. Invoices and Payment for Services Our time reporting and billing system has certain standard formats that are designed to provide our clients with a detailed invoice of the time and charges associated with their engagement. (We typically discuss these with our clients at our kick-off meeting.) We are also pleased to provide our clients with a custom invoice format but we will have to bill the client for any additional costs associated with their unique requirements. Billings for professional services and charges are submitted every month, in order that our clients can more closely monitor our services. A late fee of one and one-half percent per month is applied to balances unpaid after thirty (30) days. Hilton Farnkopf & Hobson, LLC 3