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HomeMy WebLinkAboutCC Resolution 12599 (HF&H Refuse Rate Review)RESOLUTION NO. 12599 RESOLUTION AUTHORIZING THE CITY MANAGER TO ENTER INTO AN AGREEMENT WITH HF &H CONSULTANTS, LLC TO PERFORM A REVIEW OF MARIN SANITARY SERVICE'S 2009 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 HF & H Consultants for Refuse Rate Review of Marin Sanitary Service's Rate Application for the 2009 calendar year, a copy of which is hereby attached and by this reference made a part hereof. I, ESTHER C. BEIRNE, 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 Monday the 6h day of October, 2008, by the following vote, to wit: AYES: COUNCILMEMBERS: NOES: COUNCILMEMBERS: ABSENT: COUNCILMEMBERS: Brockbank, Connolly, Heller, Miller & Mayor Boro None None ESTHER C. BEIRNE, City Clerk Ask so I ON Aft"Waii Not 11,11 ow m4w"MAW&WIM, Advisory Services to Municipal Management 2175 N. California Boulevard, Suite 990 Walnut Creek, California 94596 Telephone: 925/977-6950 Fax: 925/977-6955 7V7V7v.hJh-considtants.com Sent via e -snail and First Class Mail July 29, 2008 Ms. jean Bonander City Manager City of Larkspur 400 Magnolia Avenue Larkspur, CA 94939 Mr. Michael Frost Deputy Director of Public Works County of Marin 65 Mitchell Blvd., Suite 200-B San Rafael, CA 94903-4155 Mr. Mark Williams District Manager Las Gallinas Valley Sanitary District 300 Smith Ranch Road San Rafael, CA 94903 J Robert D. Hilton, CMC E C E I VIFED John W. Farnkopf, PE Laith B. Ezzet, CMC Richard J. Simonson J U L 31 2008 City of San Rafael Cltv Manager's office Mr. Kenneth A. Nordhoff City Manager City of San Rafael 1400 Fifth Avenue, Room 203 P.O. Box 151560 San Rafael, CA 94915-1560 Mr. Gary Broad Town Manager Town of Ross 31 Sir Francis Drake Boulevard Ross, CA 94957 Subject: Proposal to Perform a Review of Marin Sanitary Service's Application for 2009 Rates Dear Ms. Bonander and Messrs. Nordhoff, Frost, Broad, and Williams: HF&H Consultants, 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, 2009. In 1995, the Cities of San Rafael and Larkspur, the Town of Ross, the Ross Valley and Las Gallinas Valley Sanitary Districts, and the County of Marin (the Franchisors) adopted a new methodology that would be used to set MSS's rates for refuse 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. ATTACHMENT A Adak Advisory Services to Municipal Management Marin Sanitary Service's Franchisors' Group July 29, 2008 Page 2 of 8 In 2002, MSS was awarded the franchise to provide services to the City of San Anselmo. Also in 2002, MSS was awarded the franchise to provide services to the north area of the Ross Valley Sanitary District (RVSD). In 2004, MSS acquired the Fairfax franchise. These expansions of service, and the need to allocate MSS's costs among the Franchisors and these new jurisdictions, 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, Fairfax, and the north area of the RVSD. In 2005, customers that were in the Las Gallinas Valley Sanitary District franchise area were integrated into the customer base of the City of San Rafael. In 2006, the RSVD requested the County of Marin (County) accept and approve the transfer of the RSVD's solid waste franchise agreements, both North and South areas, with MSS. The South area was part of the Franchisors group. On July 11, 2006, the Board of Supervisors accepted the transfer of the RSVD South Franchise Agreement and executed a new agreement with MSS effective immediately. The last detailed review was performed in 2006, for rates effective in 2007. Last year, we performed a review of the rate adjustment using the index (summary) method. For a review of rates to be effective 2009, we have been asked to: • Perform the review using the index (summary) method; and, • Perform a survey of similar rates from cities in the Bay Area receiving comparable services. Scope of Work and Schedule We will perform the following tasks related to the review of MSS's Application. Task 1: Pre -Fieldwork 1.1 We will meet once with MSS management to receive the application and discuss the review schedule. 1.2 Thereafter, we will review the application to ensure that it is complete and in compliance with the methodology. Task 2: 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, 2008, and 2009. We will compare the results to MSS's audited financial statements for rate year 2007 and year-to-date revenues for 2008 and request explanations for variances. Marin Sanitary Service's Franchisors' Group July 29, 2008 Page 3 of 8 Task 3: Review of Expenses Avisory Services to Municipal Management 3.1 HF&H will review the appropriateness of MSS management's classification of expenses into the various expense categories. 3.2 We will review MSS management's calculation of rate year 2009 indexed expenses and compare them to the calculated expenses for 2008, established in our prior report, and the calculated changes to the indices determined in Task 1. 3.3 We will review the joint program with CalRecovery to research the combination of foodwaste and ground yardwaste to produce compost in a "bio -cell" vessel. MSS is expected to include a report on this program as part of its 2009 rate application. We will review its report and analyze its proposal for program implementation, if necessary. 3.4 We will review MSS management's projection of other expenses including: • Depreciation/ Lease Expense, Interest Expense, Fuel and Insurance 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/Yardwaste 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. Task 4: Review of Projected Profit HF&H will review MSS management's calculation of projected profit for compliance with the procedures and mathematical accuracy. Task 5: 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 in 2003. Task 6: Review of Adjustments 6.1 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 5, obtain management's comments, review any additional material, and amend our adjustments. Advisory Services to Municipal Management Marin Sanitary Service's Franchisors' Group July 29, 2008 Page 4 of 8 6.2 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 5. Task 7: Communicate Findings 7.1 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. 7.2 We will make any appropriate adjustments to our initial draft report and present a preliminary draft to the Franchisors. 7.3 Based on comments from the Franchisors, we will amend the preliminary draft report and issue the final report. Task 8: Survey of Comparable Rates We will survey solid waste rates in the San Francisco Bay Area. We will identify communities with comparable services and contact them to solicit their participation and determine whether certain data is available. That data includes, but is not limited to, matters such as governmental fees, whether a transfer station is used, landfill disposal rates, whether employees are organized, and customer subscription data. As part of the survey, we will attempt to compare not only the absolute rates but also the rate structures so that we may identify differences in pricing (vs. cost). Task 9: Engagement Management We will prepare and amend detailed work plans, 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. Limitations Every approach to an engagement is limited in its scope. The major limitations regarding our proposed scope of work are: 61PI6 my.-ILI 711 Advisory Services to Municipal Management Marin Sanitary Service's Franchisors' Group July 29, 2008 Page 5 of 8 • The scope of work described above is different from an audit of financial statements performed in accordance with Generally Accepted Auditing Standards, which is performed by MSS's auditor. • We will perform the tasks presented above 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. • We will conduct our review 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 with representatives of San Anselmo, Fairfax, or the County to discuss the impact of MSS serving the service areas outside of the Franchisors' service area. We would be pleased to meet with them 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. If any of the Franchisors would like us to perform 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 Enciaciement Team Qualifications, Since its founding nearly 19 years ago, HF&H 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 10 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. Marin Sanitary Service's Franchisors' Group July 29, 2008 Page 6 of 8 Advisory Services to Municipal Management 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 attend 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 (Through such delegation we have incorporated the review of MSS' foodwaste/yardwaste proposal while keeping our fees to approximately a 4% increase from last year). Marva Sheehan will serve as Engagement Manager under my close supervision. Ms. Sheehan was the Engagement Manager during the 2006 and 2008 index reviews and 2007 detail review. She is a Certified Public Accountant with over 25 years of accounting and auditing experience; 14 of which have been in the solid waste industry. She 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 Franchisor's objectives. Other staff will be assigned to perform specific tasks for which they are well qualified under the supervision of Mr. Hilton or Ms. Sheehan. Fees Based on our last Rate Index Methodology, 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 $50,000, 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 $50,000. It is possible that the level of effort to perform the review and address the additional matters may exceed our estimate and, if so, we will contact you 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 We have prepared the following proposed preliminary schedule: • MSS Submits Application September 15 Marin Sanitary Service's Franchisors' Group July 29, 2008 Page 7 of 8 • HF&H Commences Field Work • HF&H Completes Field Work • HF&H Reviews Results with MSS • HF&H Reviews Results with Franchisors • HF&H Provides MSS Draft Report MSS Provides Comments on Draft Report advisory Services to Municipal Management HF&H Presents Recommendations to Franchisors for Comment • HF&H Delivers Final Report • Boards/Councils Receive Report and Adopt Revised Rates • Rates Effective September 16 October 10 October 15 October 20 October 27 November 3 November 10 November 17 November/ December January 1, 2009 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. 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, HF&H CONSULTANTS, LLC CJ r V Robert D. Hilton, CMC President Attachments: A) Fee Estimate B) Standard Hourly Rates and Billing Arrangements AML .............. .............. ....... .......... law Advisory Services to Municipal Management Marin Sanitary Service's Franchisors' Group July 29, 2008 Page 8 of 8 cc: Mr. Joe Garbarino, Jr., Marin, Sanitary Service Mr. Joe Garbarino, Sr., Marin Sanitary Service Ms. Patty Garbarino, Marin Sanitary Service Mr. Ray Holmes, Marin Sanitary Service Ms. Marva Sheehan, HF&H Ms. Kim Erwin, HF&H Attachment A HFBH Consultants, LLC July 29, 2008 Marin Franchisor's Group Review of MSS Application for 2009 Rates Hours by Task and Staff Member Task I Description Hilton SheehanJones I I Associate Erwin Total Hourly Ratej $ 240 $ 200 $ 165 I $ 1101$ 80 n/a 1 Pre -Field Work 1.1 Receive Application from Company 4 4 1.2 Review Application for Compliance 2 2 Task Subtotal 12 2 Review of Revenues 1 4 20 8 Task Subtotal 33 3 Review of Expenses 3.1 Classification of Expense 1 8 2 3.2 Calculation of Indexed Expenses 2 3 4 3.3 Review of New Program Expenses 8 16 6 3.4 Review of Other Expenses 8 32 24 Task Subtotal 114 4 Review of Projected Profit 1 1 1 Task Subtotal 3 5 Review of Allocations 2 6 Task Subtotal 8 6 Review of Adjustments 6.1 Review with MSS Management 4 8 4 6.2 Review with Franchisors 4 6 Task Subtotal 26 7 Communicate Findings 7.1 Prepare Initial Draft and Meet with MSS Management 4 6 8 6 7.2 Prepare Preliminary Draft and Meet with Franchisors 2 2 2 1 7.3 Prepare and Distribute Final Report 4 2 2 1 Task Subtotal 40 8 Rate Comparison 8.1 Survey and Document Comparable Rates 1 2 6 12 Task Subtotal 21 9 Engagement Management 8 8 14 2 Task Subtotal 32 Total Hours 33 66 124 44 22 289 Fees $ 7,920 $ 13,200 $ 20,460 $ 4,840 $ 1,760 $ 48,180 Out of Pocket Expense $ 1,820 Total Budget $ 50,000 HFBH Consultants, LLC July 29, 2008 Attachment B HF&H CONSULTANTS, LLC STANDARD HOURLY RATES AND BILLING ARRANGEMENTS' (Effective January 1, 2008) Professional Fees Hourly rates for professional and administrative personnel are as follows: Position Rate President $240 Senior Vice President & Vice President $210-$235 Senior Manager/Senior Project Manager $195-$200 Senior Associate $165-$195 Associate Analyst $110-$165 Assistant Analyst $95-$105 Administrative Staff $S0 Direct Expenses Standard charges for common direct expenses are as follows: Automobile Travel Document Reproduction Facsimile Telephone Public Conveyances Postage Overnight Mail and Couriers Billing Policies Prevailing IRS mileage rate 15 cents per page (black & white) 75 cents per page (color) No charge No charge Actual Actual Actual 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: ' Litigation Support and Expert Witness Services are not covered by this schedule of fees and expenses. HF&H CONSULTANTS. LLC STANDARD HOURLY RATES AND BILLING ARRANGEMENTS' (Effective January 1, 2008) • It is our standard practice to e-mail invoices to our clients, although hard copies of invoices can be sent to clients on request. 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. Insurance We maintain the following policies of insurance with carriers doing business in California: • Comprehensive General Liability Insurance ($2,000,000) • Workers' Compensation ($1,000,000) • Professional Liability Insurance ($2,000,000) HF&H Considtants, LLC Page 2 of 3 HF&H CONSULTANTS, LLC STANDARD HOURLY RATES AND BILLING ARRANGEMENTS' (Effective January 1, 2008) 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 Otir time reporting and billing system has certain standard formats that are designed to w our clients with a detailed invoice of the time and charges associated with their gement. (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 cli f can more closely monitor our services. A late fee of one and one-half percent per month is od to balances unpaid after thirty (30) days. HF&H Consultants, LLC Page 3 of 3