Waste Recovery Contract Provisions for Revenue Sharing

In these conversations, two things have become clear:

• The source of information about the value of recovered paper and packaging available to generators of this material (from large retailers like big box and grocery stores to municipal recycling programs) is either their waste recovery vendor or a group of waste recovery vendors who have responded to a request for proposals (RFP).
• These same generators are not familiar with contract terms that would allow for revenue sharing based on the amount and price of recovered paper and packaging being sold to suppliers or mills.

The Value of Paper and Packaging Recovered from Waste Streams

Many generators are not aware of the value of the material they are recycling. In fact, here are just two examples from conversations we’ve had:

• It’s going to the landfill; it’s not worth anything.
• I’ve talked to my waste recovery vendor, and he says they have to pay people to take it away.

Here’s a reality check. Waste recovery vendors have a vested interest in making generators believe that no market exists for their recycled fiber and, if one does, that the prices paid are de minimis. In fact, paper and packaging recovered from waste streams, regardless of whether it is from a furniture store, a hardware store, a grocery store or a municipal waste recovery program administered by a city or county government, are commodities that have intrinsic value. Paper and packaging manufacturers are under increasing pressure to produce more products made from recycled content, and they therefore rely on generators for raw materials. The vast majority of the time, the value of these products far exceeds the cost of recovering the fiber and delivering it to a mill.

Contract Terms for Revenue Sharing

Let’s look at a couple of example from actual waste recovery contracts that provide for revenue sharing or rebates. Because contracts between retailers and waste recovery vendors are not public information, these examples come from contracts between cities and the vendors who run their recycling program and or processing facility.

These examples come from a 2012 contract to run the City of Fort Pierce, Florida’s recycling program and processing facility. For its single stream recyclable materials, the city’s waste recovery vendor remits a revenue share calculated as follows:

This type of revenue sharing is called market-based revenue sharing. Parties to the contract:

• Agree upon a reasonable rate for the Transportation and Processing Fee
• Negotiate the percent share that will go to each party
• Determine the index that will be used to establish Average Market Value
• Identify the type of payment (credit to invoice, payment, etc.)
• Establish floors and ceilings for payments that level the playing field during weak and strong markets (agree to a per ton payment floor to protect the generator during weak market phases and a per ton payment ceiling during strong market phases to compensate the waste recovery vendor for the risk it assumes when markets are weak)

These commonly used provisions can significantly reduce the cost of city waste recovery and disposal programs and significantly increase the revenue large retailers can generate from their recycling activities.