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Managing and Transforming Waste Streams – A Tool for Communities

Contracting Best Practices: Separate Compensation from Rates

Contractor compensation can be based on cost of service and/or number of customers rather than the rates charged to customers. This approach compensates the contractor for their work and allows them to “right-size” customer service levels without losing compensation.

Advantages

  • Flexibility: Allows contractors to work with their customers to reduce disposal services and disposal container sizes.
  • Cost buffer for contractor: Avoids rate-based windfalls and shields contractors from cost impacts of pay-as-you-throw rates.

Disadvantages 

  • Local government risk: Local government rate setting that is not tied to contractor compensation rates may result in revenue surpluses and shortfalls. Government agencies can set up a balancing account to manage this risk.
  • Local government workload: Careful oversight of contractor costs through reviews and/or more frequent competitive procurements is needed.