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.
