Resource Management Contracts: Description and Benefits

Resource Management (RM) is a strategic approach to contracting waste services that aligns the financial incentives for the hauler with the goals of maximizing waste prevention and recycling. Unlike conventional waste service contracts, where a hauler’s compensation increases as waste volumes increase, this approach incentivizes the businesses and institutions contracting for services and their service providers to work collaboratively toward maximizing waste reduction and diversion.

RM contracts emerged in the late 1990s but are particularly apt now, when a growing majority of large companies and institutions have waste minimization and/or climate action policies in place. An RM contract embodies those values; the service provider is tasked with working holistically across all waste streams—from procurement to disposal—and is rewarded for identifying opportunities to cut waste at the source and for diverting material from disposal. An RM contract is usually structured such that fees for hauling services are capped (and charged on a cost-recovery basis), and haulers are compensated for their on-site services and resource efficiency innovations. Haulers also have a stake in any revenue streams derived from sustainable material management.  

In time, RM contracts can save large organizations money while helping them achieve and sustain environmental targets.

Key Elements of Resource Management Contracting

RM contracting is a customized approach to waste management services. It is best suited for large businesses and institutions, and the contract structure and incentives can be tailored to the generator’s goals and operations. A national review of RM contracting identified three key functions and five activities that are universally relevant to soliciting and implementing successful RM contracts, described in the table below.

FUNCTION

RM PRACTICE

DESCRIPTION

Contract Preparation

1. Establish baseline cost, performance, and service levels
  • Define current service scope and levels (hauling and tonnage)
  • Identify existing contract compensation methods
  • Validate service levels with total costs through annual baseline review/update
  • Establish cost and performance benchmarks and goals

Transform Scope and Hauler/ Customer Relationship

2. Align all services to support resource efficiency
  • Consolidate services such that one hauler coordinates and oversees all waste, recycling, and organics contracts and services (and any other miscellaneous streams), ensuring that all are mutually supportive of organizational resource efficiency goals

3. Rethink hauler role and relationship
  • Allow or require bidders to submit operations plans for achieving specified improvements in existing operations, provide latitude in work specification
  • Engage RM hauler in daily RM operations and responsibilities
  • Set an expectation for the hauler (i.e., a dedicated account manager) to regularly interface with internal stakeholders (engineers, legal staff, purchasing, other contractors) to devise cost-effective solutions, assure buy-in, and foster organizational learning, achieved for example, through waste stream auditing and feedback, detailed reporting, and employee training
  • Establish quarterly meetings to report on performance and resolve issues, and implement a continuous improvement feedback loop

New Basis for Compensation

4. Establish transparent pricing for services
  • Delineate pricing information to specific services such as container maintenance, container rental, hauling, disposal, etc. This allows variable price savings, such as “avoided hauling and disposal” to flow back to generator and/or be used as a means for financing performance bonuses

5. Provide direct financial incentives for resource efficiency
  • Establish compensation that allows the hauler to realize financial benefits for service improvements and resource efficiency innovations that result in cost savings
  • De-couple hauler profitability from trash disposal and service levels

Source: Adapted from Tellus Institute (2002). “Advancing Resource Management Contracting in Massachusetts: Reinventing Waste Contracts and Services,” Table 6, p 19. Prepared for Bureau of Waste Prevention, Massachusetts Department of Environmental Protection.

Taking the First Steps

If RM contracting sounds like a good fit for your business or institution, start by talking with your current hauler. Although not new, Massachusetts haulers have varying degrees of experience with RM contracting—work with yours to explore mutually attractive changes to your contract structure, and compensation regimes that can help your organization achieve its waste prevention and diversion goals. Issuing a request for proposal (RFP) may also be an effective way to gauge the interest of different service providers and their alignment with your goals and expectations.

Keep in mind that it’s common for businesses and institutions to implement RM contracting gradually, or to adopt select elements of this contracting approach. For example, many start by engaging their haulers in more regular site visits, waste audits, and reporting. As the generator and hauler gain a deeper understanding of baseline generation rates and prevention and diversion opportunities, it may be time to introduce a compensation model that decouples profitability from trash disposal and rewards the hauler for measures that result in resource efficiency.   

Look into these additional resources:

And finally, contact RecyclingWorks in Massachusetts to learn more and to request no-cost technical assistance from a waste reduction and diversion specialist: (888) 254-5525 or info@recyclingworksma.com.