Agenda Index City of Vancouver



Date: October 22, 1997

C.C. File: 3756

TO: Standing Committee of City Services and Budgets

FROM:General Manager of Engineering Services

SUBJECT:City Solid Waste Container Services


A.THAT Council approve the discontinuance of the City's Solid Waste Container Operation, effective January 1, 1998.

B.THAT the General Manager of Engineering Services be authorized to dispose of the assets of the Container Operation.


It is important to put the decision on whether or not to continue the container operation in its proper perspective. Before the recent job action, the viability of the container operation was in doubt due to the change in billing procedures to fully recover costs from strata/co-op customers. The job action makes the situation more difficult because of the erosion of customer base and the loss of time needed to implement change.

A decision to continue the container operation will not likely result in a significant loss of money. However, the operation will be a marginal one at best, and calls into question the significant investment in management time and resources to make improvements. This is time which could be better invested in other more core service activities and consequently leads to a recommendation to cease operations.


In January 1991, Council approved a policy that every department/board review services for which fees are now charged, to ensure that fees are recovering the full cost of the service to the City, or are equivalent to competitive charges where the fee is of a market nature, rather than for cost recovery. Where this is not the case, department/boards should report to Council on the adjustment that would be required.

There is no formal City policy with respect to the City's refuse container operation. The practice has been for the operation to break even annually in terms of cost and revenues, although, in the recent past, there have been excess annual revenues which have been returned to the City's Operating Budget.

In July 1997, Council authorized the continuation of the Container Service into 1998 with continuation in future years subject to annual reporting on business operations.


The City’s Solid Waste Container Operation was recently reviewed and approved to continue on the basis of a comprehensive business case improvement plan. The purpose of this report is to review that decision in light of the current business climate.


The City of Vancouver has operated a front-end type container service operation since 1960. Almost 50% (1,166 containers) of the City's business is generated by industrial, commercial and institutional customers. In this area, the City has competed directly with the private sector. The remaining 50% (1,263 containers) of the City's business is with strata and co-op multi-residential buildings. In recent years, the City has had 2,000 -2,500 containers in service.

Over the past year, the City has undertaken a comprehensive study of the Container Operations using the services of a management consultant, Ernst and Young. This review was initiated in a response to a significant change in billing procedures brought about by the introduction of the Solid Waste Utility in 1998.

At the present time, strata and co-op customers receive free garbage collection for their containers (although they pay for container rental and are charged for extra pick-ups). This practice is to ensure equity between owners in apartments in comparison with owners in single family homes. Under this arrangement, the City has a competitive advantage and about 70% of the strata/co-op customers elect to receive their container service from the City.

With the proposed introduction of the Solid Waste Utility in 1998, all residential properties will receive a reduction in property tax and will pay user fees for garbage collection. For single family homes, service will be received from the City and a user fee will appear on their annual property tax. Strata/co-op properties will pay their collector directly for garbage collection. They may opt to continue receiving service from the City, or they may chose to utilize a private hauler for this service if they feel the price and/or service is better. The price advantage the City now enjoys will be gone and the container operations must compete with private sector providers.

Ernst and Young was retained to undertake a review of the City's container operations to determine if it could continue to be financially viable. In this review, the consultant identified several key "success factors" which include:

-Service is very often the most critical factor.

-It is important to establish a significant customer base.

-Aggressive marketing skills are needed.

-Change is necessary in order to respond to market shifts and operating costs.

-Autonomy is needed in decision making.

In order to break even, the consultant recommended that the container service retain 30% of the strata/co-op business (the City currently has 70%) and increase its market share of the commercial business from about 10% to 12%. Failure to achieve these levels of business will result in operating losses.

As a result of the consultant's review and staff's report, Council approved the following motions:

A.THAT Council receive the Ernst and Young report "Lift-on-Board Container Service Study" for information.

B.THAT Council authorize the continuation of the City's Container Service into 1998, with continuation in future years subject to annual reporting on business operations.

C.THAT Council authorize the establishment of a temporary Manager's position and temporary Container Marketing position with classification subject to approval by the General Manager of Human Resources.

D.THAT the 1997 costs of $69,000 be funded from Contingency Reserve and the ongoing annual cost of $139,000 be funded from the revenues from the City's Solid Waste Container Services.

In addition, Council approved the purchase of three front loader packer refuse trucks in order to replace three vehicles which had reached the end of their economic life. These vehicles have been purchased and we are currently awaiting delivery.


Since Council's decision to continue the service in July, the City has experienced a six week strike which impacted Solid Waste collection services. In particular, the City's Solid Waste Container Service was also disrupted. Given the tenuous nature of the business, this gives rise to a reconsideration of the previous decision to maintain the operation.

During and shortly following the strike, 22 strata containers and 70 industrial, commercial and institutional containers, totalling 92 containers were cancelled. In addition, since the end of the strike, 20 new container contracts have been received. The overall net loss is 72, or a 2.9% decrease in container contracts.

In addition to the loss of some container customers, the strike has also had two additional impacts on the City's ability to continue with container service. First, the City’s service image was diminished, and this is particularly damaging to those strata/co-op customers we will be trying to retain once the Solid Waste Utility is implemented. Secondly, we lost valuable time which was required to implement the necessary by-law and marketing changes to improve the competitiveness of the service.

In light of this new information, a further review was undertaken as to whether or not the City should continue the business. There are a number of considerations, both positive and negative, which can bear on this decision. These are summarized below:

Positive Considerations

-The City of Vancouver container business has a loyal customer base, which has developed through the years. The loss of only 2.9% of the business after a very disruptive strike is surprisingly low.

-The container operation employees are very dedicated to giving good service and are amongst the most highly motivated group of employees in the City. This was evidenced in the expedited clean-up process following the strike.

-The new business plan, including improved marketing and pricing, provides opportunities to increase business. (Although there is no certainty that the plan will adequately address the competitive situation.)

-Over the past five years, the container operations have shown a profit, which averages approximately $250,000/year. This is returned to the General Fund.

-The presence of the City in the container business, dominated by a few private contractors, has increased competition in the industry and this may have had somemoderating impact on pricing for container services in Vancouver.

Negative Considerations

-The Ernst and Young report specified early business improvement intervention before the implementation of the Solid Waste Utility in January of 1998. Critical time has been lost and it is doubtful that sufficient improvements can be established before that time.

-Changes in pricing structure for Container Operations is a critical element required to be competitive in the open market. While greater flexibility can be provided through a discounting mechanism, Legal Services has recently advised that blanket authority to charge rates based on cost is not possible. This constrains our ability to compete.

-The strike has created an image of uncertainty in the Container Operations and there is an unfair public perception that the strike was a "garbage strike". There has been some erosion of the container service at a time when service needs to be increased.

-There will be a need for significant staff resources in order to attempt any business improvements. This effort will detract from other initiatives in areas key to the City’s core businesses.


The Ernst and Young report specified that if the business changes were successfully implemented, profits of between $600,000 and $700,000 would be possible within two years. This ideal has since changed as a result of the strike. There are two basic options; either continue or exit the business.

The cost implications of the two options are as follows:

If the City continues with the existing operation and implements Council’s recommendations arising out of the Ernst and Young report, additional annual expenditures of $139,000 will be incurred ($40,000 in 1997). These costs fund the additional staff and one-time costs to implement changes to the business operation. Furthermore, the business plan recommends that the City sign long-term service contracts which have the potential to incur increased financial liabilities if we were then to exit the business.

If the City choses to exit the business at this time, the exit strategy would consist of selling off the container truck fleet and garbage containers. It is anticipated that the City would recover most of the depreciated value of this equipment inventory, although it is estimated there would be a net cost of $100,000. The three new replacement trucks could be resold at, or near, the cost of acquisition. The City would also lose an estimated $250,000 subsidy which is now provided from the container operation to the City’s General Fund. (This subsidy may also be lost or significantly reduced if we continue operation.)


The current container service is staffed by about 10 people. These positions would be reassigned to comparable positions, thereby avoiding any layoffs.


The successful implementation of the business plan and survival of the container operation as a viable business depended on good customer service and timely changes to the operation. The intervention of the strike has compounded the problems and increased the risks that the operation may not be profitable on an ongoing basis. It is on this basis that it is recommended that we discontinue the business at this time without a further investment in City funds or time.

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