In the Dumps

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In the Dumps
Bullish: Phillip Kotanjian at Bell Gardens’ AAA Rubbish

The city of L.A.’s plan to create franchised zones for commercial trash hauling promises to dramatically scramble a long-established market, creating winners and losers.

One view is that many of the 45 haulers now doing business will find work in the 11 zones, possibly by forming groups or subcontracting. But another view is that only a few haulers will get the work, leaving dozens of losers. Some might go out of business.

In the optimist camp is Phillip Kotanjian, manager of AAA Rubbish Inc. in Bell Gardens.

“We’re excited for the opportunity to bid,” Kotanjian said. “If we get a franchise, we can use that to bid on an even larger franchise the next time around.”

But pessimists include Mark Blackburn, president of Universal Waste Systems in Santa Fe Springs.

“Of course we will bid and do everything we can to win a contract,” said Blackburn. “But if we don’t win, it would be a devastating loss for us.”

Blackburn, who also chairs the board of Los Angeles County Disposal Association, a coalition of local waste haulers, believes many businesses will disappear as a result of the new franchise system.

“There are many small haulers who have all or almost all their business in Los Angeles,” he said. “If they don’t get the franchise zones and can’t get subcontracts with the franchise holders, they will be put out of business.”

The City Council earlier this month approved a plan to create the 11 waste-hauling franchise zones, with each served by one exclusive operator. The plan, which will take effect in 2017, covers trash collected from 75,000 commercial and multifamily sites. (The new plan does not affect single-family homes, which are served by the city.) The first round of bidding will begin later this year.

It’s a dramatic change from the current system. Today, haulers contract directly with apartment owners, commercial building landlords and individual businesses to haul away trash.

Environmental and labor union groups that backed the plan said that establishing franchise zones would cut down on the number of trash-truck trips, reducing congestion and emissions. That’s because the trucks would operate in the one geographic area for which they bought franchise rights. The plan would also improve recycling.

The labor groups said having fewer tightly regulated franchise haulers would raise workplace standards for hundreds of trash collectors and drivers. The ordinance requires all workers to be paid the city’s living wage.

Business groups opposed the plan, saying it would hurt trash haulers that had developed a network of customers over the years and were thriving – or not – based on the quality of their work and price. They also claimed the plan was backed by unions because fewer, larger trash contractors would be easier to organize. And they said the new system would drive up prices.

When the reform plan was proposed three years ago, many waste haulers voiced vigorous opposition.

In response, the city made three changes aimed at helping small trash haulers:

Setting aside three franchise zones in the downtown area for small haulers.

Allowing small haulers to subcontract for work with the main franchise holders.

Allowing several small haulers to team up to bid on the remaining larger franchise zones.

The net result of the plan approved April 1: More haulers than originally expected will likely end up with at least some work in Los Angeles. But opinions differ on just how many.

Those in Kotanjian’s camp believe many of the haulers who don’t win franchise zones will be able to get subcontract work. Those in Blackburn’s camp are skeptical that franchise holders will subcontract out enough to keep smaller haulers running.

The city could offer some guidance in a request for proposals, likely to be released in summer. More haulers will likely end up with work in the city if the RFP contains specific subcontracting targets.

Bids for small zones

Both AAA Rubbish and Universal Waste are preparing to bid on the small zones. A spokeswoman from the city’s Bureau of Sanitation told the Business Journal the three zones reserved for smaller haulers will have less than half the number of commercial accounts than the other eight.

Kotanjian said the small zones and the subcontracting allowance helped change AAA Rubbish’s stance on the franchise plan from initial opposition to support. He hopes his company’s track record of 90 years operating as a family business and its union bona fides – the company’s roughly 20 workers have long been represented by Teamsters Local 396 – will be points in its favor as his company goes up for one or more of the three small zones.

He acknowledged that even if AAA Rubbish wins a small-zone franchise, it still could mean a net loss of business in the city. Two-thirds of the firm’s revenue comes from contracts in the city and a small zone wouldn’t have enough business to offset that loss. But he prefers to look at the prospect of being well-positioned to bid for a larger franchise zone in the future.

“We would consider that a major growth opportunity,” he said.

Kotanjian said if the company didn’t win one of the smaller zones, it would try for subcontract work. Failing that, the company would try to boost its business in other local cities.

Universal Waste’s Blackburn said the company is planning to bid on the smaller zones, too, and possibly one of the larger ones. The company has about 100 trucks and 165 employees throughout Los Angeles County; it’s been doing business locally for more than 50 years and today, more than half of its business is in the city.

Blackburn is less optimistic about being able to keep a foothold in the city if he doesn’t win a franchise. He said there are no guarantees that the franchise holders will subcontract out significant amounts of work, unless specific thresholds and guidelines are issued in the request for proposals.

He said he expects the current “big four” players – Waste Management Inc. of Houston, Republic Services Inc. of Phoenix, Athens Disposal Services in City of Industry and Crown Disposal Co. Inc. of Sun Valley – to win bids to operate several franchise zones.

“It all depends on how much these big four players are willing to subcontract out,” he said.

Blackburn said that if his company loses all its work in the city, it would be devastating.

“If we lose Los Angeles, there aren’t a whole lot of cities we can move right into,” he said. “Most cities have some sort of franchise system in place, which means you have to wait years until the franchises come up for renewal before you can enter a city.”

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Howard Fine
Howard Fine is a 23-year veteran of the Los Angeles Business Journal. He covers stories pertaining to healthcare, biomedicine, energy, engineering, construction, and infrastructure. He has won several awards, including Best Body of Work for a single reporter from the Alliance of Area Business Publishers and Distinguished Journalist of the Year from the Society of Professional Journalists.

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