I. Schedule 3.1 Definition of Disposal and the Use of Recyclable Materials as a Fuel to Create Energy

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1 March 29, 2011 Response of Texas Disposal Systems (TDS) to the City of Austin staff s stated positions regarding outstanding long term recycling services contract terms and conditions The City of Austin staff has taken various positions regarding outstanding terms and conditions in negotiating a contract for single stream recycling services. On February 14, 2011, TDS submitted its best and final offer and listed several items as a condition of the offer. However, several of these items have not been resolved despite several proposed compromises, and TDS is concerned that staff has not agreed to compromise language so they can report to Council that TDS would not accept a fair proposal. This memorandum addresses some of those issues. I. Schedule 3.1 Definition of Disposal and the Use of Recyclable Materials as a Fuel to Create Energy TDS objects to language in this definition which allows use of collected single stream recyclable material as fuels after three years, inasmuch as this use has been neither considered nor approved by the City Council. TDS has consistently said throughout these negotiations that any language allowing collected recyclables to be used as fuel should be subject to specific discussion and approval by council. Despite the Solid Waste Department's assertion to the contrary, this language potentially allows the use of collected material as fuels without being considered a disposal of the materials. TDS proposes that either (1) all language allowing use of material as fuels not constituting a disposal be removed from the contract, or (2) Include the TDS proposed provision requiring Council approval for such use, or (3) the City consider the financial analysis impact of the TDS offer to provide a $5 per ton rebate in exchange for using materials as fuels, subject to and only if the staff receives specific Council approval. Below is the contract language proposed by the staff including staff s latest revisions which they state as final: Disposal means any of the following: (i) placing in a landfill, (ii) converting to a refuse derived fuel, (iii) use as a landfill liner fill, (iv) use as a landfill alternative daily cover, (v) waste to energy conversion, (vi) biofuels conversion, or (vii) similar means that do not involve the incorporation of the material in question into useful products or whose usefulness is primarily as a feedstock for a process of combustion, incineration, or rapid oxidation through chemical means. Notwithstanding the foregoing, for the purposes of this Agreement: (1) until a reasonably viable market is developed in or near the City for Glass, the use of Glass which has been ground into fragments conforming to reasonable industry standards and is used in an approved drainage media in a leachate collection system in a duly licensed and permitted landfill for the life of the landfill plus thirty (30) years for post closure monitoring will be deemed not to be a Disposal, if the amount used in such leachate collection system does not exceed the Page 1 of 14

2 amount certified by an engineer as the weight and volume necessary to be an effective leachate collection system for the landfill in question, and (2) except as limited or otherwise provided for in the relevant Service Schedule, converting any Collected Material into a refuse derived fuel or for use in a wasteto energy or biofuels conversion process shall not constitute a Disposal if there is no other if and only if on or after the first Reset Date there is no reasonably viable market in or near the City for the items of Collected Material in Question such as would otherwise be classified as Residual Material, Trash or Finds, and the applicable items of Collected Material is may be used in a combustion or energy conversion process for the production of beneficial work or output that results in a net GHG Reduction compared to the fuel material most commonly used for the same application, then the use of the Collected Material in question that actually produces a net GHG reduction shall not be considered a Disposal. As used in this definition of Disposal, the phrase reasonably viable market in or near the City means that with respect to the kind of Collected Material in question after routine recycling processing there is a buyer located anywhere in the world that is willing to pay a price for such Collected Material as quoted FOB a facility located in the City or within 50 miles thereof which exceeds the cost of shipping and insurance for such Collected Material to the buyer. While the City staff s proposed changes do remove the staff s previous words waste to energy, bio fuels conversion process, combustion or energy conversion process and fuel, these changes are merely cosmetic; and in the opinion of TDS, a disingenuous attempt to hide the true potential application of the provision. The phrase a process for the production of beneficial work or output is simply the broadest way to refer to any waste to energy process, be it under the label of bio fuel conversion, gasification, pyrolosis, rapid chemical oxidation or incineration. TDS has proposed the following language as a third point following No. 2 above: (3) until the later of (a) the third (3rd) anniversary of the Cutover Date and (b) approval by the City Council of the City, no collected material may be used in a waste fuel product and any such use would constitute a Disposal under the Master Agreement. This language simply adds the requirement of City Council approval before collected recyclables are allowed to be used as a fuel source. TDS believes it is perfectly reasonable to require this approval, as such an allowance amounts to a very significant policy decision of the City that should not be accomplished by staff through a private negotiation process, but by a public decision made by the City Council. However, Mr. Gedert rejected this compromised language, apparently preferring to secure the ability to use collected material as fuel after the first three years at this stage, while representing publicly that the contract specifically disallows it, when in fact the opposite is true. At the end of the third year of the contract, after the first reset date, one or more recycling or waste to energy companies could bid for and receive as much as 100% of the City s single stream recyclable materials and consume them as fuels, leaving TDS and/or Balcones with no volume of recyclables for processing, but still bound to a 20 year contract. Balcones Page 2 of 14

3 could also negotiate the use of the materials as fuels, within their negotiation with staff, to maintain a portion or all of the City s designated volume of single stream materials. II. Schedule 6.1 Most Favored Nation (MFN) TDS has important reasons for objecting to the Most Favored Nation (MFN) portion of the proposed agreement as proposed by staff. Below are the three sections of Schedule 6.1 which state staff's proposal: Article II MOST FAVORED NATION Section 2.01 If Vendor makes any agreement ( Favored Agreement ) with any third party for a Service that is substantially the same as one which is the subject of a Service Schedule or Purchase Order, and such Favored Agreement contains terms, conditions, cost or revenue which the City contends are more favorable to such third party than as provided in such Service Schedule, Purchase Order or in the Master Agreement, then the City may request in writing that it also be given the benefit of the same terms or conditions of the Favored Agreement. The City shall submit its request to Vendor in writing, together with a revised version of the relevant Service Schedule, Purchase Order or Master Agreement as the City asserts to be comparable to the benefits available under the Favored Agreement. Within thirty (30) days of such written submission, Vendor shall either (i) respond in writing rejecting the submitted revisions and providing its analysis as to why the City s revisions do not result in benefits comparable to those under the Favored Agreement (for example, if there are other terms in the Favored Agreement that are less favorable on a net economic basis to those enjoyed by the City under the existing Service Schedule, Purchase Order or Master Agreement), or (ii) Vendor shall be deemed to have concurred that the revisions proposed by the City produce benefits comparable to those of the Favored Agreement. In the event the Parties are unable to agree as to what changes will be necessary to the existing Service Schedule, Purchase Order or Master Agreement to provide comparable economic benefits to the City as are provided in the Favored Agreement, then the Parties shall jointly refer the matter to a nationally recognized, disinterested public accounting firm to determine the economic benefits under the Favored Agreement and the revisions necessary to provide comparable benefits under the relevant Service Schedule, Purchase Order or Master Agreement. Once the determination of the disinterested public accounting firm has been delivered to each Party, then at the option of the City exercised with thirty (30) days of such written determination, the terms or conditions necessary to produce benefits comparable to those of the Favored Agreement shall be substituted for those specific relevant terms or conditions of the Master Agreement, Service Schedule or Purchase Order, but such substitution must be made as a whole with respect to the relevant terms, conditions, cost or revenue so that the net economic effect of such substitution shall be substantially the same to Vendor for the provision of the Services to the City as to the third party. Section 2.02 Unless otherwise provided expressly to the contrary in a Service Schedule, Section 2.01 shall apply to each Service Schedule or Purchase Order executed under the Master Agreement. Section 2.03 To facilitate the City s rights under this Article II, Vendor shall annually submit to the City a listing of all contracts under which Vendor provides services at its Designated Facility to any thirty party that in whole or substantial part involves Vendor providing services to such third party that are similar to the Services Vendor provides to the City under the Master Agreement, any Service Schedule thereto or any Purchase Order. City may upon ten (10) Business Days notice to Vendor, employ an independent auditor not a competitor of Vendor to inspect each such third party Agreement or audit Vendor s performance and fees thereunder, with each Party responsible for its own cost in conducting or responding to such inspection and audit. Page 3 of 14

4 TDS objects to this version of a Most Favored Nation contract provision for the following reasons: The provision would apply to all service schedules under the Master Agreement, including larger volume contracts, and allow the City to receive the benefit of any contract term which the City staff deems more favorable to the City, including the opportunity to switch back and forth between contract terms favoring high and low commodity markets as commodity markets change from year to year; to benefit from legally required extended payment terms for certain government entities; and to benefit from non economic terms that may result in significant additional operational or administrative requirements that were not the subject of these negotiations, without the opportunity for an equitable adjustment in pricing. The provision would create a competitive disadvantage for TDS in our efforts to provide recycling services to surrounding communities. Some cities will accept risk to have the opportunity to receive revenue in high markets, while some cities want no risk and more educational and enforcement support from their vendor. The provision would drive volume to other area lower cost MRFs that do not have the very high processing standards inherent in TDS operations and required by the proposed contract. Such a situation would result in more of the recyclable volume from surrounding communities being insufficiently processed, and a much greater percentage of recyclable material being disposed in a landfill or an incinerator. This result would run directly counter to our shared Zero Waste and Climate Protection goals. Balcones specializes in commercial and industrial recycling, primarily centered around office and pre consumer and post industrial recyclables and the diversion of those recyclables into fuels and traditional recycling. Perhaps Balcones is willing to agree to a Most Favored Nation provision because they do not expect to have other contracted residential single stream customers, and do not intend to provide solid waste collection and supporting curbside recycling services to cities, MUDs or homeowners associations. The acre site proposed by Balcones may not be large enough to handle other contracts, and they may not have a problem with the City staff s most Favored Nation requirements (simply because they will not have other similar contracts). If Balcones does accept other customers on the basis of charging rates that fluctuate monthly without a contract, that pricing would not be available to the City of Austin on a Most Favored Nation basis. TDS would have long term contracts with municipalities, MUDs and homeowners associations, which would be subject to a Most Favored Nation provision as proposed by staff in the City s contract. TDS has agreed that a version of the MFN provision would be acceptable under the following conditions: Page 4 of 14

5 TDS would provide a list of similar contracts to the City annually. A review of contracts would be conducted by a disinterested third party at the City s expense not more than once per year. The City would only be able to request favored terms regarding pricing and revenue share that result in net economic benefit. The city would not be entitled to receive favored terms from other contracts that commit volume to TDS in an amount greater than the City has committed to TDS by contract. o Apparently this provision is the major remaining point of contention regarding MFN pricing. TDS believes it is unreasonable for the City to be entitled to terms from contracts that commit a greater amount of contracted volume than from the City of Austin, particularly since the staff wishes to be able to negotiate volumes of recyclables at each contract Reset Date down to very low ranges and even to zero. The following language has been proposed by TDS, and rejected by staff, as an alternative to the staff s proposed language: 2.02 The provisions of Section 2.01 shall only apply to Service Schedule A. Similar provisions may be negotiated if/when alternate service schedules are proposed The provisions of Section 2.01 shall only apply to the rates for processing and payment for recyclables for other similar contract customers of Vendor with annual volumes of substantially the same recyclables equal to or less than the City s annualized volume committed to Vendor by contract and processed in the Austin MRF. City s review of Vendor third party contracts shall be conducted by a disinterested objective third party at the City s expense, and shall be limited to the rates and charges of those customers with annual volumes equal to or less than the City s committed volume. No other terms, conditions or contracts shall be subject to City s review. The City shall not have the right to make copies or take possession of any Vendor contracts. III. Exhibit A Facility Fee/Community Impact Fee/Carbon Offset Fee TDS has offered to provide the City with trees from our Carbon Forestry division, depending on the volume of single stream materials received from the City s residential single stream collection, in lieu of paying a per ton Facility Fee for a number of reasons: TDS constructed its facility at its own risk, within the Village of Creedmoor, and with no assurance of any volume of recyclables to be received from the City. There was no commitment of recyclables volume from the City of Austin used by TDS to obtain financing for or to justify its facility. Like the Most Favored Nation provision, this fee would put TDS at a competitive disadvantage relative to other area MRFs that do not have to pay such a fee in order to receive and process recyclable materials. Page 5 of 14

6 Acceptance of such a requirement would alter the economics of the many contracts under which TDS currently provides recycling services to other communities. This would force TDS to either absorb the fee as a cost of operation under its existing contracts, or go to those communities and request that they pay the fee required by the City of Austin. TDS believes this is unreasonable. TDS believes it is unreasonable to pass through charges that benefit the City of Austin to other communities that utilize the TDS MRF, which is located in Creedmoor. Particularly the many communities such as Buda, Kyle or San Marcos whose recyclables are hauled to TDS without ever entering the city limits of Austin. IV. Schedule 9 Managed and Assigned Contracts Schedule 9 contains a lengthy narrative regarding the management and assignment of City controlled recycling contracts. Bob Gedert, director of Austin's Solid Waste Department, has conceded that Schedule 9 will not apply to the single stream recyclables processing Service Schedule currently being negotiated, but will not identify why it is so critical to the staff that TDS agree to contract language that will apply to services that the City has not identified. In an e mail to TDS CEO Bob Gregory, he wrote: Notwithstanding that the City agrees that Managed and Assigned Contracts does not apply to the current single stream recycling services, the City still believes it is important to include this provision in the Master agreement Bob Gedert, in a 3/10/11 to Bob Gregory Because Schedule 9 would not be applicable under the first three years of the single stream recyclables contract, and because TDS does not understand what the language means or its potential interpretation and application, TDS insists that either the entire section (Schedule 9) be removed from the contract or that simple language be included that would allow the language to be re negotiated if and when a specific Service Schedule, to which Schedule 9 would apply, is proposed. Both options proposed by TDS have been rejected by the City s negotiating team; leaving TDS in the position of having to agree to the future application of language that TDS does not understand that would be applied to future service requirements, potentially involving flow control, that have not been identified by staff. In the opinion of TDS, it is counter productive to squabble over provisions that the City admits are not applicable to the Service Schedule currently being negotiated, and in the opinion of TDS, unreasonable for the City to insist on the inclusion of confusing and irrelevant language. This is an issue that goes far beyond the City Council s directive to Council to negotiate a long term MRF contract for the City s residential single stream recyclables. The following is the proposed addition (rejected by staff) that would make the inclusion of Schedule 9 acceptable to TDS: Schedule 9 is intended to outline the general terms and issues which would be encountered with Managed or Assigned Contracts. The Parties agree that the specific terms and conditions of this Schedule 9 shall be negotiated and adjusted as applicable to the specific Managed and Assigned Contracts. Until such time as the Page 6 of 14

7 Parties agree upon a specific Managed or Assigned Contract, Schedule 9 shall not apply. Schedule 9 is specifically not applicable to Exhibit A. The lengthy text of Section 9, with TDS proposed language underlined, is found at the end of this memo as MEMO APPENDIX ONE. V. Exhibit A Annual Rate Adjustment Consumer Price Index In an effort to make negotiations at Reset Dates, occurring first after three years and thereafter every five years, more productive, and to avoid problems that could arise from trying to account for the entirety of increased operating costs only at scheduled contract renegotiation Reset Dates, TDS has proposed an annual processing fee adjustment based on the Consumer Price Index (CPI) to periodically account for increased measurable operating costs. Conversely, the City would receive the benefit of any period of deflation. The following is the language proposed by TDS: (c) Annual Processing Fee Adjustment: Beginning on the first anniversary date after the effective date of this Agreement and continuing on the same date each year thereafter, the Processing Fee shall be increased or decreased by the same percentage as the percentage increase or decrease, if any, between the CPI as published for April of the then current calendar year and the CPI as published for the month of April the year before. Notwithstanding the above, the total annual increase or decrease in the Processing Fee during the first three (3) years shall not be greater than five percent (5%) and the total annual increase or decrease in the Processing Fee for the remaining term of the Contract shall not be limited. As soon as practicable after the Processing Fee adjustment date each year, TDS shall notify the City of any CPI based adjustment to the Processing Fee and upon request provide the supporting data that is the basis for such adjustment. The City staff has rejected this provision and stated: The City will not accept application of a CPI index for pricing. The City expects all vendors to address the risk of inflation in its processing fee. (Bob Gedert, 3/10/11 to Bob Gregory.) TDS believes the City s rejection of this provision is inappropriate and would result in negotiations between parties which would be difficult and contentious at scheduled Reset Dates, with the potential that there would be an inability to come to an agreement through good faith negotiations. It appears as if such a result may be the staff s desire. CPI adjustment is commonly used in recyclables processing contracts. For example, the private vendor single stream processing contract for Fresno, CA, negotiated by Bob Gedert in his previous job, and the processing contract for Ft. Worth, TX, negotiated and signed during the tenure of both Marc Ott and Robert Goode, both include CPI adjustments. That being the case, why would there be an objection to CPI adjustments in this contract with TDS? Further, during periods of higher inflation between Reset Dates occurring every five years after the first reset date, costs can escalate beyond what was expected at each Reset Date renegotiation period. If this contract is Page 7 of 14

8 really intended to be a long term contract, and not just a three year contract to process the City s recyclables, there should be a cost escalation recapture clause. VI. Exhibit A Three (3) Year Contract Despite Council s directive to staff to negotiate a long term contract, the proposed agreement provides the vendor no assurance of volume beyond three years. The agreement contains a number of provisions that enable the City to reduce either vendor s volume award to 0% after three years or at any Reset without being in breach of the contract or being required to pay liquidated damages. Page 8 of 14

9 MEMO APPENDIX ONE SCHEDULE 9 Schedule 9 is intended to outline the general terms and issues which would be encountered with Managed or Assigned Contracts. The Parties agree that the specific terms and conditions of this Schedule 9 shall be negotiated and adjusted as applicable to the specific Managed and Assigned Contracts. Until such time as the Parties agree upon a specific Managed or Assigned Contract, Schedule 9 shall not apply. Schedule 9 is specifically not applicable to Exhibit A. 1. Managed and Assigned Contracts. If there are any agreements between the City and any third party suppliers and vendors identified in a Services Schedule that relate to the Services to be provided by Vendor thereunder, other in scope agreements to which the City is a party under which the City receives or provides recycling services, and such other agreements as mutually agreed to by the Parties during each Transition Period (collectively, the Managed Contracts ), then such Managed Contracts shall be managed by Vendor to the extent provided in this Agreement and the applicable Service Schedules. As soon as reasonably practicable following the Acceptance Date, all Managed Contracts under which the City receives or provides in scope recycling services which are to be the subject of the Services under an applicable Services Schedule (collectively, the Assigned Contracts ) shall be assigned to Vendor, and Vendor shall interface with, manage, and become the counterparty of record in lieu of the City, (i.e., Vendor, and not the City, shall be the counterparty of record) with respect to, all Assigned Contracts that are effectively assigned to Vendor. Upon the assignment of any Assigned Contract, Vendor agrees to: 1.1. Credit to the City accounts any revenue earned, service credits or other credits actually received by Vendor from any third party in connection with such agreement that arise from services provided by or to any such third party to or from the City Promptly notify the service provider counterparty, or other necessary third parties, of any service failure or defect upon notification by the City or Vendor s own discovery of such failure or defect Promptly remit to the service provider counterparty or other third parties all amounts owed by Vendor under such agreement on account of services provided to the City upon receipt of the corresponding Charges from the City Immediately notify the City if Vendor receives a notice of service failure, default, suspension, disconnection, or termination under any such agreement Promptly cure any event of default giving rise to a notice of default, termination, suspension or disconnection under (iv) above unless such event of default relates to an act or omission of the City, in which event Vendor shall only give prompt written notice of same to the City Manage third party vendors under such agreement to the extent necessary to verify that they are operating under the terms of such agreement Manage the relationship with and the provision of services to Customers of the City under such agreement relating to the provision of recycling services to such Customers Interface and coordinate with third party vendors or subcontractors for the purpose of performing services that are necessary to the City, but that are otherwise not included within the Services. Page 9 of 14

10 2. Required Consents. To the extent that under a Services Schedule, the Vendor is to assume the duties and obligations set out in Section Managed and Assigned Contracts with respect to the Managed Contracts or Assigned Contracts, The City shall use all commercially reasonable efforts to obtain, at its cost and expense, prior to the: (i) applicable Trial Commencement Date, with respect to Managed Contracts, or (ii) Acceptance Date, with respect to the Assigned Contracts, all consents, waivers, and approvals that are set forth in the applicable Service Schedule, including those necessary to assign the Assigned Contracts or to permit Vendor s management of the Managed Contracts (the Required Consents ). 3. Workaround. The parties do not intend any provision of this Agreement to require assignment or transfer of any Assigned Contract or other agreement, the assignment or transfer of which is prohibited by Applicable Law or contract. If any such prohibition prevents assignment or transfer of an Assigned Contract or obtaining any Required Consent, the parties shall cooperate reasonably in making alternative arrangements under which the parties achieve comparable risks and results, without causing a breach or violation of any Applicable Law or contract. 4. Third Party Service Providers. The City shall use reasonable efforts to cause its relevant departments and third party providers to cooperate and share information with Vendor with regard to Vendor s performance of the Services. Vendor shall use reasonable efforts to cooperate and share information with the City s departments and third party providers in connection with such providers performance of their obligations to the City. Sharing information pursuant to this Section Third Party Service Providers is subject to confidentiality requirements. 5. New Contracts 5.1. New Contract Criteria. Except to the extent expressly limited in a Service Schedule, Vendor has the right, subject to the City s consent as provided in Section Consent to New Contracts. Each New Contract is subject to the City s consent. Vendor shall provide the City with a copy of the proposed New Contract, with any rate information or other data not required for the City s evaluation redacted. Within ten (10) business days after receipt the City shall notify Vendor of its acceptance or rejection, provided that Vendor represents to the City that the conditions set forth in Section Does not impose any additional requirements or obligations upon, or reduce the benefits or, if applicable, net effective revenue under the Assigned Contract to, the City. and For contracts whereby the City is solely receiving services, contains service level requirements that are at least comparable to the service level requirements in the Assigned Contract. have been satisfied; otherwise, the City shall provide such notice within thirty (30) days after receipt. If the City rejects a proposed New Contract it shall include a statement of its objections with its notice to Vendor. Vendor shall have a reasonable period of time after receipt of the rejection notice to negotiate with the third party provider to attempt to meet the City objections. Vendor may re submit a modified proposed New Contract to the City in accordance with this Section, to replace any Assigned Contract with a replacement contract or enter into a new contract Page 10 of 14

11 relating to the performance of the Services (each, a New Contract; this term includes renewals, modifications, or novations of Assigned Contracts), with such third parties as Vendor deems appropriate, so long as the New Contract: Does not impose any additional requirements or obligations upon, or reduce the benefits or, if applicable, net effective revenue under the Assigned Contract to, the City For contracts whereby the City is solely receiving services, contains service level requirements that are at least comparable to the service level requirements in the Assigned Contract For contracts whereby the City is solely receiving services, is not made with a provider ( Prohibited Provider ) to which the City reasonably objects. To avoid engaging a Prohibited Provider, Vendor shall notify the City at least fourteen (14) days in advance of executing any New Contract of its intention to do so, identifying the proposed replacement provider. The City shall notify Vendor of its objection, and shall provide Vendor with justification of such objection, to any Prohibited Provider within fourteen (14) days of the City receipt of notice thereof. Vendor may not replace any Assigned Contract with a New Contract without the City s prior written consent if the Assigned Contract is with a Preferred Provider identified in the applicable Services Schedule, and the New Contract is not with that Preferred Provider Other Requirements for New Contracts. Vendor shall also use all commercially reasonable efforts to ensure that: (i) any New Contract whereby the City receives services includes a clause comparable in form and substance to the clause set forth in Schedule Does not impose any additional requirements or obligations upon, or reduce the benefits or, if applicable, net effective revenue under the Assigned Contract to, the City. and For contracts whereby the City is solely receiving services, contains service level requirements that are at least comparable to the service level requirements in the Assigned Contract. to the extent that Vendor uses the New Contract to acquire goods or services intended for Vendor s customers other than the City, the New Contract includes a clause comparable in form and substance to the clause set forth in Schedule For contracts whereby the City is solely receiving services, contains service level requirements that are at least comparable to the service level requirements in the Assigned Contract.. In the event that Vendor enters into a New Contract whereby the City receives services that does not include such clauses, notwithstanding anything in this Agreement to the contrary, the City s sole remedy for such failure shall be the right, at the City s election, not to assume such New Contracts upon the expiration or termination of this Agreement, in either case without any liability to the City with respect to such New Contract. The foregoing shall not relieve the City of its obligation to pay Vendor for Services rendered prior to the expiration or termination of this Agreement, nor shall it relieve the City of its obligation to pay Vendor liquidated damages provided hereunder in the event that the City terminates this Agreement for its convenience or if Vendor terminates this Agreement as a result of the City s breach Consent to New Contracts. Each New Contract is subject to the City s consent. Vendor shall provide the City with a copy of the proposed New Contract, with any rate information or other data not required for the City s evaluation redacted. Within ten (10) business days after receipt the City shall notify Vendor of its acceptance or rejection, provided that Vendor represents to the City that the conditions set forth in Section Does not impose any additional requirements or obligations upon, or reduce the benefits or, if applicable, net effective revenue under the Assigned Contract to, the City. and For contracts whereby the City is solely receiving services, contains service level requirements that are at least comparable to the service level requirements Page 11 of 14

12 in the Assigned Contract. have been satisfied; otherwise, the City shall provide such notice within thirty (30) days after receipt. If the City rejects a proposed New Contract it shall include a statement of its objections with its notice to Vendor. Vendor shall have a reasonable period of time after receipt of the rejection notice to negotiate with the third party provider to attempt to meet the City objections. Vendor may re submit a modified proposed New Contract to the City in accordance with this Section 5.4. Release of Obligations. Upon execution of a New Contract that replaces, renews, or novates an Assigned Contract, the Assigned Contract shall be terminated without further liability to the City thereunder, and the City shall be relieved of any obligations under the Assigned Contract arising after the effective date of such replacement, renewal, or novation. 6. Agency. With respect to all Managed Contracts, the City hereby grants Vendor a limited agency to act as an agent for the City in certain respects. The scope of any such agency is as set forth in the applicable Service Schedule. The City shall provide Vendor with written evidence of its grant of agency in form and content agreed by the Parties ( Letters of Agency ); when agency requires the City to deal with a governmental entity, the Letter of Agency also shall conform to requirements of such governmental entity. Any agency, power of attorney, or similar instrument shall terminate automatically upon termination of this Agreement. A Letter of Agency shall include such agency authority as necessary for Vendor to provide the Services, including the authority to negotiate more favorable rates, terms, and conditions under the applicable Managed Contract, provided, however, that Vendor shall have no authority to modify, terminate, or cancel any Managed Contract under such agency. Letters of Agency will normally include the following, although each Letter of Agency is subject to the parties agreement: 6.1. Vendor may place orders for service, discontinue service, change service, analyze and discuss rates and levels of service, analyze and discuss the correction of past and current billing errors, and analyze and discuss the granting of refunds for past billing errors for all orders placed with service providers that are currently under contract to provide services to the City in connection with activities set forth on a Service Schedule, provided that any such orders are made pursuant to the terms of the contract or basic ordering agreement between such service provider and the City the City shall at all times remain the contracting party of record with respect to, and shall remain responsible for compliance with, all contract terms and conditions under the Managed Contracts, unless and until such contracts are assigned to Vendor in accordance with this Agreement. The City shall remain liable for all obligations under such Managed Contracts (including all payment and resource consumption obligations) unless and until the City makes a payment to the Vendor, and the Vendor accepts such payment, to be passed through to the Managed Contracts counterparty, and the City agrees that Vendor shall have no liability to the City for any breach by the third party provider under such contract Vendor is authorized to analyze and discuss rates and levels of service, to analyze and discuss the correction of past and current billing errors, to analyze and discuss the granting of refunds for past billing errors, and to inquire about and verify any and all information pertaining to the configuration of applicable accounts. For the duration of the agency under a Letter of Agency, the City acknowledges and agrees that: (a) Vendor is accepting payment for the services received by the City under the Managed Contracts from the City only in Vendor s capacity as the City consultant and agent; and (b) Vendor is not holding itself out as or acting as, and shall not be deemed, a reseller of the services provided under the Managed Contracts. In addition, the grant of agency above shall expire with respect to any contract when such contract terminates. In the event that a Managed Contract terminates prior to the Acceptance Date, the City shall be responsible for replacing any services provided thereunder. In the event that the City enters into a replacement contract for such services, Vendor s and the City respective obligations will continue with Page 12 of 14

13 respect to that contract to the same extent as with respect to the replaced contract, provided that if such replacement contract materially expands or reduces Vendor s obligations hereunder, then the parties shall agree to an Equitable Adjustment in accordance with the change process set forth in Section Error! Reference source not found. below. 7. Pass Through of Service Credits. Vendor shall credit to the City accounts any service credits or other credits actually received from any third party provider in connection with the Assigned Contracts and New Contracts resulting for the thirdparty provider s failure to perform under that contract. Nothing in this Section Pass Through of Service Credits is intended to limit the City s right to terminate this Agreement to the extent that such rights are expressly granted elsewhere in this Agreement. 8. The City Obligations. The City failure to comply with applicable obligations (other than payment obligations to the third party service provider with respect to services provided after the assignment of an Assigned Contract) under all Assigned Contracts and New Contracts (including any reasonable restrictions on use of the service imposed by such third party service providers under the New Contracts; any provisions that limit the right to dispute charges under such Assigned Contracts and New Contracts; and the duty to comply with all applicable laws and regulations, including those related to privacy, and those related to the safe handling, storage, re use or disposal of Materials) shall, provided that Vendor promptly notifies the City of the failure and its impact upon the Services, and, wherever reasonably possible, provide the City a reasonable opportunity to cure such failure and use reasonable efforts to mitigate the impact upon the Services (i) excuse any failure of Vendor to provide the Services to the extent caused by such failure, and (ii) require the City to indemnify, defend, and hold harmless Vendor for, from, and against any Losses Vendor incurs as a result of such failure. 9. Other Pass Through Obligations. The City acknowledges and agrees that Vendor s indemnity obligations under this Agreement in respect of any Assigned Contract or New Contract are expressly subject to and limited by any limitations on the indemnity obligations of the third party provider contained in such contract, including limitations on the amount of such indemnity or on the period of time for notifying Vendor of a claim, except to the extent the claim results from any act or omission by Vendor. 10. Termination by Third Party Service Provider. The City acknowledges that certain Assigned Contracts and New Contracts may grant the third party service provider counterparty rights in relation to the termination, suspension, or discontinuance of a Service or necessary component thereto that are not contained in this Agreement, and that any termination of or interruption to a Service as a result of such third party service provider s termination, suspension, or discontinuance of its provision of goods or services under the Assigned Contract or New Contract shall not be deemed a breach by Vendor of this Agreement unless (i) such termination, suspension, or discontinuance is the result of: a material, uncured breach by Vendor of its obligations to such provider, or (ii) Vendor fails within a reasonably prompt period of time to engage a replacement service provider upon any such termination (and in advance of such termination if Vendor has been notified of the termination reasonably in advance); or (iii) Vendor fails to give the City prompt written notice of same. Page 13 of 14

14 11. Termination by Vendor. Subject to Vendor s obligations with respect to replacing Assigned Contracts or New Contracts under Section New Contracts above, any Assigned Contract or New Contract may be terminated at Vendor s sole discretion, and for any reason, without the City consent, so long as the City (i) does not experience any material interruption in any Service as a result of such termination, (ii) Vendor shall be responsible for any payments due to the third party provider under such contract as a result of such termination unless such termination arises from an act or omission by the City (iii) the cost incurred by the Vendor under any replacement contract shall be substantially the same or less than the cost under the terminated contract (unless the City otherwise consents to any cost increase in writing), and (iv) the replacement service provider is not an affiliate of Vendor (unless the City has provided prior written consent with full disclosure of the relationship between Vendor and the new service provider). 12. Qualification on Breach by the City To the extent anything in this Section provides Vendor with an indemnity right against the City as a result of the City s breach of its obligations under an Assigned Contract or New Contract, or the City compliance with its obligations under this Section constitutes a Predicate Obligation, such indemnity right shall be effective, and the Predicate Obligation shall excuse Vendor s performance, only if Vendor has provided the City with timely notice of the breach and allowed the City a reasonable opportunity to cure such breach. CLAUSES FOR NEW CONTRACTS Schedule Schedule [Vendor] may assign this Agreement to a third party, without Contractor s consent, in the event [Vendor] is required by law or by contract to provide the [goods or services] to such third party, subject to the assignee's performance of [Vendor]'s obligations hereunder in respect to [goods or services] acquired by such third party. Contractor acknowledges that [Vendor] intends to resell [re license] the [goods or services] to third parties ("[Vendor] Customers"). In the event that [Vendor] defaults in its obligations to provide the [goods or services] to a [Vendor] Customer or is required by law or contract to assign its agreement to the [Vendor] Customer, Contractor shall provide the [goods or services] directly to the [Vendor] Customer on the same terms and conditions applicable to [Vendor]'s acquisition of the [goods or services] hereunder, subject to the third party's performance of [Vendor]'s obligations hereunder in respect to [goods or services] acquired by the third party. In calculating price or other terms in the event applicable to the third party, the third party may acquire the [goods or services] at the price such [goods or services] would have been provided to [Vendor], taking account of [Vendor]'s aggregate purchases hereunder Page 14 of 14