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Norcal Waste Owes $924,000 to San Jose, Calif., Audit Says

Posted on: Monday, 28 November 2005, 18:00 CST

By Rodney Foo, San Jose Mercury News, Calif.

Nov. 26--Norcal Waste Systems, already at the center of a controversy over the cost of its garbage hauling contract, owes at least $924,000 of a contested $10.8 million in penalties to the city of San Jose over alleged failures in monitoring its recycling program, according to an independent audit.

Auditors hired by the city's Environmental Services Department are continuing to review records to determine how much -- if not all -- of the remaining $9.9 million penalty should be levied, a process that could take months, said Deputy City Manager Terry Roberts.

"From a legal standpoint, we feel very firm about the $924,000. We feel the documentation is there," Roberts said, "and the reminder still needs more work."

The city had notified Norcal in March that it intended to withhold $10.8 million in payments from the company because Norcal's subcontractor, California Waste Solutions, failed to comply with the contract from Aug. 25, 2003, to March 1.

The city alleges the violations include:

--Unauthorized shipping of glass collected from San Jose curbsides to facilities in the East Bay for sorting. The city's contract calls for glass to be processed at California Waste Solution's Timothy Drive plant unless Norcal obtains the city's permission to sort recyclables elsewhere.

--Co-mingling of glass with glass from different sources, making it difficult to track how much San Jose generated-glass was being recycled.

Accurate records are needed to prove to the California Integrated Waste Management Board that the city is meeting state-mandated recycling diversion rates.

Norcal officials appealed the March findings, triggering an independent audit of the environmental services department's tallying of violations that have led to the proposed $10.8 million penalty.

In the department's first release of the audit's preliminary findings, Norcal officials were told in a Nov. 18 letter that $924,000 in infractions were supported. The city is giving the company until Dec. 5 to respond.

Mark Arsenault, Norcal general manager for the San Jose area, said his company has not yet formulated a position.

"We're looking it over. . . . It's premature at this point to lay out anything on this," Arsenault said.

The contested penalty comes in the midst of an independent investigation that is looking into the city council's approval of an extra $11.3 million to Norcal in September 2004 to subsidize higher labor costs at a Timothy Drive recycling plant run by Norcal's subcontractor, California Waste Solutions.

That investigation, commissioned by the city council and due next month, followed a Santa Clara County civil grand jury report in June that accused Mayor Ron Gonzales and his budget and policy director, Joe Guerra, of brokering a secret deal with Norcal in 2000 to obtain money from the city at a later date to pay workers at the recycling plant higher wages.

Meanwhile, the first phase of Norcal's 11-year pact with the city is scheduled to expire in June 2007, and city officials are weighing whether to approve an option to extend the company's contract for another six years.

On Tuesday, council members are scheduled to provide city staffers with policy direction that would shape requests for new bids if Norcal is not granted any extension.

In letters last month to the environmental services department, Norcal told city officials it would be hard-pressed to make a contract extension profitable.

"If nothing changes to the existing terms we are operating under, we could seek an amendment," Arsenault said during an interview last week.

Norcal cited several factors affecting a contract extension. Chiefly, they relate to the refusal by California Waste Solutions to give up what it believes is its contractual right to the labor subsidy that it is now receiving.

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Copyright (c) 2005, San Jose Mercury News, Calif.

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Source: San Jose Mercury News

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