The NESWC Project Contract
The NESWC project contracts cost $95 per ton for waste management, which was about double the average price in 1997 and then increased to $145 per ton by 2005. This contract thus proved costly to the city, largely because the risk assignments in the contracts were inappropriate because the NESWC communities did not have leverage over facility costs and were not insulated from future financial losses in the public-private relationships they signed.
Untenable Contractual Provisions
This was due to the following untenable 20-year contractual provisions:
- All the risks for the venture were solely on the communities and not MRI since they paid the facility's debt service and operational costs by the disposal fee formula calculated by MRI in the contract. This meant that the community bought the facility from MRI and further guaranteed its operations.
- In 1989, a clause in the contract that required NESWC communities to compensate MRI for loss in profits in unforeseen changes in circumstances was invoked. This was because of reduced profit of electricity revenue due a downturn in oil prices in 1980s and consequently cost the communities $3.4 million in form of increased municipal disposal fees.
- According to the contract agreement, the communities were to assume all the risk case of increases in design, construction, operational and financing costs for improvements to NEWSC facility that required them to comply with changes in the environmental law after 1979. This cost the communities $43 million as they had to comply with the state's 1997 new air pollution control and amendments to the federal Clean Air Act of 19990.
- The 'put-or-pay' clause in the contract required the communities to pay MRI Company for a minimum number of wastes regardless of their waste produce, this cost them $1.7 million a year for wastes they never deposited to the resource recovery facility.
