Orange Recycling Probe Makes Case for Contract Bids : Cities should also follow explicit rules in reaching deals

Whatever the result of a continuing investigation into garbage disposal in the city of Orange, the lessons to be learned so far include the benefits of seeking competitive bids and the need to spell out in writing how contracts are awarded.

City officials have not said much publicly about the investigation into Orange Resource Recovery Systems Inc., which was set up to recycle garbage in the city. The officials contend that the district attorney’s office has asked them to limit their comments.

But records show that the recycling company and its equipment cost $6.5 million to establish, with the money coming from a surcharge the city levied on trash collection. Yet even though the residents put up the funds, the company wound up owned by a family that has collected trash in Orange for 40 years.

Orange Resource Recovery Systems Inc. gets 10% of whatever money it earns disposing of the garbage it picks up. The other 90% goes to the city. Investigators are trying to learn if the city has received its fair share since the recycling program began three years ago. Company officials have declined comment, though their lawyer said the family owning the company will ensure the city has not lost any money.

A key question that has emerged so far is, to paraphrase the famous Watergate wording, what did Orange officials know and when did they know it? An independent auditor said nearly two years ago that the company’s records were so “inadequate” that he couldn’t tell how much the company made. He repeated the warning last year and then resigned.

Only after the resignation did Orange officials take steps to find out what was going on. The city manager hired an accounting firm in March to conduct a “fraud audit” and turned the findings over to the police department the next month. This month the city issued a press release saying an investigation was under way. The city said in court documents that it appears “that salvage revenues belonging to the city may have been misappropriated for personal use” by one or more members of the family holding the city recycling contract.

Two informants have told police that the alleged misappropriation of city funds may amount to as much as $6 million.

The city will need to spell out why it took so many months to launch an investigation, why it agreed to forgo a complete audit of the recycling firm’s 1995 revenue and why it let the company miss three deadlines for reporting its 1996 financial results.

City Council members and city staffers who took up their positions after the contract was awarded said they have found it difficult to learn how and why the deal was made. Several city officials who were involved in awarding Orange Resource Recovery Systems an exclusive 10-year contract have died. But on a deal as important as garbage collection, with the city essentially giving away millions of dollars to a private company, detailed records need to be created. That will tell newcomers why officials acted as they did.

One retired city official said his staffers did ask other Orange County trash haulers if they would be interested in operating the recycling center and what they might charge. Apparently based on those resources, the city decided to award the franchise to its longtime vendor.

But formally putting the operation up for bid would seem to have been the more appropriate method. That would have eased suspicions that some firm was getting a sweetheart deal. Years ago the county belatedly put a contract with the coroner’s office out for bid; the existing vendor wound up the only bidder, and raised its fees. Still, that’s an acceptable cost to reassure the public that its taxes are being spent in the best way possible.