Fort Wayne’s ‘Notice of Intent to Terminate’ Red River contract outlines how the company defaulted

15 Finds Out

FORT WAYNE, Ind. (WANE) — While Red River Waste Solutions – and the contracts it has with cities for trash collection – are tied up in bankruptcy court, the City of Fort Wayne is making it clear it wants to terminate its contract.

In a letter dated December 8, obtained by 15 Finds Out, the city outlines the seven areas Red River is in breach of its contract:

  • Excessive Missed Collections
  • Failure to Pay Amounts Due Under contract
  • Failure to Staff the Contract
  • Failure to Provide Collection Reports
  • Failure to Limit Collection Hours
  • Failure to Address Property Damage Complaints
  • Failure to Provide Promotional and Educational Funding

The letter states because of Red River’s failure to fix “material defaults despite repeated demands by the City,” that the city “intends to terminate the Contract and proceed under the terms of the Performance Bond. Please be advised that the City expects that the damages resulting from [Red River’s] defaults under the Contract will significantly exceed the penal sum of the Performance Bond ($4,900,000).”

The letter outlines Red River’s missed collections since the contract started January1, 2018. Per the contract, it’s allowed no more than one miss per 1,000 households. That’s 83 misses permitted each month. The city’s letter points out that Red River missed 26 times that in some months, and while improvements were made, they were inconsistent. April 2021 saw misses more than eight times the number allowed. The letter also noted that the numbers are more favorable toward Red River than its actual performance because they are based off residents calling to report misses and not everyone calls each time their trash is missed.

Red River’s missed collections from the City of Fort Wayne’s December 8 letter.

15 Finds Out also asked the city for clarification on exactly how the misses are counted. Spokesman John Perlich explained Fort Wayne has always issued fines based on the call count of missed pick-ups and not the total number of homes.

“For instance, if one person calls on the street and five total homes were missed, then it is a $100 penalty if they are over the benchmark for the week. If we were to fine $100 per home missed and not by the call, then the contractor would in essence have to pay the City to collect the trash because they would be fined so much. Our cost per home per week for just the trash collection aspect that we pay Red River is roughly $1.20 per home. To fine them $100 for that home w hen they only get paid $1.20 is extreme. Especially when they go back and collect the homes the next day,” Perlich explained in an email.

Red River also hasn’t been paying its fines. In the December 8 letter, the City said Red River owes Fort Wayne $1,732,500 for not meeting benchmarks, missed collections and frequent misses for 2021.

The penalty payments Fort Wayne says Red River owes for trash collection, as outlined in a December 8 letter.
The penalty payments Fort Wayne says Red River owes for recycle collection, as outlined in a December 8 letter.

To date, only $167,450 has been collected. Fort Wayne said Red River also still owes the city $123, 519 for 2021 Promotional Funding, making Red River’s total debt to the city $1,718,569.

Red River filed for bankruptcy in October in federal court in Texas, where it’s based.

“Once a company files a Chapter 11 bankruptcy, an automatic stay is triggered and that is a net cast wide. So that means all future collection proceedings are halted and so in that way, the city can’t really terminate its contract right now because it’s constrained within the bankruptcy court’s rules and its processes,” Corporate Attorney Apexa Patel explained.

If Red River wants to keep its contract with Fort Wayne, it would have to make good on all the fines that are past due.

“It will have to pay all of the pre-penalties, bankruptcy fees and everything else that was assessed. Plus, they have to provide assurances for future performance,” Patel said. “If they reject the contract, then it’s deemed breached and that means if the city has any actions against Red River, it could just sue in regular Allen County courts and not in bankruptcy courts, because once it’s rejected it’s deemed rejected before bankruptcy.”

Red River’s choice to keep or reject the contract would still have to be approved by a bankruptcy judge first.

Red River and its surety have to post a new performance bond of $4.9 million for trash collection and $2.4 million for recycle before January 1, 2022. Red River has already indicated that it won’t be able to pay that bond.

“The performance bond is where a third party is guaranteeing services and payment for performance for Red River. This third party is called a surety,” Patel said. “If they don’t pay for January 1, I would assume the court would have a hard time agreeing to let Red River assume the contract because they have to be able to pay their past debts and to provide future assurances, and the performance bond is part of that.”

The surety is asking a judge to force Red River to decide whether it will keep or reject Fort Wayne’s contract. A hearing for that motion was scheduled for Thursday morning, but was postponed. It’s the second time the hearing’s been delayed. It was first scheduled for Monday. A new hearing date hasn’t been released.

In reference to the “Notice of Intent to Terminate Contract for Contractor’s Default and Failure to Cure” letter sent on December 8, 2021, the City of Fort Wayne sent WANE 15 the following statement:

The City of Fort Wayne has not terminated its contract with Red River. The City remains focused on providing reliable and effective waste collection services to residents and is working diligently to ensure that happens, whatever the outcome of Red River’s bankruptcy filing might be. Residents can continue to expect to receive services. Nothing has changed. The City simply has undertaken steps that have been previously discussed to preserve its rights under the performance bonds posted by Red River. The bonds are required under Red River’s waste removal and recycling contracts with the City. The City has not asked Red River to discontinue or curtail its services and they have not.

15 Finds Out also found out Fort Wayne has saved millions of dollars by choosing Red River over Republic Services for the trash contract. When the decision was made in 2017, Republic was the trash collection provider, but Red River’s bid for the contract starting in 2018 was the lowest. State law requires that the lowest and most responsive bidder be given the contract. At the time, Red River had just extended a contract with Nashville, TN where the company serviced more than 90,000 homes. Fort Wayne’s contract is for 83,300 homes.

“The contract was vetted by the City Administration/Public Works Division and unanimously approved by City Council,” Perlich said in an email. “Republic’s bid to service residents in 2018 was over $2.1 million higher than Red River’s bid per year for trash and recycling collection combined. We have saved over $9.2 million over the course of four years by going with Red River over Republic.”

Copyright 2022 Nexstar Media Inc. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

Trending Stories

Don't Miss