Prime contractors, ale firms, and equipment makers stand ready to build recovery facilities for which $8 billion could be spent in the next 10 years
Chris G. Ganotis The MITRE Corporation Bedford, Mass. 0 1730
Richard E. Hopper Environmental Protection Agency Office of Solid Waste Management Washington, D.C. 20460 Recent growth in demand in urban areas for largescale plants to recover energy and materials from municipal solid waste has led EPA’s Office of Solid Waste Management Programs to investigate further the supply of goods and services for resource recovery facilities. This article, as a summary of the study conducted by the Mitre Corp. and soon to be published by EPA, reflects some of the resource recovery industry’s thoughts and views of its present and future role. The approach used in the study was first to make assumptions as to the constituency and characteristics of the resource recovery industry, and then to test these assumptions by interviewing a representative sample of companies actively involved in providing resource recovery goods and services. In addition, questions were asked of industry representatives to glean their perceptions of the demand for resource recovery facilities and their capacity to respond to such demand. While it is recognized that this should not be the only factor, it is believed that these perceptions by industry should be an important consideration for policymakers in determining alternative strategies appropriate for the promotion of municipal-scale resource recovery as an important element of solid waste management.
design and construction of the facilities. In some cases, the A&E role in resource recovery differs from this traditional approach in that: The prime contracting firms have emerged to propose proprietary designs or “total system processes” that are not yet readily available to the A&E sector. Municipalities have requested operating contracts in addition to design/construction contracts. This is a role that A&E firms have not assumed to any extent, and one that prime contracting firms seem willing to accept. There is no federal construction grant program similar to that in the wastewater treatment industry. Some &E firms have focused on design of resource recovery facilities, especially in steam recovery and solid-fuel technologies. A? experience in recovery technologies is gained, the A&Es are expected to become more involved in: standardization of off-the-shelf unit processes as operating experience and data become available detailed site-specific design and plant optimization for prime contractors’ processes
TABLE 1 Partial listing of prime contractors Line of buslness
Pollution control
Petrochemicalsand oil
Occidental Research Corp. Monsanto Enviro-Chem Systems, Inc Union Carbide Corporation UOP, Inc.
A erospace
Grumman Ecosystems Corp. Raytheon Service Co.
The industry The resource recovery industry may be grouped into three categories: prime contractors, architect and engineering consulting firms, and equipment manufacturers. Prime contractors serve as general contractors in the resource recovery implementation process; they design the facilities, procure equipment, manage construction, and in some cases, operate the facilities. Many prime contractors are also involved in research and development of resource recovery technologies. These companies, or their parent companies, are generally large, with sales typically ranging from $100 million to over $3 billion. A partial categorization of prime contractor firms is shown in Table 1. Architect and engineering consulting firms (A&Es) contribute system-design and engineering expertise in resource recovery planning and implementation. They have traditionally been retained by municipalities and by industry to conduct feasibility studies and to design and supervise construction of solid waste disposal facilities (Table 2). The traditional A&E approach is exemplified by their role in the water pollution control industry. Here, municipalities requiring water and wastewater treatment facilities retain engineering consulting firms to perform planning studies and to oversee
Example prlme contractors
Research Cottrell, Inc. Union Carbide Corporation Wheelabrator-Frye, Inc.
diversification Solid waste collection/disposal
Browning Ferris Industries, Inc. SCA Services, Inc. Waste Management, Inc.
Materials handling and equipment
AENCO Black Clawson Fibreclaim. Inc.
Containers and packaging
Aluminum Company of America American Can Co. Continental Can Co. Reynolds Aluminum Co.
Private entrepreneurial ventures
American Resource Recovery Corp. Clean Air, Inc. DEVCO Management Co. Ecologenics Environmental Control Science Systems Associates Volume 10, Number 5, May 1976 425
TABLE 2 Major AIE firms active in resource recovery Bechtel Corporation Black. Crow 8 Eidsness. Inc. (Subsidiary of Hercules Corp.) Black 8 Veatch C. E. McGuire, inc. (Subsidiary of Combustion Engineering Inc.) Camp Dresser 8 McKee, Inc. Charles T. Main Engineers, Inc. Charles R. Velzy Associates, Inc. Clinton Bogert Associates Consoer Townsend 8 Associates Day 8 Zimmerman Associates Deleuw, Cather Organization Fay. Spofford 8 Thorndike, lnc. Gannet Fleming, Corddry, and Carpenter, Inc. Gibbs 8 Hill, Inc. Gilbert Associates. inc. Glaus, Pyle, Schomer, Burns and Dehaven, inc. Henningson, Durham, &Richardson Homer 8 Schifrin, Inc. I. C. Thomasson &Associates, Inc. Leonard S. W e g m Company, Inc. (Subsidiary of PeabodyGalion Corp.) Malcolm Pirnie, Inc. Metcalf and Eddy. inc. OBrien 8 Gere Parsons, Brinckerhoff. Ouade, Douglas Pope, Evans & Robbins Consulting Engineers Ralph M. Parsons Company Ralph Stone and Company Resource Planning Associates Roy F. Weston Rust Engineering Company (Subsidiary of Wheelabrator-FryeCorp.) SCS Engineers Sunn, Low, Tom 8 Hara, Engineering Consultants (Subsidiary of Research C m Sverdrup
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continued errorts In traditional solid waste disposal processes, including preliminary feasibility studies preparation of procurement documents, including RFP's, and the evaluation of proposals. Equipment manufacturers produce numerous systems and subsystems necessary for resource recovery facilities. As a group they number several hundred firms that vary in size, types of products manufactured, and degree of commitment to resource recovery. Some of these are shown in Table 3. Many of the equipment items used in resource recovery processes are already being produced for use in other industries. For instance, boilers, turbines, switchgears and transformers have been borrowed from electric utility equipment supply; conveyors and trommeis from mining and materials handling processes; shredders, balers, and mobile equipment from solid waste shredding and baling facilities: materials handling and slurry separation equipment from pulp and paper processing; and storage containers from agricultural processing. Why enter the business? It appears that firms have entered the resource recovery business for three major reasons: first, to expand existing product lines (pollution control equipment manufacturers and materials handling and processing equipment manufacturers fail into this category); second, to promote concomitant sewices (the solid waste disposal firms and consulting engineers best fit this category); third, to broaden raw materials or energy supply bases. Notable examples of the latter are the oil development 426
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Processing. Unit takes metallic wastes from the scrap heap, recovers them for reuse at a later time
companies and the container manufacturers now faced with energy and materialsshortages. In all cases, however, the firms are looking for business opportunities. In contrast to the public interest motives that municipal officials may wish for, the firms are stimulated by the profit incentive. To pursue this motive, three operating panems appear to be emerging. First many of the major firms have established new divisions or subsidiaries to test the resource recovery market; however, these subdivisions are also concerned with existing business interests such as secondary materials processing or pollution control equipment. Research Cothell's Refuse Processing Unit. American Can Company's Americology subsidiary, Peabody Galion Inc.'s Solid Waste Division and Rexnord, inc:s Materials Handling Division are notable examples of this diversification. Second, in a number of cases, large system management firms have merged with or acquired firms with proprietary unit processes, or have obtained exclusive licenses for their use. Some examples of merger and acquisition activity include: Americology's acquisition of proprietary air classifier rights from Scientific Separators, Inc.: Carborundum's acquisition of Eidal Shredders; Wheelabrator-Frye as licensee of the Von Roil inCineratorJboiier design: and UOP, Inc.'s acquisition of Organic Recycling, Inc. and licensee of the Martin incineratorlboiler design. According to the industry representatives interviewed, this panern will continue at a more rapid pace, particularly if certain unit processes are integral parts of a vendor's package. The unit processes that appear io exhibit this pattern most closely are materials recovery technologies and pollution coniroi equipment. Another event occurring in the industry is the establishment or acquisition by the large firms of engineering consulting firms as subsidiaries. Amono the orime contractorslA8E firm combinations that already exist are Researcki Coitrell/Metcalf & Eddy: Combustion EngineeringlC. E. McGuire: UOP, Inc.lPROCON; and Wheelabrator-FryelRust Engineeri An increasingly popular organizationa. arrangement in me industry is the joint venture. Notao e examples nciude (cit es or counties indicate site of pro,ecti: Prime ContractorIEngineering Consultant or Construction Joint Ventures Raytneon Service Company and Camp, Dresser & McKee :Monroe County. N.Y.) Americology and Becntel (Milwaukee. Wis.) Combustion Equipment Associates and Arthur 0. Anie. Inc ,East Bridgewarer. Mass.) .9 "
TABLE 3 Some major equipment manufacturers )r
Conveyors/Conveyor Systems
Screens
Allis Chalmers Corp. Beloit Company Carborundum Company Clean Air, Inc. Eriez Magnetics Fairfield Engineering Company Hammermills,Inc. J. W. Greer, Inc. Jeffrey Manufacturing Division Link Belt Division, FMC Corporation Mayfran, Inc. Rader Companies, Inc. Rexnord, Inc. Triple/S Dynamics Systems, Inc. Westinghouse Electric Corporation Williams Patent Crusher & Pulverizer Go.
Allis Chalmers Corp. Barber-Green Hewlett-Robbins Div., Litton Industries Link Belt Div., FMC Corp. McNally Robbins Go. Rex Chainbelt W. S. Tyler
Pneumatic Tube Systems
CEA Simon-Day Ltd. Envirogenics Systems Co. Flakt-SF Products Keller & Knappich Rader Companies, Inc. SF Air Controls, Inc. Solids Conversion Systems Co. Magnetlc Separators
CEA Simon Day Ltd. Carborundum Go. Combustion Power Go. Dings Co. Eriez Magnetics Hammermills, Inc. Heil Co. Jeffrey Manufacturing Div. Kypkuto Kaihatsu Koygo Go. Prab Engineering Gorp. SF Air Controls, Inc. Stearns Magnetics, Inc. Air Separators
Allis Chalmers Corp. Americology Combustion Power Co. Combustion Engineering Inc. Garbalizer Corp. of America Garrett Research and Development Co. .Hammermills, Inc. Heil Co. Prab Engineering Go. Rader Pneumatics, Inc. S. F. Air Control, Inc. Triple/S Dynamics Systems, Inc. Williams Patent Crusher & Pulverizer,Co.
Electrostatic Precipitators
Carborundum Environmental Systems, Inc. Environmental Elements Corp. Howe-Baher Engines, Inc. Joy Manufacturing Go. Research Cottrell, Inc. Trion, Inc. US. Filter Gorp. Wheelabrator-Frye, Inc.
Steam Turbines
AEG Telefunken Corp. ASEA, Inc. American M-A-N Gorp. Belyea Co., Inc. Brown Boveri Gorp. Chrome Alloy American Gorp. Commercial Machine Works Coppus Engineering Gorp. Deltrak Corp. Dresser Industries Elliott Co. General Electric Co. Pacific Pumps Precision Piston Rings, Inc. Skinner Engine Co. Studebaker Worthington, Inc. Terry Corp. Trane Co. Turbine Div., Delayal Turbine, Inc. Turbodyne Gorp. Wegner Machinery Gorp. Westinghouse Electric Gorp. Worthington Service Gorp.
Shredders Allis Chalmers Corp.
American Pulverizer Co. Carborundum Co. Guendler Crusher and Pulverizer Go. Hammermills, Inc. Heil Go. Jeffrey Manufacturing Div., Dresser Industries Marksman Corp. Newell Manufacturing Go. Pennsylvania Crusher Gorp. Pettibone Gorp. Saturn Manufacturing, Inc. Williams Patent Crusher & Pulverizer Co.
Rotary Kilns
American Bridge Div. Buffalo Tank Div. Chicago Bridge & Iron Go. Combustion Engineering, Inc. Ferro Gorp. Fuller Co. Gas Machinery Co. Hydro Dyne Co. McNally Pittsburg Mfg. Co. Pgsey Iron Works, Inc. Smidth & Co., Inc. Stansteel Gorp. Strob Process Steel Go. Vulcan Ironworks, inc. Wyatt Div.
Storage Bins
Atlas Systems Corp. Miller Hofft Go. S. W. Hooper Go. Wennberg Co.
Sludge Driers
Combustion Engineering, Inc. DeLaval Separator Co. Futoba Kogyo Co., Ltd. Kleen-Tainer Gorp. Heil Co. Permutit Co.
Prime Contractor/Construction Firm Wheelabrator-Frye Inc. and DeMatteo Construction Co. (Saugus, Mass.) Prime Contractor (major)/Prime Contractor (sub) Combustion Equipment Associates and SCA Services (New Britain, Conn.) Americology and Union Carbide (Dade County, Fla.) Occidental Research Corp./Combustion Equipment Associates, (Bridgeport, Conn.) Prime Contractor (small)/Large Firm in unrelated field to provide financial support
Field Erected Boilers Babcock & Wilcox, Inc.
Combustion Engineering, Inc. Erie City Boilers, Div. of Zurn Industries Foster Wheeler Gorp. Riley Stoker Co.
AENCO/Cargill (New Castle, Del.) Prime Contractor/Product Market Grumman Ecosystems and Reed Paper Co. (Dade Co., Fla.) Americology and M&T Chemicals These joint ventures have occurred somewhat unpredictably. Some large prime contracting firms have formed joint ventures with different firms for different bids. One expected trend is that the prime contractor/engineering consultant joint venture will become increasingly popular to provide for the many skills required for resource recovery implementation and to share technical and financial risks among the firms. Volume 10, Number 5, May 1976
427
Industry’s comments The current thinking of the resource recovery industry can best be summarized by this statement: “Invest to be profitable without taking large risks.” Many of the large, diversified companies that are entering resource recovery have invested research and development funds to test resource recovery system markets. Many respondents have indicated, however, that low profit margins will drive them out. The industry’s message is quite clear: “The industry will provide technology to help solve a problem if it can make money doing so.” Industry spokesmen indicate that, although they are willing to provide a technology and take some risks with its operation, they are not offering a panacea for solid waste disposal. Industry members were quite explicit in stating that they will not fully assume all the risks and responsibilitiesof solving what is, in essence, “a public problem.” Prime contractors especially will “shake out to a small number of companies because of required processing sophistication and capital intensiveness.” Because the capital costs of large, central resource recovery facilities typically range from $20-50 million or more, only those firms that have strong financial support to assume the risks of constructing such facilities will remain in the leading position in the industry: unless, of course, projects are financed and the performance risks are assumed by governments or other parties. “If resource recovery becomes a low margin business (like wastewater), the customer will lose.” Any risks that prime contractors decide to take are generally reflected in a higher margin requirement to cover contingencies. Reportedly, a minimal 15% return on after-tax equity is required to attract firms to bid on large facilities, and a 20% return on after-tax equity is not believed to be unrealistic.The return on equity, however, is extremely difficult to explore further because of circumstances unique to each firm and each project. The unanswered question is, “What contributions are assumed to be included as equity in the calculation of return?” One question asked of respondents in the survey was “What influences the bid/no bid decision of prime contractors for a particular region requesting proposals?” The succinct answer was: the existence of a perceived business opportunity. And, that requires, as a minimum, that the public sector indicate a committed site; a committed guaranteed refuse supply in a quantity large enough to make processing economical; a financing approach; a single bargaining entity; a well-defined statement of needs in the Request for Proposals (RFP); and potential markets for energy and reclaimed materials. If the public sector provides these, the RFP would attract the leaders in the industry, as well as a number of independent entrepreneurs. Bid/no bid decisions are further based on several other key factors: the likelihood of markets for products; competition by other bidders; conditions/requirementsof the RFP such as length of contract and type of contract required; method of project financing; and other investment opportunities available to the firm. Serious problems with any one of these key factors could lead to a “no-bid’’ decision. It is, therefore, in the best interest of the community to make its offer to industry, as presented in a RFP, as attractive a business opportunity as possible. Generally, given sufficient lead times, it is believed that equipment availability is not a problem (Table 4). The demand The industry believes that 30-40 facilities of the 1000 tonsper-day size will probably be committed by 1982, although there is considerable variation in this estimate. Some large prime contractor firms indicated that, on an average, they would bid on 5-7 large systems annually. In addition, they indicated that in any given year, they would, on the average, have the capacity to begin construction on two new projects. If one assumes that between 6 and 12 major firms will remain in the industry for the next 5-7 yr, and that each firm will commit itself to two projects annually, the capacity of the prime contractor firms alone will be at least 60 facilities, and possibly as 428
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many as,168. With the addition of, say, 2 private speculative ventures per year and architectural and engineering firms’ commitments (one project every other year for each of the 12 A&E’s), it is estimated that the industry has the capacity for at least 200 major facilities in the next 7 yr-a capacity far exceeding anticipated levels of demand. Still, to the extent that some firms have been active in developing new and unsolicited technologies and services, there is the possibility that industry may, in fact, be able to increase the public’s demand.
Public policy Firms in the resource recovery industry are raising a number of public policy questions offering several suggestions. Generally speaking, their comments focus on four central questions: What public sector capabilities need further development? Which laws should be changed? How should resource recovery be financed? How should markets be developed? Industry consensus is that the public sector must further develop a number of implementation-relatedmanagement practices. First, it must unite its efforts as a single bargaining entity for a given project. The industry indicated frustration in having to deal with many voices from the public sector. Second, the public sector must learn to specify its needs in an appropriate procurement document. Industry representatives noted that RFPs especially have often been inadequate in defining the specific needs of the municipality, and felt that municipalities require technical assistance in preparation of these requests. These requests must define specifically and realistically the commitments made by the municipality, the potential markets, the mode of financing for the project, and the legal and environmental requirements that pertain to the project. Finally, because the industry responds to a perceived business opportunity, it feels that public policy could be directed toward translating the solid waste disposal problems into business opportunities. Several legal obstacles, existing primarily at state and local levels, may affect the resource recovery industry’s ability to provide long-term solutions to solid waste disposal problems. These legal conflicts include such issues as: compliance with competitive bidding laws; authority to enter into long-term contracts; ease of obtaining “friendly suits” or declaratory judgments; and environmental impact requirements. The extent to which public policy addresses these issues will play a major role in determiningthe rate at which municipal-scale resource recovery is implemented. The resource recovery industry has indicated that financing is of prime importance to resource recovery system implementation. Prime contractors indicate that they are willing to finance resource recovery facilities via private financing (equity plus funds from bond markets) only to a limited degree. The
TABLE 4 Major equipment lead times and constraints to supply Item
Magnetic separators Conveyors
Lead time (months)
