Morgan McCarthy, JD
The circular economy has no shortage of advocates. State legislatures are passing extended producer responsibility laws. Industry conferences are filled with panels on material recovery innovation. Sustainability plans reference circularity as a goal in nearly every major metro area in the country. However, for most communities, the conversation skips over the single most powerful tool local government already has: the听franchise agreement.
The franchise agreement controls who collects materials, what services are required, how performance is measured, what data gets reported, and how rates are structured. If circular economy outcomes are not embedded in that document, they are aspirational. And aspiration, without contractual obligation, does not move tonnage.
The Agreement as Operating System
Not every community operates under a franchise model. Open-market systems allow multiple haulers to compete for individual customer accounts. Municipal collection systems use city crews and equipment. However, the exclusive or non-exclusive franchise model remains the dominant structure in the western U.S. and is increasingly common elsewhere, particularly for residential service.
The franchise model gives local government the most direct control over how materials move through a community. The agreement defines the service scope, sets performance expectations, requires reporting, and establishes consequences for non-compliance. It is, in practical terms, the听operating system for local material management.
That operating system can be configured to produce circular outcomes, or it can default to a linear model where collection is the only obligation and disposal is the path of least resistance. The difference comes down to contract language.听
Five Provisions That Make-or-Break Circular Outcomes
The following five contract provisions represent the areas where franchise agreement language most directly affects whether a community’s material management system supports circular economy goals or undermines them. For each, I have included representative “legacy” language alongside a circular economy rewrite to illustrate the gap.
#1. Scope of Service
Legacy Provision:听“Hauler may offer organic waste collection service to residential subscribers upon request and at an additional charge as mutually agreed upon by Hauler and City.”
Circular Economy Rewrite:听“Hauler shall provide weekly organic waste collection service to all single-family residential subscribers as a component of base service. Hauler shall achieve a minimum subscription rate of 65% within 24 months of service commencement. Failure to meet this threshold shall constitute a material breach subject to Section [X].”
The distinction between “may offer” and “shall provide” is the difference between an optional pilot program and a universal service obligation. Legacy agreements frequently treat organics collection, bulky item reuse screening, and C&D source separation as add-ons rather than baseline service requirements. A circular economy framework treats these as core services, because the materials they target represent the largest remaining fractions in the disposed waste stream.
The subscription rate target is equally important. Requiring a hauler to听offer听organics service means nothing if 8 percent of households sign up. Building in a measurable adoption threshold with a defined consequence creates real accountability.
听#2: Diversion and Recovery Performance Standards
Legacy Provision:听“Hauler shall use best efforts to maximize diversion of recyclable materials from landfill disposal.”听
Circular Economy Rewrite:听“Hauler shall achieve the following material-specific recovery rates, measured annually by weight: (a) Residential recyclables: minimum 85% of collected tons marketed to end-use processors, with no more than 15% process residual disposed; (b) Organic waste: minimum 90% of collected tons delivered to a permitted composting or anaerobic digestion facility. Hauler shall report recovery rates quarterly pursuant to Section [X]. Failure to meet recovery rate targets for two consecutive quarters shall trigger the liquidated damages provision in Section [X].”
“Best efforts” is functionally unenforceable in most jurisdictions. It creates no measurable standard and provides no basis for a default finding or liquidated damages claim.
More importantly, a single blended diversion rate masks what is happening with individual material streams. A community can report a 40 percent diversion rate while recovering almost no organics and sending a third of its recyclables to landfill as process residual.听Material-specific recovery rates measured at the facility level听are the only metric that tells you whether collected materials are being recovered.
#3: Contamination and Residual Management
Legacy Provision:听“Hauler shall implement a contamination reduction program for recycling services.”
Circular Economy Rewrite:听“Hauler shall maintain an inbound contamination rate at the designated processing facility of no more than 10% by weight, measured monthly. Hauler shall implement a cart-tagging and education program for accounts exceeding three contamination incidents per quarter. Hauler shall report monthly inbound contamination rates, outbound residual tonnage, and load rejection counts to City. Process residuals exceeding 20% of inbound tonnage in any quarter shall require Hauler to submit a corrective action plan within 30 days.”
Contamination is where the circular economy breaks down at the facility level. A MRF processing heavily contaminated inbound material may landfill 30 percent to 40 percent of what it receives as residual. That tonnage was “diverted” at the curb but disposed at the back end of the facility. Without measurable contamination thresholds, load rejection protocols, and corrective action triggers, a “contamination reduction program” can consist of a single mailer mailed once a year.
The corrective action threshold is a critical addition. It shifts the burden to the hauler to demonstrate what they will do differently when residual rates climb, rather than leaving the jurisdiction to discover the problem in an annual report 12 months after the fact.听
#4: Data Reporting and Transparency
Legacy Provision:听“Hauler shall provide City with an annual report summarizing tons collected and disposed.”
Circular Economy Rewrite:听“Hauler shall submit monthly reports to City including: (a) tons collected by material stream and service sector; (b) facility-level data for each designated processing facility, including inbound tons, outbound marketed commodity tons by material type, and residual tons disposed; (c) identification of downstream commodity purchasers by material type; (d) per-route contamination monitoring results. Reports shall be submitted in a format and to specifications established by City.”
“Tons collected and disposed” tells a jurisdiction almost nothing about what happened between the curb and the landfill. It cannot tell you whether recyclables were marketed or landfilled as residual. It cannot tell you whether organics reached a compost facility or were rejected and redirected to disposal. It cannot tell you whether commodity markets shifted and a material stream that was recovered last year is being stockpiled or disposed this year.听
Facility-level, material-specific reporting is the mechanism that connects collection activity to actual circular outcomes. Without it, a jurisdiction is measuring inputs, not results.
The downstream market identification provision deserves specific attention. Knowing听where recovered materials go closes the loop on verification. A hauler reporting that it “marketed 5,000 tons of mixed paper” is less meaningful than a hauler reporting that it sold 5,000 tons of mixed paper to three identified end-use processors.
#5: Rate Structure Alignment
Legacy Provision:听“Rates shall be established based on the cost of providing service and adjusted annually by CPI.”
Circular Economy Rewrite:听“Rates shall be structured on a variable, volume-based methodology in which the incremental cost of each additional unit of refuse collection exceeds the base service rate, creating a per-unit price signal that incentivizes waste reduction. Recycling and organic waste collection shall be embedded in the base service rate at no additional charge to the subscriber. The annual rate adjustment methodology shall incorporate changes in disposal cost, processing cost, and commodity revenue independently, so that improvements in material recovery are reflected in rate adjustments.”
This provision is arguably the most overlooked. The rate structure embedded in a franchise agreement determines whether the financial model rewards circular outcomes or ignores them entirely.
A flat CPI escalator treats disposal and recovery as a single undifferentiated cost. It provides no price signal to the subscriber and no financial incentive to the hauler. Disaggregating cost components within the rate adjustment methodology means that reductions in disposal tonnage, increases in commodity revenue, and changes in processing cost are each reflected independently. The system becomes financially responsive to circular economy performance rather than indifferent to it.
Embedding recycling and organics collection in the base rate, rather than charging a separate add-on fee, also removes a participation barrier. When organics service costs an additional $12 per month, subscription rates stay low. When it is part of the base package, participation becomes the default.
The Municipal Code Backstop
The franchise agreement does not operate in isolation. The听municipal code or county ordinance provides the regulatory authority that gives contract provisions their legal foundation. A franchise agreement can require a hauler to provide organics collection, but without a local ordinance mandating generator participation, subscription rates may remain too low for the program economics to work. Mandatory commercial recycling ordinances, multifamily service standards, and C&D diversion requirements all complement and reinforce what the franchise agreement requires of the hauler.
Flow control and designated facility provisions are another critical piece. Requiring that collected materials be delivered to specific processing facilities ensures that the recovery infrastructure a community invested in receives the tonnage it needs to operate. Without flow control, a hauler may direct materials to the lowest-cost facility regardless of recovery performance.
The franchise agreement and the municipal code must work as a system. One creates the hauler obligation; the other creates the generator obligation. Circular outcomes require both.听
The Renewal Window
Franchise agreements typically run seven to 10 years. The negotiation or competitive procurement window before expiration is the single best opportunity a jurisdiction has to upgrade its material management system. It is also the moment of greatest leverage.
A jurisdiction approaching renewal in 2026 is operating in a fundamentally different regulatory environment than when many current agreements were executed. State-level mandates like California’s SB 1383 and Colorado’s HB 22-1355 have created new compliance obligations. EPR frameworks are shifting financial responsibility upstream. Disposal costs have increased substantially. The franchise renewal is the mechanism to translate those changes into local operational requirements.
The risk is auto-renewal. Many legacy agreements contain automatic renewal provisions that extend the term for an additional five or 10 years unless the jurisdiction provides notice, sometimes 18 to 24 months in advance. A missed notice deadline can lock a community into outdated service scopes, weak performance standards, and linear rate structures for another decade. Tracking renewal timelines and beginning preparation early is essential.
The circular economy will not be built through legislation alone, and it will not be built through technology alone. It will be built听contract by contract, in the communities that decide material recovery is a service standard rather than a stretch goal. Local governments already hold the most powerful tool available to drive that outcome. The question is whether the contract language reflects the ambition, or whether it still reads like it was written for a system designed to move waste from the curb to the landfill as cheaply as possible.