Franchise Contracts, Not Laws, Decide Circular Outcomes

A franchise agreement that runs seven to 10 years can lock a community into linear service scopes, weak performance standards and flat CPI rate structures for another decade — all because nobody read the auto-renewal clause. Morgan McCarthy, JD, argues in a new analysis that the franchise agreement, not state legislation or MRF technology, is the most powerful circular economy tool local government already holds, and that circular outcomes missing from the contract are merely aspirational.

"If circular economy outcomes are not embedded in that document, they are aspirational," McCarthy writes. "And aspiration, without contractual obligation, does not move tonnage."

Why the contract is the operating system

Franchise agreements — exclusive or non-exclusive — remain the dominant collection structure in the western U.S. and are spreading elsewhere, particularly for residential service. The document controls who collects materials, what services are required, how performance is measured, what data gets reported and how rates are structured. In practical terms, it is the operating system for local material management, and it can be configured for circular outcomes or left to default to disposal.

What changes at the negotiating table?

McCarthy identifies five provisions where legacy language quietly blocks recovery, and offers circular rewrites for each:

• Scope of service. Legacy language lets a hauler "offer" organics collection "upon request" — a pilot, not a service. The rewrite requires weekly organics collection for all single-family subscribers, with a minimum 65% subscription rate within 24 months, enforceable as material breach. A hauler offering organics means nothing if 8% of households sign up.
• Performance standards. "Best efforts to maximize diversion" is functionally unenforceable, McCarthy notes. The rewrite sets material-specific recovery rates: 85% of residential recyclables marketed to end-use processors with no more than 15% process residual, and 90% of organics delivered to permitted composting or anaerobic digestion. Two consecutive quarters of misses trigger liquidated damages.
• Contamination and residuals. A MRF processing heavily contaminated inbound material may landfill 30% to 40% of what it receives — tonnage "diverted" at the curb and disposed at the back end. The rewrite caps inbound contamination at 10% by weight, mandates cart-tagging for accounts with three incidents per quarter, and requires a corrective action plan within 30 days if residuals exceed 20% of inbound tonnage in a quarter.
• Data reporting. Annual "tons collected and disposed" reports measure inputs, not results. The rewrite demands monthly, facility-level data: tons by material stream, inbound and outbound tonnage by facility, identified downstream commodity purchasers, and per-route contamination monitoring.
• Rate structure. A flat CPI escalator rewards nothing. The rewrite embeds recycling and organics in the base rate, prices refuse by volume, and adjusts disposal, processing and commodity revenue independently. When organics costs an extra $12 per month, subscription stays low; in the base package, participation becomes the default.

What backs the contract up?

The franchise agreement can't work alone. Municipal codes and county ordinances create the generator-side obligation — mandatory commercial recycling, multifamily service standards, C&D diversion requirements — while flow control provisions steer tonnage to the processing facilities a community has invested in. Without flow control, haulers route to the lowest-cost facility regardless of recovery performance.

When does the leverage window open?

The pre-expiration negotiation or procurement window is a jurisdiction's single best upgrade opportunity. A community approaching renewal in 2026 faces a different regulatory terrain than when many current agreements were signed: California's SB 1383, Colorado's HB 22-1355, expanding EPR frameworks and substantially higher disposal costs. The risk is auto-renewal — legacy clauses that extend terms five or 10 years unless notice lands 18 to 24 months in advance.

"The circular economy will not be built through legislation alone, and it will not be built through technology alone," McCarthy writes. "It will be built contract by contract, in the communities that decide material recovery is a service standard rather than a stretch goal."

The milestone to track: whether the next renewal cycle converts these rewrites into executed language — or whether a missed notice deadline does the deciding instead.