Organics Processing Agreements with Cities and the Terms to Get Right

An organics processing agreement works when it gives the city capacity it can rely on and the processor tonnage and revenue it can finance against, with clear rules for the things that will change: volumes, contamination, costs and the law. The terms that matter most are the term itself, tonnage bands and any put-or-pay commitment, the feedstock specification and rejected-load process, the rate adjustment method, compost offtake, reporting, and how force majeure and change in law are handled. This guide describes each from both sides. It is general information, not legal advice; each party should have its own counsel review any agreement.

Key takeaways

The agreement is a risk allocation. Each clause decides who carries a risk the other side cannot control, so negotiate them as a set.
Tonnage bands with a minimum and a maximum, and a defined remedy when deliveries fall outside them, protect both the city’s capacity and the processor’s financing.
Contamination terms need a measurable specification, an inspection method both sides accept, and a defined path for rejected loads.
Rate adjustment should follow a formula written down at signing, plus a narrower route for costs neither side foresaw.
In California, SB 1383 capacity planning counts processing capacity for a city only when it is verifiably available, for example through a contract, which makes the agreement part of the city’s compliance record.
Change in law and force majeure clauses matter more in organics than in most service contracts, because the rules are still moving.

Why both sides want a written agreement

For the city or county, the agreement secures somewhere for collected organics to go, at a known rate, with the records the state requires. In California, SB 1383 capacity planning requires counties to report organic waste recycling capacity to CalRecycle, and capacity counts for a jurisdiction only when it is verifiably available, demonstrated by a contract, franchise agreement or other documentation. CalRecycle states that a facility permit is not an indication of capacity available (CalRecycle capacity planning). As of October 2026, check the current text before drafting.

For the processor, the agreement is the evidence lenders, partners and investment committees look for: committed tons, a rate, and a term long enough to recover capital. Our guide to building the business case shows how contract cover feeds the investment decision, and the break-even guide shows how each term moves margin per ton.

The term sheet at a glance

Term	City’s main interest	Processor’s main interest	Common middle ground
Term and renewal	Flexibility to re-procure	Long enough to recover capital	Base term with renewal options and notice periods
Tonnage bands	Room for program growth and decline	Minimum tons to cover fixed cost	Minimum and maximum bands, reset at set intervals
Put-or-pay	Avoid paying for tons not delivered	Revenue certainty	Minimum commitment with a deficiency payment and credits
Feedstock specification	Accept what residents put out	Material the process and product can handle	Measurable limits, shared improvement duties
Rejected loads	Few rejections, clear notice	Right to reject or surcharge	Defined test, photo record, appeal step
Rate adjustment	Predictable budgets	Recovery of rising costs	Index formula plus a narrow cost review route
Compost offtake	Product to meet procurement duties	A reliable buyer	Fixed quantity at agreed specification and price method
Reporting	Data for state reports	Reasonable administrative load	Standard monthly format, agreed data fields
Change in law	Compliance with new rules	Compensation for new costs	Defined trigger, cost sharing, renegotiation or exit
Force majeure	Backup capacity	Relief from events beyond control	Narrow definition, notice, diversion plan

Term, renewal and exit

A longer term lowers the processor’s risk and can lower its rate, because capital is spread over more years. A shorter term preserves the city’s options. Common structures pair a base term with renewal options at the city’s election, with notice windows long enough for either side to plan. Define what happens at the end: whether tonnage steps down, whether a successor can use the site, and what records transfer.

Termination clauses should separate termination for cause (with cure periods) from termination for convenience, and say what compensation, if any, applies when the city ends early after the processor built capacity for its tons.

Tonnage bands and put-or-pay

Tonnage terms are the core of the agreement. Draft them with three numbers: an expected annual tonnage, a minimum and a maximum.

Minimum (floor). If the city commits to deliver at least the floor, a put-or-pay clause makes it pay for shortfall tons, sometimes at a reduced deficiency rate that reflects the processor’s avoided variable cost. Cities resist put-or-pay because collection volumes depend on residents and businesses. Alternatives include a floor that applies only after a ramp-up period, credits for over-delivery in later periods, or a lower floor in exchange for a higher rate.
Maximum (ceiling). The processor commits to accept up to the ceiling. Above it, acceptance is at the processor’s option or at a different rate. The city wants room for program growth; the processor needs to stay inside its permit and its pad.
Schedule. Seasonal patterns (yard trimmings in spring and fall, holiday food waste) belong in the agreement as monthly or weekly bands, receiving hours and peak-day limits.
Reset. Allow the bands to be reviewed at set intervals, so a growing program is not stuck with numbers set before collection began.

The tonnage forecasting guide explains how cities estimate the numbers that go into these bands.

Feedstock specification, contamination and rejected loads

Contamination is where most disputes start. The agreement should say what is acceptable feedstock, how it is measured, who pays when it is out of specification, and how both sides work to reduce it.

What to define

Acceptable and prohibited materials, listed by category (food scraps, yard trimmings, food-soiled paper, compostable products if accepted, and items that are never accepted).
The contamination measure, such as the share by weight of non-organic material in a sampled load, and the sampling method, frequency and who witnesses it.
Load inspection at the gate and on the tipping floor, with photographs and load tickets tied to the route or generator.
Remedies: notice to the city, a surcharge for loads over the limit, rejection of loads well over it, and who pays to haul and dispose of a rejected load.
Improvement duties: the city or its hauler addresses repeat sources through education and enforcement; the processor reports which routes or generators are the problem.
Dispute steps: a joint re-inspection or third-party sample before a contested surcharge is final.

Why the processor cares about product limits

Feedstock limits connect to what the finished compost must meet. In California, compost may not contain more than 0.5 percent by dry weight of physical contaminants greater than 4 millimeters, and no more than 20 percent by dry weight of that 0.5 percent may be film plastic greater than 4 millimeters (14 CCR 17868.3.1). CalRecycle publishes a field method for screening against those limits. Composting does not remove plastic; screening removes some of it, and the rest must be kept out at the source or at preprocessing. Our guide on food waste contamination and depackaging and the list of ways to handle depackaged food waste cover the processing side.

Rates and rate adjustment

Rates are usually a tip fee per ton, sometimes with a fixed monthly component. The adjustment method matters as much as the starting rate.

Index-based adjustment. The rate moves each year by a published price index or a weighted blend of indices (for example, general consumer prices, fuel and labor), applied on a set date. Define the index, the base period, any cap or floor, and what happens if the index is discontinued.
Cost-of-service review. For cost changes an index cannot track, such as new monitoring requirements or a major equipment replacement, a narrower process lets either party request a review with documented costs. Limit how often it can be used.
Pass-throughs. Some items pass through at cost, such as a new state fee per ton. List them.
Contamination surcharges are separate from the base rate and should not be adjusted by the index unless the agreement says so.

Compost offtake and procurement

SB 1383 requires California cities and counties to procure a quantity of recovered organic waste products each year, including compost and mulch, against a target CalRecycle assigns from population (CalRecycle procurement). An offtake clause can link the two duties: the processor supplies a stated quantity of product meeting an agreed specification, delivered or picked up on stated terms, and provides the documentation the city needs for its procurement records. Agree on the price method, delivery points, quality testing, and what happens if the city cannot take product in a given season. The guide on selling finished compost covers other buyers.

Reporting, records and audits

Specify the monthly report: tons received by source and material, loads rejected and why, contamination sample results, product produced and shipped, residuals disposed, and any permit events. Use a fixed format and agree on how data is delivered. Give the city the right to audit scale records on notice. Processors should keep in mind that inspections and complaints affect the permit; see the guide on protecting a compost permit.

Force majeure and change in law

Force majeure excuses performance for events beyond a party’s control. Keep the definition specific (natural disasters, fires, declared emergencies, regional disruptions) and require prompt notice, mitigation and a plan for diverting tons to backup capacity. Cities often ask that a processor’s own equipment failure or permit violation not count.

Change in law covers new or amended rules after signing that change cost or performance, such as a new air rule, a product standard or a reporting duty. Define what counts, how the cost is documented, how it is shared, and when either side may renegotiate or exit. Organics rules are changing in many states, so this clause is likely to be used.

Also cover insurance, indemnities, assignment if either party is sold or reorganized, and dispute resolution. All of these are matters for each party’s legal counsel.

Where the processing system fits

The agreement is between the city and the processor. Technology affects it indirectly: a system that keeps capacity steady through wet seasons, contains emissions at the pile and produces consistent product makes it easier to sign firm tonnage bands and offtake terms. SG supplies covered aerated static pile systems with GORE® Cover and the SG COMPOST CONTROL™ System, along with permitting and engineering support, pilots and demos and operator training. Covered ASP with a GORE Cover is designed to contain odors at the pile.

FAQ

What is a put-or-pay clause in an organics agreement?

It is a commitment by the delivering party, usually the city or its hauler, to deliver a minimum tonnage or pay for the shortfall. It gives the processor revenue certainty to finance capacity. Cities may negotiate a lower deficiency rate, a ramp-up period before it applies, or credits for later over-delivery. Each party should have counsel review how it is drafted.

How should contamination be measured in a processing contract?

By a written method both sides accept: what is sampled, how often, how the sample is sorted and weighed, and who may witness it. Tie each result to a load ticket and a photo so it can be traced to a route. Include a re-inspection step before any contested surcharge is final, so disputes are settled on data.

How do rate adjustments usually work?

Many agreements adjust the tip fee once a year by a published index or a weighted blend of indices, defined at signing with any cap or floor. A separate, limited cost review handles costs an index cannot follow, such as new regulatory requirements. Listed pass-through items move at cost. The formula should also say what happens if an index is discontinued.

Why does a California city need a processing contract for SB 1383?

Under CalRecycle’s capacity planning rules, a jurisdiction’s organic waste recycling capacity must be verifiably available to it, demonstrated by a contract, franchise agreement or other documentation. CalRecycle says a facility permit is not an indication of capacity available. A signed agreement with defined tonnage is the usual way to document that capacity.

Should a processor agree to supply compost to the city?

Often yes, if the terms are clear. A city with a procurement target needs product, and a processor needs buyers. Agree on quantity, specification, testing, delivery, price method and what happens if the city cannot take product in a season. Without those terms an offtake promise can become a storage problem.

Next step

If you are preparing to sign or bid on a processing agreement and need capacity you can document, talk to SG through the contact page about system sizing, phasing and the data a pilot can produce. Have your counsel review every agreement before signing.

← All commercial composting guides

Ready to size a system for your site?

Send the SG team your tonnage, feedstock mix and site constraints and they will come back with a system recommendation.

Start a pilot · Talk to the SG team