RED ASPHALT.

THINGS ARE GETTING MESSY FOR CYCLEAN INC., WHICH RECYCLES ROAD SURFACING MATERIAL FOR THE CITY OF L.A. AND IS FACING AN INCREASE IN COMPETITION

IT started out as an intriguing idea: With cities running out of landfill space, why not recycle asphalt, rather than haul it to dumps, and then reuse it on other roads in need of repaving?

That's what Robert Nath sought to do in 1983, when he founded Cyclean Inc. He succeeded in getting venture capital funding and rode the environmental services boom of the '80s. The company then got its big break in 1987, securing a five-year contract with the city of Los Angeles to supply recycled asphalt for the nearly 200 miles of road that are resurfaced each year.

Nath is mostly out of the picture now, having moved on to another business (although he's still a Cyclean director), and now the company finds itself at a crossroads. Its one major remaining customer - still the city of Los Angeles - has put Cyclean's contract out to bid.

Since first winning the L.A. contract in 1987, Cyclean had been the sole bidder capable of meeting the city's exacting quality and environmental requirements. But this time around, there are two others in contention.

If Cyclean loses its contract this spring, the San Fernando-based company must hustle to find other contracts. "There's no question that would be quite a challenge," said John Crowe, Cyclean's vice president of sales.

(After Nath left, no successor was named, leaving Crowe in charge of sales and Bill Grant the vice president in charge of operations. Both report to the principals of Silicon Valley-based Technology Funding Inc., a major equity owner.)

Uncertain future

Cyclean and Technology Funding officials declined to reveal their, specific contingency plans should they lose the L.A. contract.

"We're not going to say that we would quickly run out of money or close all operations," said Greg George, vice president of Technology Funding. "We would obviously focus full-time on getting new contracts. And if those contracts are not in the L.A. area, it may mean we move out of L.A. That would be unfortunate, but as a small company, we need to have all our resources near the primary operating centers."

Whatever happens with the city of L.A. contract, Crowe and other Cyclean officials are hoping they can convince other cities to embrace the firm's recycling process. They are currently talking with Chicago, Mexico City and others.

But Cyclean has its work cut out for it. That's because on a per-ton basis, Cyclean's recycled asphalt is more expensive than the partially recycled asphalt offered by its competitors, which include companies like Blue Diamond, Cal-Mat and Pavement Recycling Systems Inc.

"There's no question that Cyclean has the highest rate of recycled asphalt in the business. But it charges roughly $18 a ton for its recycled asphalt; we charge slightly more than $9 a ton," said Richard Gove, Pavement Recycling's president. "That's why we've been able to beat out Cyclean in contracts with the smaller cities in the L.A. area."

But Cyclean and L.A. city officials are quick to point out that competitors' cheaper rates do not include the cost to cities of hauling away the excess asphalt to distant landfills. And they claim that the quality of the asphalt produced at Cyclean's San Fernando plant is superior in consistency to other types of asphalt.

But convincing local officials to figure in these asphalt-disposal costs is very difficult, Crowe said.

Far-flung presence

It wasn't always so.

In the late 1980s and early 1990s, Cyclean had several contracts throughout the nation and even overseas, including work in such places as Pennsylvania, Michigan, Texas and the Netherlands. For several years, Cyclean moved its headquarters to Round Rock, Texas to be closer to the bulk of its projects. (As those other projects wound down, Cyclean brought its headquarters back to the L.A. area.)

What had enabled Cyclean to win these contracts was its new approach to recycling asphalt.

For years, pavement companies have been using asphalt manufacturing plants that recycle some of the asphalt they produce. They also developed machines that would take up a layer of asphalt from a road or freeway, clean and strengthen it on site, and then lay it back down in a mixture with virgin asphalt. But the recycled content of that mixed asphalt rarely exceeded 25 percent, meaning that considerable amounts of worn asphalt still needed to be carted away to landfills.

Also, cities relied extensively on virgin asphalt, which is created out of a mixture of rock and a crude-oil base. Several cities in prior years had contracted with Cyclean to supply recycled asphalt for specific highway projects, but not for broader, longer-term contracts, such as the one Cyclean has had with the city of Los Angeles. With the price of crude back up to near $30 a barrel, and the price of asphalt tied to crude, Cyclean is hoping its higher-recycled-content process will gain favor.

Spotlight

Cyclean of Los Angeles LLC 

Year Founded: 1983

Core Business: Recycling asphalt

Revenue in 1996: $3.7 million

Revenue in 1999: $5.5 million

Employees in 1996: 11

Employees in 2000: 29

Goals: To win a new contract from the city of Los Angeles, to secure additional contracts, and to promote greater use of high-recycle-content asphalt

Driving Forces: An increasing need to resurface roads; desire among municipalities to reduce dependence on traditional asphalt, the price of which is closely tied to oil prices; and a growing desire to reduce amount of asphalt being hauled to landfills