Appendix A - Executive Summary

18/11/2013

Appendix A - Executive Summary
With the termination of the non-recyclable (residual) waste disposal contract in March 2014,
Cheshire East Council (CEC) commissioned AMEC Environment & Infrastructure UK Ltd to
assess four potential service delivery options for the procurement of its contracts and
arrangements for the delivery of the authority’s household waste and recycling services. The
purpose of the study was to identify a preferred option with the potential to deliver required
savings (a reduction of at least £2 million from the Service’s annual budget) and to identify
and assess the risks, benefits, asset and procurement implications. The four service delivery
options were:
1. Outsourcing the collection service with an integrated procurement of disposal
and recycling processing contracts;
2. Outsourcing the collection service with separate or combined procurements of
the collection operation, residual disposal and recycling processing contracts;
3. Creating an arm’s length company to run the collection operation and manage
disposal and recycling contracts; and
4. Retaining the in-house collection service and procuring new contracts for
disposal and recycling processing.
Cheshire East Council is a large unitary authority covering 116,338 hectares with around
166,110 households. These properties are forecast to generate over 188,000 tonnes of
household waste in 2012/13. In 2011/12 the authority recycled and composted 52.9% of its
household waste making it the highest performing unitary authority in the North West of
England and the 6
th
highest performing unitary authority in England
1
.
The figure below provides a breakdown the household waste arisings in Cheshire East. Of the
188,000 tonnes of household waste forecast to be collected in Cheshire East in 2012/13 the
single largest proportion arises from the kerbside collection of residual waste (the ‘black bin
service’) – just over 69,000 tonnes. The next two largest proportions are also generated by the
kerbside collection service – garden waste and mixed recycling, both around 39,000 tonnes
each.
The nine household waste recycling centres (HWRCs) generate around 42,000 tonnes of waste
– the majority of which is recycled or composted.
In total CEC is projected to landfill around 77,500 tonnes of waste in 2012/13 at a cost of £7.7
million (of which just under £5 million is landfill tax).
1
Taken from data published by Defra in November 2012 - http://www.defra.gov.uk/statistics/environment/waste/wrfg23-
wrmsannual/
Page 41
As a unitary authority Cheshire East has both waste collection and waste disposal
responsibilities as defined in the Environmental Protection Act 1990 and associated
regulations. In meeting its obligations the Authority has in place a number of contracts and
arrangements for the collection, recycling, treatment and disposal of household waste. The
key contract for the disposal of non-recyclable waste expires in March 2014 and cannot be
extended.
The authority’s contractual and operational arrangements for the collection, treatment,
recycling and disposal of household waste are summarised in the table below. Values and
costs are based on the forecast outturn position for 2012/13.
Waste
Type/Facility
Operator Contract Duration Contract Value
(2012/13 outturn
forecast)
£/tonne
equivalent
Residual waste
disposal
FCC Environment
(formerly Waste
Recycling Group)
Expires 31 March 2014
with no extension options
remaining
£7,698,118 £97.36
Dry recyclate
processing
UPM Kymmene Expires 31 March 2014
with extension options
remaining up to three
years in one year
increments
-£409,992 -£10.30
Garden waste
processing
CRJ Services Ltd Expires 31 March 2014
with extension options
remaining up to three
years in one year
increments
£969,082 £25.50
Dry recyclate
bulking
Henshaws Envirocare
Ltd
Expires 31 March 2014
with extension options
remaining up to three
years in one year
increments
£480,330 £25.00
Household Waste
Recycling Centres
HW Martin Ltd Expires 31 March 2018
with an extension option
£2,854,292 £70.16
Page 42
for up to five years
Waste Collection
(including bulky
waste collection,
WEEE and
transport)
CEC No contract in place with
the exception of the
transport element which
relates to in-house vehicle
maintenance in the South
£9,906,997 £69.04
Fleet servicing and
supply
May Gurney Expires 31 March 2018
and relates to the supply
and maintenance of the
waste collection fleet in the
North
Cost of this is included
in the waste collection
line above
Joint Waste Team Internal shared service
team
£268,893
Waste Strategy & Minimisation & Head of
Service
Internal team £566,858
Forecast outturn position including the contract costs above plus
other services such as Waste Minimisation and Strategy
£22,334,578
Business Case Development
To be able to develop comparable savings profiles for each of the four service delivery options
a number of assumptions had to be applied covering several aspects of each contract
‘element’. In summary these assumptions are:
•
The cost of residual waste treatment taken to be £90/tonne based on the Waste
and Resources Action Programme’s (WRAP) annual survey of waste facility
gate fees. In this survey the most applicable technology for the treatment of
residual waste is “incineration with energy recovery”. This generates an
estimated saving of just over £720,000 over the current landfill baseline;
•
The private sector would apply higher productivity rates to waste collection than
those currently in place (in doing so employee terms and conditions may have to
be altered to, for example, lengthen the working week). In identifying waste
collection savings it was assumed for service delivery options 1 and 2 increased
productivity would reduce operation costs by £2.5 million based on a ‘higher’
(but not the highest) productivity scenario drawn from AMEC’s knowledge of
how the private sector might approach such a contract;
•
There would be no change to the kerbside garden waste processing contract
costs;
•
Income generated from the sale of kerbside dry recyclate is increased to reflect
the values quoted in the WRAP gate fees survey and taking haulage into account.
In effect this produces a £6/tonne increase in income;
•
The forecast outturn cost of bulking the North’s dry recyclate at a third party
transfer station for 2012/13 is retained in the cost calculations as a proxy for the
provision of required waste transfer facilities in the North; and
Page 43
•
HWRCs – no change in costs is modelled as the re-letting of this contract (in
2018) does not align with the other contracts.
Assessing the Service Delivery Options
Each of the service delivery options was explored at length, including procurement route and
timescale, contract duration, market appeal, management implications, infrastructure, impact
on human resources and cost estimates. Benefits and risks were also identified. Here, each
option is summarised below.
Option 1 - Outsourcing the collection service with an integrated procurement of disposal
and recycling processing contracts
This option would see all the contracts (residual waste treatment/disposal, waste collection
(with fleet provision and maintenance), garden waste processing, dry recyclate processing and
waste bulking) let as an integrated bundle. This could reduce the number of possible bidders
excluding niche or specialist companies from directly bidding for the integrated contract.
However, depending in contract durations and procurement timescales this still likely to
generate liquid competition.
Competitive dialogue was identified as the most appropriate procurement route as it would
generate flexibility and innovation where the Authority is less certain of its requirements.
However, where services are well developed and the Council does not wish to see them
changed dramatically competitive dialogue may be of limited benefit.
Competitive dialogue can be tailored to fit the needs of the Authority but it is not considered
that in this case a full process could be run adequately in the available timescales (i.e. seeing
contract closure and mobilisation for April 2014).
The key benefit of this option is that the contractor is in control of contract interfaces i.e.
where the different contract elements interact. This reduces or eliminates the risk of disputes
arising between contractors and also reduces the number of points of contact between the
contractor and Council. An efficiency saving of 1% of total contract value has been applied to
this option to recognise the benefit of an integrated procurement.
Timescale issues aside, the financial estimates indicate that Option 1 could generate estimated
(like for like) revenue savings of £3,1 million compared to the 2012/13 forecast outturn
position.
Option 2 - Outsourcing the collection service with separate or combined procurements of
the collection operation, residual disposal and recycling processing contracts
All contracts would be let to the private sector either individually or as lots depending on their
priority and inter-relationships. This approach allows for prioritisation in the letting of
contracts (i.e. allowing for the residual waste contract to be let first and separately to try to
meet the April 2104 deadline). Equally offering contracts in lots allows for some synergies to
be developed which may result in some reduced costs.
Page 44
However, evaluating lots and their inter-relationship with each other can be complex and as a
result generate risks that the Authority will have to address.
This option allows, to some extent, for a ‘mix and match’ approach to selecting the optimum
procurement process for each contract. The residual waste treatment/disposal contract could
be let via competitive dialogue. If the Authority was certain about its waste collection
arrangements then the restricted procedure could be adopted, and garden waste and dry
recyclate contracts could be bundled with collection.
The provision of waste bulking facilities in the North could equally sit within either the waste
collection or residual waste treatment/disposal contracts. If these procurements were run
concurrently then the waste transfer station could be included in both and the most favourable
option of the two selected at the final stage. However, running the collection and residual
waste treatment procurements separately but simultaneously would add complexity to the
procurements in relation to interface matters.
Again, delivering the key contract within the time remaining to the expiry of the current
landfill contract is tight and successful contract closure could not be guaranteed in the time
available.
Timescale issues aside, the financial estimates indicate that Option 1 could generate estimated
(like for like) revenue savings of £2,9 million compared to the 2012/13 forecast outturn
position.
Option 3 - Creating an arm’s length company to run the collection operation and
manage disposal and recycling contracts
In this case the Authority would set up a ‘wholly owned company’ (WOC) which would then
be contracted to deliver its waste and recycling contracts. The 2003 Local Government Act
gives councils the power to set up WOCs to deliver services commercially under specific
circumstances. The authority (or authorities if more than one is involved) will be the principle
shareholder and can receive any trading surpluses as dividends (subject to corporation tax).
WOCs are of particular interest to authorities who wish to commercialise their services to
build up a customer base (for example in commercial waste collection, facilities management
and cleaning).
In this case it was envisaged by the Authority that the WOC would let the contracts and
operate the waste collection service itself. In this form the WOC could increase waste
collection productivity through amending terms and conditions or operating a different
commercial ethos, although the principle shareholder could have an input into how far
changes went. As such the WOC could let contracts as in Option 2 which it would then
manage. The Authority would then have to contract manage the WOC to ensure its
obligations were met.
Deliverability within the required timescale is, again, unlikely. The formation of the WOC
(which would require the development of a comprehensive business case) could be a
distraction from the crucial letting of the residual waste treatment/disposal contract. The latter
Page 45
could be let separately as in Option 2 but the same comments on deliverability apply. Without
a driver to build competitive services such as a commercial waste offering then the benefits of
setting up a WOC are unclear.
Savings were identified in this option – estimated at £1,9 million – arising from the reduction
in residual waste costs and some efficiencies in waste collection (but less than those applied in
Options 1 and 2).
Options 1, 2 and 3 have significant impacts for CEC staff as the waste collection service
employees would be transferred to the successful contractor/WOC. The TUPE process will
require considerable work to ensure staff are kept informed and that the process runs
smoothly.
Option 4 - Retaining the in-house collection service and procuring new contracts for
disposal and recycling processing
This is effectively mirrors current service provision and would see all contracts except waste
collection being let (although a new fleet provision and maintenance contract would be
required). No assumptions on improvements to productivity in the waste collection service
were made (although that does not mean to say they could not be applied with a change in
terms and conditions and working practices).
Savings therefore only arise from the letting of the residual waste treatment/disposal contract
and from additional income generated from the sale of recyclate.
Comments regarding deliverability and procurement route are effectively the same as for
Option 2.
Identification of the Preferred Option
An exercise was undertaken with Members and key officers to identify financial, strategic,
political and environmental criteria against which each option could be ranked to identify a
preferred service delivery option. A prioritisation exercise was undertaken to score the
relative importance of these criteria. Each option was then assessed against each criterion to
measure the level of applicability.
This process identified that Option 1 was the preferred option with option 2 close behind. The
process did not score “deliverability within timescales” as a pass/fail so effectively this
criterion made little impact on the final outcome of the prioritisation.
Therefore the Authority will need to fully understand the implications of this and develop a
strategy for ensuring a continuity of waste disposal/treatment for when the current contract
expires.
Page 46
Other Service Considerations
AMEC were asked also to investigate the estimated costs of weekly food waste and nappy
waste collection services to see whether these could be introduced within any savings
identified. A modelling exercise was completed and the costs summarised below:
•
Weekly standalone nappy waste collection service: based on resourcing and
yields identified during a service being trialled in Cheshire West and Chester the
costs per annum are estimated to be £262,000 which takes into consideration
avoided landfill disposal costs but excludes capital costs for receptacles; and
•
Weekly standalone food waste service: the cost of this service is estimated to be
£1,4 million per annum. This includes avoided landfill costs but excludes capital
investment for containers (vehicle and staffing costs are included).
Costs could be reduced if the services were combined and materials collected in separate
compartments on the same vehicle.
AMEC also considered the implications of introducing a chargeable garden waste collection
service. This would reduce the quantity of garden waste collected at the kerbside but would
potentially increase its capture at HWRCs (generating additional costs). In modelling the
impacts AMEC assumed an annual subscription charge of £38.75 (the average of schemes
currently being operated elsewhere) and a take up of 30% (representing around 50,000
homes). This generated a gross income of £1.9 million but required operational costs of £1.1
million plus nearly £450,000 in garden waste processing gate fees. The net position is an
income estimated at £392,000 per annum.
The introduction of a chargeable garden waste service would mean the resources already
accounted for in the budget would not be required – this would then see an estimated
reduction of £2.4 million.
Additionally, AMEC examined any savings that might arise from other methods of working.
For example, changing the waste collection frequency (for each bin) to a three weekly cycle
accompanied by a weekly food and nappy waste collection service results in forecast savings
of just over £1 million. This could increase further if a chargeable garden waste collection
service was considered.
Key Conclusions and Recommendations
The assessment of the four service delivery options has identified that to a greater or lesser
extent savings can be made against the waste and recycling service’s projected 2012/13
outturn position (see the graph below). The scale of the savings depends on the option
selected but could be tempered by the need to ensure continuity of the residual waste
treatment/disposal contract.
Page 47
It would be extremely challenging (if not unachievable) for any of the service delivery options
to be delivered by April 2014. Option 1, due to its size and complexity increases the
challenge further and there is a severe risk that it is undeliverable as more dialogue meetings
would be required to develop the right solution.
One option that could be deliverable within the timescale (but again challenging) is to seek an
interim/short term solution through letting a short term waste disposal contract and extending
other contracts. This would generate the longer term savings in the order predicted could still
be generated through pursuing Option 1. However, this would see costs increase in the short
term (as any investment in infrastructure would have to be recovered over a shorter period)
and a significant reduction in the number of likely bidders. Additional contract costs could be
mitigated by, for example, introducing a chargeable garden waste collection service prior to
2014/05.
It is recommended that Cheshire East Council take the following steps to commence the
procurement process:
•
Commence work without delay on the Authority’s procurement objectives and
strategy;
•
Commence work without delay on the documents bidders will require to inform
their tender submissions;
•
Decide on any interim/short term measures that are required to ensure continuity
of residual waste treatment/disposal arrangements;
•
Review existing contracts to assess the viability and impact of extending them;
•
Instigate a waste composition analysis to inform the residual waste procurement;
and
•
Identify any procurement frameworks that may have secured residual waste
treatment/disposal capacity.
Page 48
Identify any short term procurement options but recognising the implications as discussed
above.
Page 49
Page 50
This page is intentionally left blank