Cabinet - Delivery Model for Waste Management Services

18/11/2013

CHESHIRE EAST COUNCIL
Cabinet
Date of Meeting: 24th June 2013
Report of: Head of Environmental Protection & Enhancement
Subject/Title: Major Change Project 6.4 - Determine Future
Delivery Model for Waste Management Services
Portfolio Holder: Cllr David Topping - Environment
1.0 Report Summary
1.1 Cheshire East Council (CEC) is both a waste collection and waste disposal
authority (as defined in the Environmental Protection Act 1990). CEC has a
number of responsibilities for the household waste that arises within its area.
Due to the size and shape of the authority the collection service is divided
into two operational zones - North and South. A depot is located in each
(Macclesfield for the North and Crewe for the South) and these are both
owned by the Council.
1.2 For the collection of household waste, CEC operates an in-house,
wheeled bin-based, three stream kerbside waste collection service. This is
based on an alternate weekly collection (AWC) solution of refuse, comingled
recycling and garden waste. The introduction of this was
completed in October 2011. This service has been popular with residents,
with 93% customer satisfaction ratings and has enabled the authority to
achieve a recycling rate of around 55%, which is top performance quartile.
Currently, the Council’s residual waste is disposed of 100% through
landfill.
2.0 Service Review Achievement Highlights and Future Challenges
2.1 Since commencing the service review earlier this year, the Council has
already identified the following areas that will make significant
contributions to future service delivery efficiencies:
£1.9m of savings that can be secured from improvements to current waste
disposal and collection activities. All savings identified, can be delivered
ahead of schedule within 2014/15;
Significant move away from landfill disposal techniques with the opportunity
to divert residual waste disposal requirements to a “waste to energy”
programme;
Challenged and rigorously reviewed the existing waste collection service
and identified investment opportunities within the fleet that will improve
service reliability;
Agenda Item 14
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Engaged with Council Members, Employees and Trade Union
representatives to develop credible change programmes that can be
implemented with minimal service disruption;
Identified a new approach to service delivery that will see the creation of a
wholly owned company (WOC) that manages the Council’s waste collection
and disposal needs. The WOC will enable the Council to pursue an
ambitious change programme, whilst retaining the flexibility to pursue future
opportunities associated with diverting waste away from landfill into energy
generating projects.
2.2 Although this paper has been presented as a single agenda item, due to
the various strands and complexity of the activities, it will be presented in
four sections. These being:
Section A - Existing Service Efficiency Review
This section runs through the detailed review undertaken by iESE Ltd (a
public sector owned company) including all of their findings. Included
within this section are details of actions needed that will generate on-going
savings in excess of £1m from 2014/15. Once achieved, it is expected that
the service costs, will then compare favourably to outsourced private
sector provision.
The review covered both financial and non-financial implications of
different efficiencies and has covered a wide range of service areas
including:
Overall operational model;
Fleet provision and maintenance;
Round Structure – residual and recycling;
Management structure and staffing levels.
Section B - Future Delivery Models
This section runs through the various delivery models that will allow the
Council to secure the greatest short-term benefits whilst remaining agile
and flexible to adapt to the changing needs of waste management and the
emerging opportunities associated with waste to energy initiatives. The
review has considered a range of options from status quo through to the
establishment of a wholly owned company.
Section C – Review of Depot Infrastructure
This section acknowledges the need for investment in new and existing
facilities within the borough, providing the service with the greatest
resilience in future years.
Section D - Interim Residual Waste Disposal Options (will be dealt
with under Part 2 of the meeting and is contained in a separate
paper).
This section explains in detail the procurement strategy associated with
business continuity for all disposal arrangements post 31
st
March 2014.
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2.3 Although each section can be read independently, it must be noted that
none can be delivered/ progressed in isolation and only when combined,
will deliver the service improvements required, namely:
Positive move away from landfill disposal methods;
Maintaining current levels of service satisfaction (in excess of 85%) that
the residents of Cheshire East experience;
Securing service cost reductions of £2.5m by 2015/16.
2.4 The detailed analyses for Sections A to D can be viewed by contacting
the report writer.
Summary of Recommendations
(For record of decisions – use detailed recommendations within each
sub-section of the report, A – D)
3.0 Section A - Existing Service Efficiency Review
It is recommended that:
3.1 Cabinet note the findings of the service review that has highlighted the most
appropriate areas for consideration (for full details refer to 3.4 within Section A
below).
3.2 Cabinet approve the recommended plan and areas for delivery of the required
efficiencies within the existing service (for full details refer to 3.4 within Section
A below).
3.3 Once the above have been approved, that the responsibility for further
development and implementation is delegated to the Head of Environmental
Protection and Enhancement in conjunction with the Section 151 Officer,
Monitoring Officer, Portfolio Holder for Environment and is subject to the
corporate project quality assurance process governed by the Executive
Monitoring Board (EMB) to ensure that the project is reviewed, prior to any
future implementation.
4.0 Section B - Future Delivery Model
It is recommended that:
4.1 Cabinet note the findings of the options appraisal that has concluded the
most appropriate future delivery model to be that of a wholly owned
company encompassing an in-house collection service. (For full details
refer to Section B below).
4.2 Cabinet approve, in principle, the formation of the company shell and the
further work required to define the most appropriate legal form of
company. The current view that requires further consideration with legal
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advisors is that the company will be Limited by Guarantee or Limited by
Shares.
4.3 Cabinet agree to the establishment of a Shadow Board of Directors for the
company and the Cabinet portfolio holder for Environment, Cllr David
Topping work with the Leader of the Council and Chief Executive to define
the appointments of the Non Executive Directors to the Shadow Board.
4.4 The Chief Executive and Monitoring Officer are given delegated authority
to take forward the actions required to implement the recommendations
and set up the Company shell, reporting back to Cabinet in October 2013
for endorsement of the new company (for full details and specific actions,
refer to Section B below).
4.5 That subject to agreement of 2.1 to 2.4 of Section B of the report, and with
cognisance of delegation in 2.4 of the report, the responsibility for further
development and implementation is delegated to the Head of
Environmental Protection and Enhancement in conjunction with the
Section 151 Officer, Monitoring Officer, Portfolio Holder for Environment
and subject to the corporate project quality assurance process governed
by the Executive Monitoring Board (EMB) to ensure that the project is
reviewed, prior to any future implementation.
5.0 Section C – Review of Depot Infrastructure
It is recommended that:
5.1 Cabinet acknowledge the need for new facilities within the North of the
borough along with the need for improvements to be made to existing
facilities at Pyms Lane (Southern Depot) to accommodate current and
future service needs.
5.2 Cabinet approve that the responsibility for further development, funding
and future implementation is delegated to the Head of Environmental
Protection and Enhancement in conjunction with the Section 151 Officer,
Monitoring Officer, Portfolio Holder for Environment and is subject to the
corporate project quality assurance process governed by the Executive
Monitoring Board (EMB) to ensure that the project is reviewed, prior to any
future implementation.
6.0 Section D - Interim Residual Waste Disposal Options (will be dealt
with under Part 2 of the meeting and is contained in a separate
paper)
It is recommended that:
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6.1 Cabinet note the findings of the costed options appraisal, financial implications
and risks (for full details refer to Interim Residual Waste Disposal Options
Paper – Section D (Part 2 item), Para 3.4 to 3.5, 7.1 to 7.7 and Para 9.1 to
9.8) that concluded the most appropriate interim residual waste disposal
solution.
6.2 Cabinet approve the recommended option for the interim waste disposal
solution to be effective from April 2014 along with the offer to divert some
residual waste away from landfill during 2013/14 as set out in Interim
Residual Waste Disposal Options Paper – Section D, Para 2.1 (Part 2
item).
6.3 Once the above are approved, that the responsibility for further
development and implementation is delegated to the Head of
Environmental Protection and Enhancement in conjunction with the
Section 151 Officer, Monitoring Officer, Portfolio Holder for Environment
and is subject to the corporate project quality assurance process governed
by the Executive Monitoring Board (EMB) to ensure that the project is
reviewed, prior to any future implementation.
6.4 Cabinet note an update regarding the previously approved contract
extensions for Garden Waste, Dry Recyclate Bulking and Dry Recyclate
Haulage as set out in Interim Residual Waste Disposal Options Paper –
Section D, Para 2.1 (Part 2 item).
7.0 Wards Affected
7.1 All Wards are affected
8.0 Local Ward Members
8.1 All Local Ward Members
9.0 Policy Implications
9.1 The Council’s three-year plan budget principles – “We will ensure that
those who provide services, whether in-house or externally, give real value
for money”.
9.2 This initiative aligns with Outcome 4 (Cheshire East is a green and
sustainable place) of the Council’s Three Year Plan.
9.3 The Council’s Business Plan identifies efficiency savings linked to Waste
Management services (Priority 6. Redefining the Council’s role in core
place-based services - 6.4: Determine future delivery model for waste
management services).
9.4 For specific policy details – refer to each individual section A to D
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10.0 Legal Implications
10.1 For specific details of the legal implications on each strand of the
programme please refer to each individual section A to D of this report.
11.0 Financial Implications
11.1 For specific details of the financial implications on each strand of the
programme please refer to each individual section A to D of this report but
summary can be found below.
PROPOSED SAVINGS
ACHIEVEMENT
2013-14
£M
2014-15
£M
2015-16
£M
Total
£M
Savings Target per Business
Plan
(0.113) (1.0) (1.5) (2.613)
Service Efficiency Review
(Section A)
(0.320) (0.781) (0.049) (1.150)
Interim Residual Waste Disposal
(Section D) (0.111) (0.510) 0.073 (0.548)
Existing Contract Extensions
(Section D)
(0.110) (0.110) (0.220)
Total Savings Proposed (0.431) (1.401) (0.086) (1.918)
12.0 Risk Management
12.1 For specific details of the risk management factors for each strand of the
programme please refer to each individual section A to D of this report.
13.0 Action Plan for Implementation
13.1 In order to implement the proposed programme, there is a significant but
achievable amount of planning and discussion required.
13.2 This will require a dedicated project lead and sponsor with in-depth knowledge of
the area and a dedicated project team will be needed.
13.3 With this in place, the identified benefits and improvements will allow the savings
targets to be achieved across 2014/15 and 2015/16 and the new company to be
set up and operational. Once Cabinet approval is given for the proposal, then a full
implementation plan will be built defining milestones, reporting to progress and
governance.
14.0 Further work yet to be conducted
14.1 Long Term Waste Strategy to be defined and tested
14.2 Procurement Strategy
14.2.1 The outcomes of the first phase of this programme of work will have
delivered business continuity up until March 2016 with interim
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disposal capacity in place, depot infrastructure planned and the
service improvements underway.
14.2.2 The Council intend to go to market for a range of services during
2013 with the objective of having new contractual arrangements in
place for April 2016 at the latest.
14.2.3 It is proposed that dialogue with suppliers across the waste industry
will commence in July 2013 to gain an understanding of
developments in the market and to begin to explore the Councils
future requirements. The Council will publish a Prior Information
Notice (PIN) notice in August 2013 declaring its intention to
commence a procurement process and to establish the link with the
market and engage interest in the Cheshire East waste service.
14.2.4 It is considered favourable to conduct this procurement through a
competitive dialogue and the waste team will shortly commence the
planning of this, to identify resource structure and costs for this
process.
14.2.5 Although the programme of improvements have a positive impact
upon the Council’s waste strategy goals, including a considerable
number of environmental enhancements (most notably the move
away from landfill disposal), it is necessary to further define the
Councils long-term needs to ensure the Council’s vision and future
Strategy can adapt to the technological service improvements whilst
at the same time being able to take advantage of emerging
opportunities that will see a greater proportion of waste utilised as
fuel in “waste to energy” projects. Therefore, the Council’s waste
strategy will need to continue to evolve as the change programme
progresses.
14.2.6 All of the interim arrangements will be structured in such a way as to
bring existing waste contracts co-terminus with any new contracts
coming into operation and will also allow for early termination in the
event that significant changes arise in the requirements of the
service.
14.3 Gaps in Savings Against Target
14.3.1 There is a shortfall of £600,000 in savings against the target set in
the 3 year financial planning 2013-16 and the Council will have
committed to further reviews of the overall service to identify these.
14.3.2 The review has also identified a number of additional areas for
consideration as detailed in section A, Para. 3.6 of this report and
further work will be undertaken to test these.
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Section A - Existing Service Efficiency Review
1.0 Report Summary
1.1 Cabinet, at its meeting on 10th December 2012, considered a report on the
future of waste services. Key decision 22 (1-6) resolved: That the Strategic
Director Places and Organisational Capacity, in consultation with the relevant
Portfolio Holders, be authorised:
i. To review the in-house collection service to identify areas of
efficiencies;
ii. To procure external consultancy support to deliver new arrangements.
2.0 Recommendations
It is recommended that:
2.1 Cabinet note the findings of the service review that has highlighted the most
appropriate areas for consideration. The full service review, with analysis and
figures can be obtained by contacting the author.
2.2 Cabinet approve the recommended plan and areas for delivery of the required
efficiencies within the existing service as shown in 3.4 below.
2.3 Once 2.2 has been approved, that the responsibility for further development
and implementation is delegated to the Head of Environmental Protection and
Enhancement in conjunction with the Section 151 Officer, Monitoring Officer,
Portfolio Holder for Environment and is subject to the corporate project quality
assurance process governed by the Executive Monitoring Board (EMB) to
ensure that the project is reviewed, prior to any future implementation.
3.0 Reasons for Recommendations
3.1 There is a need to achieve best value for the services that the Council directly
provides and reduce net operating cost wherever possible, whilst at the same
time maintaining the best possible service for its residents in line with the
Council’s three-year plan.
3.2 The review and the delivery of the proposed efficiencies and improvements to
the existing, in-house Collection service will contribute to achieving best value
and the objectives of the 3-year business plan, as outlined in 3.1.
3.3 The purpose of the service review was to deliver an in-depth appraisal of the
current, in-house waste collection services costs. The analysis covered both
the financial and non-financial implications of different efficiencies and has
covered a wide range of service areas including:
3.3.1 Overall operational model;
3.3.2 Fleet – provision and maintenance;
3.3.3 Round structure – residual and recycling;
3.3.4 Management structure and Staff levels.
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3.4 The report has concluded that there are many areas for consideration and
implementation - the full service review can be obtained by contacting the
author but a summary is included here for ease:
Total recurring savings achieved by 2015/16 - £1,150,000
3.5 In reaching this plan, exhaustive discussion and consultation with service
management and officers has taken place to refine the original thinking to arrive
at an overall plan that is deliverable. There are some challenges associated
with each of the proposed savings and some inter-dependencies that will need
careful planning before implementation but all are considered possible with the
right level of support and management.
3.6 Within the full service review a number of ‘other’ areas for consideration have
been highlighted. It is recommended that further work be undertaken to fully
address these areas to understand the implications to the Council and the
financial impact each have on it - the full service review can be obtained by
contacting the author but a summary is included here for ease:
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4.0 Wards Affected
4.1 All wards.
5.0 Local Ward Members
5.1 All local ward members.
6.0 Policy Implications
6.1 The Council’s three-year plan budget principles – “We will ensure that those
who provide services, whether in-house or externally, give real value for
money”.
6.2 The Council’s Business Plan identifies efficiency savings linked to Waste
Management services (Priority 6. Redefining the Council’s role in core placebased
services - 6.4: Determine future delivery model for waste management
services).
7.0 Financial Implications (Authorised by the Director of Finance and
Business Services)
7.1 In order to meet stringent financial targets the Council has detailed cost savings
across all council services as part of the 3-year business plan. Within Waste
Services, target savings of £1m in 2014/15 have been set with a further £1.5m
set for 2015/16.
7.2 The full savings summary is shown in para 3.4 above and detailed modelling
and analysis is available from the report author. In summary and subject to
whether or not all of the proposals are recommended annual budget savings
can be made in the order of £1m recurring by 2014/15.
7.3 The financial savings associated with the recommendations have been ‘tested’
and confirmed with Cheshire East’s Waste Management team for scale and
implementation. As noted in Para 3.5 above, there are some challenges and
risks associated with each of the proposed savings and some interdependencies
that will need carefully planning before implementation.
8.0 Legal Implications
8.1 Extending the period of garden waste non-collection from 6 weeks to 17 weeks
will have an impact on the payments made to the service provider. The annual
payment to the service provider will reduce although estimating the actual
figure is difficult because we do not know how service users will manage waste
in the event of the change. The Council has the right to require a change to the
terms of the contract. The definition of Council Change is a change in the
Council’s policies that the service provider is obliged to accept, however, unless
that change is as a result of contamination and the change is not in any way
caused by the acts or omissions of the service provider then the Council will be
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liable for the service providers losses. Should the Council choose to pursue this
option it should first ascertain if the service provider will look to the Council for
lost revenue.
8.2 Extending the period of non-collection will require consultation with service
users.
8.3 Any restructure of waste management staff will require consultation with
employees and Trade Unions as per HR policy and the appropriate
restructuring/ redundancy exercises carried out in accordance with the legal
requirements.
8.4 Any efficiency based on changing services or goods will be subject to the
Council’s ability to exit from current contractual relationships without penalty
and new providers need to be selected following legally compliant procurement
exercises.
8.5 Para 3.6 refers to the consideration of a reduction in household waste recycling
centres. The Council has a duty to provide Household Waste Recycling Centre
(HWRC) facilities under the Environmental Protection Act 1990. The legislation
does not define the number of facilities required save the requirement for them
to be ‘reasonably accessible to persons resident in the area’. Consultation with
service users and communication of changes will be required. If HWRC’s are
designated delivery points for waste electrical and electronic equipment
(WEEE), alternative delivery points will need to be provided by the Council or a
third party.
9.0 Risk Management
9.1 There are a number of risks associated with the cost savings proposal, these
are captured in detail along with mitigating actions as a part of the Project
governance, those described below represents the pertinent ones that it is felt
necessary to bring to the attention of members.
9.2 Early and continued engagement with trade unions and the existing workforce
even at this stage will be key to successfully delivering the outcomes of the
review.
9.3 There will be a number of staffing issues that will need to be considered further
as part of the implementation of the proposed savings.
9.4 The proposed reduction in the Garden Waste operation may result in
reputational challenges for the Council. This will need to be managed very
closely to minimise any adverse reaction or publicity.
10.0 Action Plan for Implementation
10.1 In order to implement the proposed cost savings, there is a significant but
achievable amount of planning and discussion required. This will require a
dedicated project lead and sponsor with in-depth knowledge of the area and a
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dedicated project team will be needed. With this in place, the identified savings
will allow the savings targets to be achieved across 2014/15 and 2015/16.
Once Cabinet approval is given for the proposal then a full implementation plan
will be built defining milestones, reporting to progress and governance.
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Section B - Future Delivery Model
1.0 Report Summary
1.1 Key decision 22 (1-6) of the December 2012 Cabinet resolved: That the
Strategic Director Places and Organisational Capacity, in consultation with the
relevant Portfolio Holders, be authorized to consider the potential options for
the continuance of the Councils statutory duties and for the future longer term
development and delivery of the Waste management service. As part of this
iESE Ltd were commissioned to undertake an exploration into the future
operating model and legal vehicles that could be used to deliver the service in
future.
1.2 This report now sets out the work to date on the future operating models. It
seeks Cabinet approval to the establishment of a delivery company subject to
additional work to establish the most appropriate company vehicle to optimise
and achieve the Councils objectives and approval to continue to operate an inhouse
collection service for the foreseeable future within the construct of that
company model. The project is in line with the Council’s three-year plan -
Priority six: Redefining the Council’s role in core place-based services. It is also
part of the Major Change Programme - 6.4: Determine future delivery model for
waste management services.
1.3 The Corporate Management Team (CMT) reviewed the project on the 4
th
June
and its comments have been taken into account in the writing of this report.
Further work has also been undertaken on the project documentation following
the CMT briefing meeting.
1.4 The current service includes household waste collection, residual waste
disposal, mixed recyclate bulking and haulage, garden waste and household
waste recycling centres (HWRC), along with the management team associated
with the service. The Waste Management service has 220 plus FTE staff and in
2012-13 financial year the council spent approximately £22m in delivering all
waste services. In addition, a Joint Waste Team is funded between Cheshire
East and Cheshire West & Chester Councils to manage the joint waste
contracts for landfill, closed landfills and HWRCs.
2.0 Recommendations
It is recommended that:
2.1 Cabinet note the findings of the options appraisal that has concluded the most
appropriate future delivery model to be that of a wholly owned company
encompassing an in-house collection service.
2.2 Cabinet approve, in principle, the formation of the company shell and the
further work required to define the most appropriate legal form of company. The
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current view that requires further consideration with legal advisors is that the
company will be Limited by Guarantee or Limited by Shares.
2.3 Cabinet agree to the establishment of a Shadow Board of Directors for the
company and give delegated authority to the Cabinet portfolio holder for
Environment, Cllr David Topping work with the Leader of the Council and the
Chief Executive to define the appointments of the Non Executive Directors to
the Shadow Board.
2.4 The Chief Executive and Monitoring Officer are given delegated authority to
take forward the actions required to implement the recommendations and set
up the Company shell, reporting back to Cabinet in October 2013 for
endorsement of the new company.
Specific actions are:
Review the legal advice and define the appropriate legal vehicle for the
Company by end July 2013;
Define and draw up the Company objects;
Set up the Company as a separate legal entity and establish its Memorandum
and Articles of Association by end August 2013;
Define the HR; Financial and legal implications of the company set up; transfer
of staff and the service contractual agreements;
Develop a three year business plan for the company and set objectives against
which its performance will be measured;
Define and develop the arrangements between the Council and the Company
for all/any support services required and draw up any required service
agreement(s).
2.5 That subject to agreement of 2.1 to 2.4 and with cognisance of delegation in 2.4
the responsibility for further development and implementation is delegated to
the Head of Environmental Protection and Enhancement in conjunction with the
Section 151 Officer, Monitoring Officer, Portfolio Holder for Environment and
subject to the corporate project quality assurance process governed by the
Executive Monitoring Board (EMB) to ensure that the project is reviewed, prior
to any future implementation.
3.0 Reasons for Recommendations
3.1 There is a need to achieve best value for the services that the Council directly
provides and to reduce net operating cost wherever possible, whilst at the
same time maintaining the best possible service for its residents in line with the
Council’s three-year plan.
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3.2 The review of the waste management service and the establishment of a wholly
owned company means that the service will help to achieve the previous point
whilst also maximising opportunity for partner engagement and promoting high
quality service delivery.
3.3 The purpose of the options report was to deliver an appraisal for waste
management services and to determine the future delivery models. The high
level comparator analysis (shown in section 10 background, Para 10.4)
completed thus far has considered at a high level the pros and cons and
implications of different management vehicles and has covered a number of
potential options, including:
•
Establishing a new company;
•
Continuing in-house management;
•
Outsourcing management via a private sector company
3.4 The appraisal has concluded that a viable long term option aligned to the
strategic direction and ambitions of the Council is the further exploration and
establishment of a company model and this should be in the form of a new one
created by the Council. The correct company structure is dependant upon the
objects and function of the company. The review of the waste collection service
has determined that, provided the identified savings are achieved there is no
advantage to be gained from undertaking a procurement to outsource the
service at this point in time. The review of the longer terms options for the
waste services will give further consideration to the direction for the service
beyond 2016.
3.5 While the Local Government legislation gives councils the ability to operate
services inter-authority and to trade certain aspects of service, a company
model can offer additional benefits such as:
•
Offers a neutral vehicle for the service rather than one authority being
seen to 'take over' the other. This can often be important politically;
•
Can serve as an interim step on path to a more arms' length
arrangement such as spinning-out to a mutual or private sector;
•
Offers greater flexibility on pension and employment terms;
•
Moves the Council / service relationship to a contractual one which is a
move to more of a commissioning Council structure;
•
Allows the service to operate in a more flexible decision making
framework of a company outside of the normal restrictions of Council
decision-making.
3.6 There is a requirement for the project to go through the Council’s project
Gateway process for review and endorsement before a recommended way
forward can be presented to Cabinet.
4.0 Wards Affected
4.1 All Wards are affected.
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5.0 Local Ward Members
5.1 All Local Ward Members.
6.0 Policy Implications
6.1 The Council’s three-year plan budget principles – “We will ensure that those
who provide services, whether in-house or externally, give real value for
money”.
6.2 This initiative aligns with Outcome 4 (Cheshire East is a green and sustainable
place) of the Council’s Three Year Plan and the ambitions of the Council to
invest in more innovative and flexible ways of delivering services.
6.3 The Council’s Business Plan identifies efficiency savings linked to Waste
Management services (Priority 6. Redefining the Council’s role in core placebased
services - 6.4: Determine future delivery model for waste management
services).
7.0 Financial Implications
7.1 There is a programme of work yet to be completed to identify the financial
implications of the financial costs and savings associated with the
establishment of the company.
7.2 The work so far has investigated the costs of the collection service compared
with outsourced models and current market behaviours. There are significant
savings identified in the collection service in the next 2 years and the delivery of
these is fundamental to the services being cost effective against market
competition and to ensure it has a viable proposition to make to potential
customers. The delivery of these savings is not reliant upon the establishment
of a company vehicle for the service.
7.3 Further work is required to assess the financial implications of the company
options to be considered based on the following key income and expenditure
areas:
•
the current net direct costs of the services;
•
the impact of VAT; NNDR and Corporate tax on the different models;
•
the impact arising from central support costs;
•
profit, contingency and overheads;
•
the impact on pension costs to the Council and operator;
•
detailed assessment of set-up costs and timescales;
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•
operational changes to increase revenue or reduce costs; and
•
implications of including other services within the commissioning
opportunity.
7.4 The recommendation is to finalise the establishment of a company legal vehicle
and further define the nature of the company and ensure its smooth set up and
transition of services. This further work will seek to identify additional savings
which could be achieved through the establishment of the company and make
recommendations to achieve both financial and non-financial benefits to the
Council, particularly in relation to strategic priorities and integration of services.
All current services within the Waste Management service will be included.
7.5 A fully costed implementation plan requires to be developed taking into account
the legal considerations for the company structure and the implementation of
the transition of the in-house waste collection services and outsourced waste
contracts to the new company. However indications from our experience of
other organisations that have taken the same path indicate costs to be in the
region of £30,000 (such costs to be funded from Cost of Investment monies for
the Waste Project in 13-14 & 14-15 totalling £600k).
8.0 Legal Implications
8.1 Unless the Council is outsourcing the service delivery to a company that is
wholly controlled by Cheshire East Council it will be necessary to undertake a
procurement exercise.
8.2 As the value of the service contract exceeds £173,934, the contract is subject
to the Public Contracts Regulations 2006 (as amended) and the fundamental
principles of the Treaty of Rome (together the Public Contracts Regime) a
procurement exercise means that the Council owned company would need to
compete with the European open market for the work. A procurement exercise,
depending on type will take in the region of nine months.
8.3 There is an exception, in certain circumstances, where a contract let by a public
body will not be deemed to be a contract for the purposes of the Public
Procurement Regime. The relevant circumstances are that:
•
The service provider carries out the principal part of its activities with
the relevant public body;
•
The public body exercises the same kind of control over the service
provider as it does over its own departments;
•
There is no private sector ownership of the service provider or any
intention that there should be any.
The exemption was established by a European Court of Justice case and is
referred to as the Teckal exemption.
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Case law has shown that the contracting authority, the Council, must have the
power of decisive influence over the strategic objectives of the company at a
constitutional and operational level. The company will need to function as a
commercial entity.
8.4 Prior to a company vehicle being endorsed by Cabinet, or established, the
Council will need to develop a business case and undertake internal approval
through EMB. The Council has received legal advice on the options for
company models in other service areas and this advice will be utilised to
determine the type of company vehicle that best meets the Councils operating
criteria. The Council must adhere to good practise principles when assessing
the business case for proposed transfers to arms length companies, these
include:
Ensuring there is a good case for change and that the business case states
whether any relevant parties have been consulted;
Clarifying how the change will affect the accountability of the Council;
Undertaking a thorough options appraisal to ensure the most cost-effective and
efficient option is chosen;
Identifying and managing the costs associated with the proposed
reorganisation as accurately as possible;
Identifying and realising the benefits of the proposed change;
Ensuring the proposed change is well managed and delivered;
Putting in place effective review arrangements to monitor whether the long-term
objectives of the proposed change have been achieved.
8.5 The Council will have to establish a service contract with the new company to
define all the services and the service levels that it will provide.
8.6 Irrespective of the issue of control the intention is that the chosen company
model will be an arm’s length company i.e. will be separate legal entity from the
council.
8.7 The transfer of the service to an arm’s length company is likely to constitute a
relevant transfer under the Transfer of Undertakings Protection of Employment
Rights regulations 2006 (TUPE) under which employees who are working in or
for waste management immediately before the transfer will transfer to the new
company.
The council will have to undertake the necessary due diligence to identify which
employees have the right to transfer to the new company and to be able to
provide the necessary employee liability information in accordance with the
TUPE regulations.
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The Council and the new company will also have to comply with the
Regulations consultation requirement which stipulates that consultation on
changes to terms and conditions (measures) needs to be conducted in good
time before the transfer. In “good time” is not defined in the regulations but a
comparison is usually drawn with the timescale for redundancy consultation
which is 45 days.
8.8 Further specialist pension/actuary advice will be required on pension issues,
the pension admission agreement and confirmation of the potential bond costs
if the new company is to continue to offer access to the Local Government
Pension Scheme (LGPS) (as opposed to a broadly comparable scheme which
could be offered as an alternative to the LGPS).
8.9 Note to Cabinet: The Government is currently consulting on possible changes
to the TUPE regulations. These changes may be enacted by October 2013.
Legal services will advise on any impact which these changes may have on this
project as soon as there is clarity on the changes.
8.10 It is important for the Council to:
•
Identify the scope of the company and its objects and the relationship
with the Council;
•
Consider who will be the Board of Directors and how such a role is to
be reconciled with any role within the Council, taking into account
actual and perceived conflicts of interest and bias;
•
Consider the necessary constitutional and administrative processes
which the Council has and make any necessary amendments to these
to ensure that the company can be used effectively and efficiently to
improve service delivery;
•
Consider the effective drafting of the Memorandum and Articles of
Association of the Company, to give the Council the necessary degree
of control (e.g. the Council would approve any Business Plan (i.e. the
overarching "envelope" of the Company's activities), scrutinise the
Company's performance and Board activities (directing the Board
where necessary to act or not act in a certain way) and exercise a veto
at Board level on all or key, strategic decisions affecting the Company),
without hampering the day-to-day operations of the Company or
discretion of it’s Board so it retains agility and flexibility.
9.0 Risk Management
9.1 There are number of risk associated with the project, these are captured in
detail along with mitigating actions as a part of the Project governance, those
stated below represent the pertinent ones it is felt necessary to bring to the
attention of members.
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9.2 Early and continued engagement with trade unions and the existing workforce
even at this early stage will be key to successfully delivering the outcomes of
the review and also in transitioning to a new delivery model.
9.3 Early and continued engagement will also be required with the Cheshire
Pension Fund in relation to the actuary reports required in relation to the
transferring employees, bond requirements and pension changes and the
completion of a Pension Admission Agreement.
9.4 The creation of the chosen company structure well in advance of the anticipated
transfer of Service date to ensure that the company is able to undertake all the
necessity preparatory steps prior to the transfer and to engage in the necessary
consultation both with the employees and the Council.
9.5 Considerable input from Legal and Assets Services will be needed to ensure
the Council’s ownership is protected in order to secure the future use of the
assets for waste management purposes. Members of staff from legal services
form part of the project and allowance will be made within the implementation
costs for any external legal work to be carried out.
9.6 There will be a number of procurement issues that will need to be considered
further as part of the in-depth review of the preferred delivery model, these will
include current regulations that address asset and service transfer and a review
of the impending changes in EU law relating to Teckal and procurement which
are expected in the autumn of 2013.
9.7 Guidance suggests that there are different routes depending upon whether the
asset is to be transferred or a service is to be transferred and this will be further
explored to mitigate risks by choosing the optimal company model.
9.8 The review of the depot asset base which is due to report in July 2013 will help
determine the future assets required to operate the waste services and define
what will be required in the near to medium term future to deliver the long-term
strategic needs of the Council. This work will be incorporated into any future
delivery model taking into account the future strategy for Waste services and
the links to any future outsourcing of the service. This will be further explored
as part of the review.
9.9 In order to achieve the financial benefits of a company model, it is also
necessary to consider the method for handling of the existing and any future
waste facilities and whether these will be leased to the company, with
appropriate safeguards around facility maintenance and service delivery.
9.10 Consideration and care will need to be taken in respect of arrangements for
future capital investment (i.e. to avoid incidence of significant irrecoverable VAT
on developments).
9.11 The impact on the councils support services associated with this service will
need to be analysed and managed effectively as part of the project. This will
ensure the company retains the necessary expenditure and staff resources to
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deliver the core business whilst reducing the likelihood of any residual
overhead remaining with the council.
10.0 Background and Options
10.1 The appraisal considered the options for the future services and the factors in
determining the optimal company structure within which to operate the
business. The options considered were:
•
In-house v Outsourced;
•
Fully integrated outsourced service;
•
Wholly owned company.
10.2 The review of the in-house collection service together with an assessment of
current market conditions have demonstrated that subject to the identified
savings being delivered the internal collection service can compete with any
financial offering from the private sector and there is no significant advantage to
be gained from outsourcing the services at this time.
10.3 The Council has indicated that CEC wishes to consider the establishment of a
company through which it will operate its Waste and potentially other
environmental services. It has developed a Charging and Trading strategy the
main principles of which are:
•
Charging for discretionary services will be appropriate and balanced by
the Council’s priorities;
•
The Council will engage in trading for profit where it is possible to
support the delivery of local priorities without minimising the risk to
public finances;
•
The strategic direction of the Council aligns well with the proposed
establishment of a company model which would allow the Council to
take advantage of greater freedoms and a more commercial and
business oriented approach to running the operation.
10.4 A review of the benefits; dis-benefits and risks of each option was explored and
is shown in tables below:
Wholly Owned Company
Benefits Dis-benefits and Risks
Aligns with the Council’s objective
and ambition to invest in innovative
ways to deliver services and to be a
commissioning organisation
Ability to operate under commercial
terms and greater autonomy for the
services
Retention of jobs within the local
Consideration must be given to the
future function of the service to
determine the optimal legal vehicle,
which takes greatest advantage of
policy and legislative developments
Council must retain responsibility for
the statutory obligations of the service
Potential for Council to have reduced
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economy
Benefits of improvements in service
delivery are retained by the service
Council or WOC not shared with
private sector
Opportunities for co-ownership with
other Councils and a Teckal exempt
model will provide opportunities for
shared delivery
Ability to generate surpluses within a
Not for Profit model to reinvest in the
growth of the business
Implementation of different terms and
conditions for staff thus potential
reduction in costs to the Council
Ability to influence and drive the
direction of the service and attract
partners
Within an Company limited by shares
model there would the ability for
Council to receive dividends from
company
Incentivisation of the team to drive
the business forward
control over the direction of the
service as will have own Board of
Directors
Potential impacts on Council
corporate services if not providing a
service to the WOC
Investment required to build a
commercially viable activity
Commercial and company operating
skills and acumen required to deliver
in a business oriented environment –
stand alone survival
Will potentially require a procurement
of the service if the Council is not
transferring the service under a
Teckal arrangement
A Teckal exempt model will place
limitations on the nature and extent of
the commercial activities
In- House v Outsourced provision
Benefits Dis-benefits and Risks
In-house
Total control over the nature of the
services and the performance. Able
to flex service as required
Opportunity to continue to drive
efficiencies and retain benefits
Retention of jobs in the local
economy
Advantage of using Council reserves
and investment management to
Council must retain responsibility for
the statutory obligations of the service
Investment in infrastructure for depots
and fleet will be borne by Council
On-going costs and liabilities of
employment and cannot easily
change terms and conditions of
existing staff
Effective client side management
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invest for a return in service. No
share to private sector
Can trade under local government
powers within Council structure
Ability to borrow funds at lower cost
than private sector
Note: Would require development of
additional in-house services or
continued outsourcing of key services
required to optimise benefits for the
Council
Drive and determination and
incentives to improve the service may
not be as great as in a WOC model
Outsourced
Private sector partner to inject
investment and industry expertise into
the service to drive improvements
and efficiencies
Aligns with Council’s objective to be a
commissioning organisation
Transfer of some risk to suppliers
Industry specialist expertise to deliver
service improvements
Capital investment in infrastructure is
carried by the supplier – though
passed through as revenue cost to
council
Council retains overall statutory
responsibility for the service
performance and will have to
influence change through client side
management rather than control
Requirement to pay margins to
private sector typically up to 12%
Effective client side management
required to optimise benefits for the
Council
Supply chain and local economy
impacts if services are not in locality
Less control over legislative changes
Cost of tendering £100-200k for
restricted procedure
Integrated Outsourced Model
Benefits Dis-benefits and Risks
Private sector partner to inject
investment and industry expertise into
the service to drive improvements
and efficiencies
Aligns with Council’s objective to be a
commissioning organisation
Seamless structure and delivery
across a range of services
Council retains overall statutory
responsibility for the service
performance and will have to
influence change through client side
management rather than control
Costs to the Council of procurement
exercise potentially in excess of
£500,000
Delivery of improvements delayed
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Wholly managed and integrated
service and relationships are
managed between principal and sub
contractors to deliver benefits
Capital investment in infrastructure is
carried by the supplier – though
passed through as revenue cost to
council
Resonates with Council direction to
be a commissioning council
until award of contract which is
estimated to be 2015 at the earliest
There are a limited number of
suppliers who can provide a fully
integrated service. This may result in
limited competition unless suppliers
were to form consortia to bid
Market may not view opportunity as
attractive with resultant limited cost
benefits or potential cost increases
Requires strong supplier
management skills and approaches
to get the best from suppliers and
ensure benefits are shared
Loss of staff and union backing
resulting in industrial action
10.5 From the above options the Wholly Owned Company is the emerging option
that closely aligns to addressing the needs of the Council whilst remaining
flexible enough for the Council to take advantage of future innovative service
improvements.
10.6 Further consideration will be given to the range of services that will constitute
the makeup of the potential company but the first phase will be the whole of
Waste Management services and the novated contractual agreements.
11.0 Action Plan for implementation
11.1 In order to implement a delivery model, there is a large amount of
documentation to be prepared and legal requirements to be met. This will
require a specialist project management with in-depth knowledge of the area
and a dedicated project team will be needed. With this in place the preferred
model should be fully operational by April 2014.
11.2 There is further work to be completed to refine the legal advice and determine
the final legal vehicle for the Company but this will be a determinant between a
Company Limited by Shares or a Company Limited by Guarantee.
11.3 The key elements of the development and implementation of the Company
and in order to achieve this ambitious timeframe being:
•
Development and testing of the optimal company model;
•
Agreement from Cabinet to formally establish company;
•
Creation of the company legal documentation;
•
Registration with Companies House confirmed;
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•
Development of 3 year company business plan;
•
Company becomes fully operational;
•
Appointment of Chairman and Board of Directors – to include Executive
Directors (see below) with consideration having been given to the role
of Councillors acting as Directors of the Company;
•
Appointment of CEO and Management Team;
•
Establishment of financial management model and budget for
company;
•
Define governance arrangements operating between the Council and
the Company;
•
Drawing up of Service contract; SLA and Performance specification.
12.0 Action Plan for implementation
12.1 Once Cabinet has approved the decisions, a detailed and fully costed
implementation plan will be developed and will be presented for consideration.
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Section C – Review of Depot Infrastructure
1.0 Report Summary
1.1 Cabinet, at its meeting on 10th December 2012, considered a report on the
future of waste services. Key decision 22 (1-6) resolved: That the Strategic
Director Places and Organisational Capacity, in consultation with the relevant
Portfolio Holders, be authorised:
i. To procure an interim residual waste treatment contract to run from April 2014
until the implementation of new overall arrangements;
ii. To extend the current dry recycling and garden waste contracts to
coincide with the implementation of the new arrangements;
iii. To review the in-house collection service to identify areas of efficiencies;
iv. To procure external consultancy support to deliver new arrangements;
v. To explore alternative procurement routes to traditional procurement
processes, including working with other local authorities or local authority
consortia to deliver the goals of this project but in a more cost effective
manner.
1.2 This report is in response to all of the above items and acknowledges that
current depot facilities (Commercial Road – vehicle storage depot and Pyms
Lane – Waste Handling facilities) will not address the future needs of the
service and without review and further investment will prevent many of the
efficiencies already identified being realised.
1.3 The Council has for some time been reviewing its depot capacity to ensure that
it can meet both current and future requirements, giving consideration to all
available options. An appraisal of medium to long-term options for depot
facilities has been commissioned which will consider:
Future depot requirements in the North of the borough;
Depot improvements at Pyms Lane (Southern facilities).
1.4 Jacobs Consultants are undertaking this initial feasibility work with a draft report
to be submitted by Jacobs at the end of July 2013.
2.0 Recommendations
It is recommended that:
2.1 Cabinet acknowledge the need for new facilities within the North of the borough
along with the need for improvements to be made to existing facilities at Pyms
Lane (Southern Depot) to accommodate current and future service needs.
2.2 Cabinet approve that the responsibility for further development, funding and
future implementation is delegated to the Head of Environmental Protection and
Enhancement in conjunction with the Section 151 Officer, Monitoring Officer,
Portfolio Holder for Environment and is subject to the corporate project quality
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assurance process governed by the Executive Monitoring Board (EMB) to
ensure that the project is reviewed, prior to any future implementation.
3.0 Reasons for Recommendations
3.1 In order to maintain an effective service that is “fit for purpose” in future years,
depot facilities will be required.
3.2 Reviewing CEC current and future needs also addresses a monopoly situation
with facilities and capacity within the Borough.
4.0 Wards Affected
4.1 All wards.
5.0 Local Ward Members
5.1 All local ward members.
6.0 Policy Implications
6.1 To be developed during the project feasibility stage
7.0 Financial Implications (Authorised by the Director of Finance and
Business Services)
7.1 To be developed during the project feasibility stage
8.0 Legal Implications
8.1 To be developed during the project feasibility stage
9.0 Risk Management
9.1 To be developed during the project feasibility stage
10.0 Action Plan for Implementation
10.1 Following the outcome of the early feasibility work, a full and detailed action
plan will be developed, outlining the preferred options that can be developed in
detail through the Council’s project governance procedures and Executive
Monitoring Board (EMB).
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Section D - Interim Residual Waste Options
This item will be dealt with under Part 2 of the meeting
15.0 Access to Information – All Sections
15.1 The background papers relating to this report can be inspected by contacting
the report writer
Name: Kevin Melling
Designation: Head of Environmental Protection & Enhancement
Tel No: 01270 686336
Email: kevin.melling@cheshireeast.gov.uk
End.
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