Archived decisions

Contact: Clare Saunders, ext 5835 email: [email protected]

1. Summary

1.1 The present five, short-term (three year) Household Waste Recycling Centre (HWRC) contracts are due to end on 31 December 2005. The contract terms and conditions allow the contracts to be extended for two periods of up to one year.

1.2 Accepting that, at this late stage of the initial contract term, anything other than extending the current contracts would put service provision at risk, there are a number of good strategic, operational and financial reasons why the County Council should agree to extending the contracts. The arguments for extending the contracts are set out in the main body of this report.

1.3 It is proposed that the terms and conditions, including contract management fees and incentive payment provisions, of the extended contracts will remain the same as they are at present. Indeed, the management contractors have indicated a willingness to extend the contract term on this basis.

1.4 In extension negotiations with the management contractors, concerns were raised about the possible future impact on the service and, as a consequence, their revenue (income) streams from planned changes in legislation, namely the delayed introduction of the Waste Electric and Electronic Equipment (WEEE) directive. Additional, but related, is the need for some form of protection relative to the metals market. The economics of site operations are governed primarily by metals revenues.

1.5 The terms and conditions of the present contracts allow for both of these issues to be addressed through negotiation if/when they arise. The County Council is at no greater risk in terms of the uncertainty of any possible financial implications arising from future contract negotiations relative to the issues raised in paragraph 1.4 than it is at present. Indeed, if a tendering exercise had been conducted with a view to new contracts starting in January 2006, it is almost certain that risks such as those outlined would have been factored into the cost submissions.

2. Introduction

2.1 The County Council is responsible for 24 of 26 HWRCs in Hampshire. With the exception of Farnborough HWRC, which is operated within the terms of the long-term waste disposal contract, the remaining 23 sites are managed via five grouped, short-term (three to five year) contracts.

2.2 The network, which receives around four million customer visits per year, handled 250,000 tonnes of waste/discarded materials last year and achieved a recycling/reuse rate of 55%. The service is key to the overall success of the Project Integra (PI) partnership in reducing reliance on landfill. In 2004/05 almost half of the PI recycling performance was attributable to the performance of the HWRC network.

2.3 The existing management contracts are valued just below £1 million per annum. Under the terms of the contracts, the different management contractors are incentivised to perform above benchmarked recycling rates. Incentive payments, which are paid relative to annual performance, are funded from part of the financial saving associated with higher recycling performance. The management contractors have increased HWRC recycling levels during each of the three years of the present contracts.

3. The Rationale for a Contract Extension

3.1 There are strong operational, financial and strategic reasons for extending the present contracts by a further two years. These are set out in the following paragraphs.

4. Operational Issues

4.1 There are different operational issues which need to be resolved before prospective contractors can accurately assess staffing levels required under new contracts. These mainly include:

(i) the need to understand how legislative changes will impact on service provision; and

(ii) the need to comply with increasing health and safety obligations, including reduced working hours due to issues of light.

5. Changes in Legislation

5.1 The implementation of the WEEE Regulations has been delayed until July 2006 and, whilst it is not yet possible to accurately predict the impact of necessary changes on the operation of the HWRC contracts, it is estimated that a significant proportion of material currently sold as metal from the sites will be reclassified as WEEE, resulting in a loss of income to the management contractors.

5.2 Although it is set to come into force in July 2006, the directive has already been delayed twice whilst Government, regulators, producers and manufacturers try to agree on the mechanics of the implementation.

5.3 Another recent legislative change concerns Hazardous Waste, such as paints, oils, garden products, fluorescent tubes, etc. Under these changes the County Council will either need to licence all sites as being able to handle hazardous materials or reduce service provision to a limited number of sites. Discussions with the regulatory agencies, for example the Environment Agency, are continuing with a view to licensing sites by the spring/summer of next year.

6. Health and Safety

6.1 Two principal health and safety issues currently under review include site opening times and the working in bins by contractors.

6.2 In terms of opening hours, the County Council has recently altered its winter opening hours following debate with the Health and Safety Executive vis-à-vis public safety concerns on sites at the end of the working day. If the changes (which for this winter are being trialled) are made permanent, then the contractors will effectively work half an hour less than specified in the present contract during the winter.

6.3 Compaction of bin contents has long been an issue for all concerned with the HWRC service, including Onyx as the long-term disposal contractor responsible for bin servicing arrangements across all sites. Clearly, the better the compaction, the more vehicle movements and interruption to the service are minimised.

6.4 Compaction has traditionally relied to a significant extent on the contractors working in bins. This practice is under intense Health and Safety scrutiny and, whilst currently not unlawful, is considered a high risk activity that can no longer be regarded as best practice.

6.5 Mechanical compaction options are currently being evaluated to develop a solution that improves bin compaction levels and addresses health and safety concerns. Mechanical compaction will impact on the HWRC operation and potentially on staffing level requirements.

7. Financial Constraints/Uncertainty

7.1 By extending the present contracts under existing terms and conditions, the County Council will avoid immediate financial cost pressures that would be likely to result from a retendering exercise. Instead, it can work closely with the existing contractors through the introduction of new legislation next year in order to try and mitigate or reduce the possible financial consequences.

7.2 Based on WEEE trials at sites this August, up to 40% of ferrous metals tonnage could be reclassified as WEEE when the directive is finally introduced. A 40% loss of metals sales coupled with a drop in the market price for metals to £40 per tonne (average metals price in 2004/05 was £57 per tonne) could result in a cumulative loss across the contracts of circa £700,000.

7.3 Negotiations with the contractors will be based on agreeing a mechanism whereby market and tonnage risk can be shared within minimum and maximum levels. The present contract terms and conditions allow for management fees to be varied where significant costs, beyond the control of the contractor, are incurred.

7.4 In addition to any WEEE directive implications, County Council service requirements are increasing all the time. This can impact on the contractors if they are asked to increase staffing levels to comply with new legislation across all sites or to better comply with increasing health and safety requirements. Additionally, the County Council's desire to improve site performance, for instance by introducing new segregation methods for different material streams, can also impact on the contractors, even allowing for net increases in performance.

8. Strategic Issues

Material Resources Strategy

8.1 Considerable work has been undertaken over the last three years in terms of the development and delivery of the Materials Resources Strategy (MRS). The principles set out in the stakeholder document "More from Less" include a more holistic approach to waste and resource management across all communities and sectors. The MRS aims to increase material recovery and recycling and reduce reliance on landfill to an absolute minimum.

8.2 The stakeholder exercise has demonstrated a lack of recycling and recovery processing infrastructure for the non-household sector in Hampshire, and in particular has highlighted a need for the commercial/business/SME sector to have more facilities at which they can take discarded materials for recycling/re-use. Presently, the HWRC network is set up to serve only householders, with limited opportunities available elsewhere for other sectors to recycle unwanted materials.

8.3 In translating the MRS into robust County Council policy alongside the development of a new minerals and waste development framework, the size and scope of the new HWRC contracts could well be impacted upon. It is essential that the new contracts are configured in such a way that the latest strategic thinking is understood and incorporated.

9. Capital Programme/Expansions/Extensions

9.1 Directly related to the MRS development work is the ongoing investment in improving the existing network and/or introducing new sites where recognised service gaps exist.

9.2 It is possible that in improving/expanding the current network, opportunities might exist to combine work on the wider MRS agenda as part of any future investment. This could mean that sites currently included in the contracts package are removed and operated differently in the future. Leaving potential sites in the tender package could well cause difficulties later on if the County Council wanted to pursue a wider development opportunity within the timeframe of the next round of contracts.

9.3 In addition to the possible removal of sites from the contract package, there are a number of developments currently being progressed as a result of increased Cabinet support for improving the existing network. Schemes at Basingstoke and Segensworth are both underway and other projects are also being considered. By the time new contracts are being specified and let, more information will be available on how the development programme is likely to continue and what impact the programme, along with the completed site improvements, is likely to have on future staffing arrangements.

10. New Household Waste Recycling Centre Policy Development

10.1 With the MRS in mind, the need to take into account other surrounding local authority HWRC policies and the desire to further reduce residual waste levels across the network, it is proposed that now is the right time to undertake an overall policy review rather than retender contracts along existing lines. The policy review would be timed to be completed by the autumn of next year such that the specification for new contracts (commencing January 2008) could be approved by Members ahead of a comprehensive tendering exercise.

10.2 Specific policy issues will include the overarching policy on waste acceptance, ie which waste types will be accepted in line with current legislation and best practice. Trade waste acceptance and alternative facilities for non-household waste will also be reviewed. This is particularly relevant at a time when Hampshire is surrounded by authorities which either historically, or as a result of recent service changes, actively work to exclude trade waste. These actions include one or any combination of the following:

(i) height barriers;

(ii) closed circuit television;

(iii) automatic number plate recognition systems; and

(iv) proof of residency, enforcement officers, etc.

10.3 Finally, changes in legislation (see operational issues) during the last few years have had an impact on the HWRC service and these changes and future levels of service provision, for instance whether or not the County Council provides for hazardous materials on every site, need to be carefully analysed and understood before new contracts are specified, tendered and let.

11. Preparation Work Required for a New Contract

11.1 As detailed above, there are a myriad of issues that need to be better understood, analysed or evaluated before the County Council is ready to specify and let new contracts. Notwithstanding these issues, there are also other factors to take into consideration before the new contracts are tendered. These include:

(i) how to package the contracts - same five contracts, more contracts, fewer contracts;

(ii) the duration of the contracts - remain as three to five years, reduce the flexibility, eg no extension period, make them longer in duration; and

(iii) the risk structure - material sales, recycling performance, waste growth/arisings.

11.2 These issues will need to be factored into the operational, financial and strategic work that will be progressed next year. A detailed timetable and resource estimate for the workloads in preparing a new HWRC contract is currently being prepared, such that all the identified work is completed by the autumn of next year. This will allow sufficient lead in time to enable new contracts to be let during 2007 and ready to commence in January 2008.

12. Impact Assessments

12.1 An impact assessment of the service will be undertaken as a part of the new contract development and tender (including evaluation) process.

13. Conclusions

13.1 Given the continuing improving performance under the contract, the general uncertainty surrounding the impact of planned legislative changes and ongoing strategy/policy development work, the sensible way forward at this stage is to extend the current HWRC contract rather than retender.

13.2 The only reason not to grant an extension would be if retendering now was expected to achieve significant cost savings. The expectation is that the next round of HWRC contracts will see costs rise on the back of greater service demands. Retendering the contracts at this stage would probably give rise to a higher than necessary cost increase coming through, as the prospective contractors would almost certainly price-in risks that are presently difficult to quantify accurately.

13.3 It is sensible to extend the contract for the two years; to approve the one year extension now and to delegate to the Director of Environment approval for the second year if circumstances remain the same.

Recommendations

1. That approval be given to the option for a one year extension and a second year in principle on the Household Waste Recycling Centre contract.

2. That the Director of Environment be given delegated authority to negotiate contract changes associated with legislative and/or market changes during the extension period, and, subject to continuing good performance by the management contractors and their agreement, be given delegated authority to extend the contract term by a further year during 2006.

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