Contact: Paul Archer, tel 023 80 383301 email: [email protected]

1. Summary

1.1 The following decisions are sought:

(i) That the Executive Member for Policy and Resources approves the recommendations made by the Conciliator in respect of costs due to Hampshire Waste Services Limited as a result of the architectural enhancement for the Portsmouth Energy Recovery Facility.

(ii) That the Executive Member for Policy and Resources approves that the costs due, less those paid to date, are reconciled and mortgaged over the remaining 18 years of the disposal contract and paid from the annual waste management revenue budget pending the outcome of a planned contract refinancing exercise next year.

1.2 The Executive Member for Environment recommends this proposal.

1.3 The Buildings, Land and Procurement Panel have also considered this proposal via an informal briefing and are happy to approve the Conciliator's settlement recommendation.

2. Reason

2.1 The decision was made to implement the waste strategy in the mid-1990s and delivers energy recovery facilities for residual waste management treatment.

2.2 The Waste Service Contract required the Contractor (Veolia - Hampshire Waste Services Limited) to construct three new Energy Recovery Facilities (ERF). The tender in 1994 was based upon plant built to architectural and engineering standards applicable at that date. The Contract recognised that standards would change during development of the facilities and enhancements would be necessary to comply with latest planning guidelines.

2.3 The Contract allows the Contractor to be properly reimbursed for `pass through' costs of the difference between a standard facility on an average site (as included in the tender) and the actual costs following the grant of planning permission. The Council had been in negotiation with Veolia for several years to reach agreement on the additional sum to be paid in respect of the first completed ERF at Chineham. Ultimately, it was necessary to engage an independent, expert Conciliator to assist the Council's officers in examination of the information submitted by the contractor. Having thoroughly examined the information over a nine month period involving a host of meetings, the Conciliator was able to recommend a settlement outcome with which both parties could agree.

2.4 Given the success of the Chineham conciliation approach, the County Council, Portsmouth City Council and Hampshire Waste Services Limited (HWS) agreed to settle the outstanding claim for architectural enhancement costs in relation to the Portsmouth ERF by retaining the services of the same Conciliator. Within the waste disposal contract operations, broadly two thirds of the waste processed at the Portsmouth ERF originates in Hampshire. Following a process similar in length to the Chineham exercise, the Conciliator has reached the point where he has been able to provide an independent recommendation for the sum due for payment.

2.5 Agreeing to accept the recommendations of the Conciliator in relation to the quantum due to HWS for the costs of higher architectural and engineering standards incurred in the construction of the Portsmouth ERF, but which were not included in the original contract service cost, is the natural conclusion to agreeing to the long term waste disposal contract as the means by which the waste strategy for Hampshire would be delivered.

3. Other Options Considered and Rejected

3.1 The Contract requires that `all reasonable endeavours' are used to resolve issues under the Contract. Conciliation is one of the methods stated. As with any agreement there are other, often far more expensive, methods available such as arbitration and litigation. Not to accept the recommendation of a Conciliator and pursue settlement via arbitration or litigation was considered but was rejected for the following reasons:

(i) An appointed Conciliator is an expert independent professional with a wealth of relevant experience in mediation and/or conciliation related contractual issues. The very nature of mediation/conciliation means that a Conciliator is especially experienced in dealing with contract sums that are high in value and complex to resolve. Conciliators specialise in particular issues and have formal training in the resolution of these specialities. It is highly unlikely that another professional would have come to a materially different opinion in reaching a conclusion on the quantum to be paid to HWS for additional costs from the higher architectural and engineering standards delivered at Portsmouth.

(ii) The County Council and Portsmouth City Council accept, and have always recognised by way of the Contract conditions, that there would be an additional sum due to the significantly higher architectural standards arising from the planning process in relation to the delivery of the ERFs in Hampshire. In recognition of this liability, since its completion circa 75% of the quantum claimed by HWS for the Portsmouth ERF architectural enhancements has been allowed for in the annual revenue budget of the two authorities, pending the verification and validation of the costs presented by HWS. A key aspect of the waste disposal contract and the original strategy was to minimise price risk in the original tenders by paying only for costs actually incurred in enhancing the base contract specification.

(iii) Arbitration and litigation can be a divisive and often costly process both in terms of financial and human (relationship) cost. The long term nature of the Contract (the Contract still has a minimum 18 years to run) and the clear desire both on the part of the client (in this case the County Council and Portsmouth City Council) and the contractor (HWS) to develop and maintain a partnering culture would have been severely compromised if a more formal route was pursued.

(iv) In addition to the client conciliation team being able to reduce the ERF claim, other more significant concessions were achieved as an outcome to the conciliation process, including HWS agreeing to waive its rights to pursue other related costs, including costs incurred by delays in the planning process, for instance income losses associated with delayed electricity generation, costs of appealing the original planning refusal and higher on-going maintenance costs specific to a more complex facility. The quantum for these concessions have been discussed during the conciliation process but without liability falling to the County Council. The contract is not specific about allocation of secondary costs arising from delays attributed to the planning process, but the professional advice from officers and the Conciliator is that litigation could make them allowable. These additional costs have not been examined in detail, but HWS has submitted them in writing to the Conciliator as evidence

(v) Portsmouth City Council officers, having fully engaged in the whole of the conciliation process with inputs from their client, finance and legal teams, have recommended that their Members approve the Conciliator's settlement recommendation. This approval was given in October.

4. Conflicts of Interest Declared by the Decision Maker or Other Executive Member Consulted - None.

5. Dispensation granted by the Standards Committee - None.

6. Reason(s) for the Matter being dealt with if Urgent - None.

Approved by: ...................................... Date: 7 December 2007

Councillor T K Thornber CBE

Executive Member for Policy and Resources

1475Decn/PA