Archived decisions

HAMPSHIRE COUNTY COUNCIL

Decision Report

EXECUTIVE SUMMARY

1) Summary of Decision Area

1.1. That the Executive Member agrees the Tripartite Agreement and the new Service Level Agreement (SLA).

2) Issues Covered in Report

2.1. The County Council, Southampton City Council and Portsmouth City Council are joint clients to the long term waste disposal contract and Household Waste Recycling Centre (HWRC) management contract.

2.2. The County Council has drafted and agreed with Portsmouth and Southampton City Councils a new Tripartite Agreement formalising how costs arising from the waste disposal and HWRC management contracts are shared. The client authorities have been sharing costs on the basis set out in the new Tripartite Agreement since 1 April 2007.

(i) Monthly fixed fee - The revised Tripartite Agreement proposes sharing the monthly fixed fees for each piece of Hampshire waste infrastructure with the cities in proportion to the volume of waste arising in their administrative areas. This is more equitable than the previous arrangement where authorities only contributed to infrastructure within the contract areas falling within their administrative boundaries.

(ii) Variable gate fee - The Agreement proposes sharing variable gate fees using average unit rates for each type of waste and disposal route. This will reduce the inequity of using unit rates for each type of waste at each individual disposal point and improve the working relationship between the client partners by reducing the likelihood of disagreements.

(iii) HWRC management fee - The Agreement proposes that all HWRC management fees are totalled and shared in proportion to the site users resident in each of the administrative area. This change was required to reduce complexity and improve equity between client partners for cost sharing.

(iv) Distribution of targeted grant - Under the revised Agreement, income from targeted Government grant relating to waste disposal services is shared in proportion to the volume of waste arising in each administrative area. This is an improvement to the previous arrangements where the Government's distribution of targeted grant to each authority often did not reflect the cost pressure arising in each area.

2.3. In addition to the Tripartite Agreement, a Service Level Agreement (SLA) is in place describing the contract management and administration services provided by the County Council on behalf of Portsmouth and Southampton City Councils. The SLA has also been rewritten to ensure it covers the full scope of contract management and administration services provided. The County Council has also negotiated an increase in the SLA fee such that it more fully reflects the costs incurred.

2.4. There is a net cost to the County Council of £46,000 in 2008/09 from the revised Tripartite Agreement and SLA. However this cost is reducing annually and needs to be set against the significant improvement in the working relationship with Portsmouth and Southampton City Councils since the new Tripartite Agreement and SLA have been trialled from 1 April 2007.

2.5. It is clear that the improved working relationship has already brought significant benefits for contract management and focused work on efficiency projects. It is arguable that without this improvement and working collaboratively on the HWRC Trade Waste Controls and Contract Refinancing Negotiations projects, multi million pound outcomes would not have been achieved to the same timescales, thus impacting on the 2009/10 budget.

3) Recommendation:

It is recommended that:

3.1. The Tripartite Agreement and the new Service Level Agreement be agreed.

MAIN REPORT

1) Contextual Information

1.1. In 1996 Hampshire County Council entered in to a long term waste disposal contract with Hampshire Waste Services (HWS) Limited. The contract is based upon three geographical areas reflecting the intention that sub regions within Hampshire should be responsible for their own waste arisings and that contract infrastructure should be sized accordingly within each of the sub-regions. The sub-regions are the North Disposal Contract Area, the South East Disposal Contract Area and the South West Disposal Contract Area.

1.2. When the contract commenced in 1996 the County Council had responsibility for the provision of the waste disposal service in Hampshire, Portsmouth and Southampton administrative areas. From 1 April 1997, under local government reorganisation, both Southampton City Council and Portsmouth City Council became administratively independent from the County Council and took on responsibility for waste disposal in their administrative areas.

1.3. Contractually, the County Council remained principal client on the waste disposal contract and was responsible for contract management and administration, including making payments to the contractor. Therefore it was necessary to put in place arrangements for the sharing of disposal contract costs with the unitary authority partners and establish the scope and costs of the contract management and administration services that would be delivered by the County Council on their behalf. In 1997 the County Council produced a Tripartite Agreement describing how the service costs were to be shared and an SLA describing the scope and cost of the contract management and administration services provided by the County Council to Portsmouth and Southampton City Councils.

1.4. Payments to HWS under the waste disposal contract consist principally of a monthly fixed fee covering the capital cost of each piece of infrastructure and the fixed operating costs of the facility, and a variable gate fee for each tonne of waste processed. In addition, the authorities also make payments to Hopkins Recycling Limited (and formerly Veolia Environmental Services) under the HWRC management contract and a small number of other contractors for disposal of waste from HWRCs which does not fall within the waste disposal or HWRC contracts.

1.5. From 1 April 2007 a series of revisions were made to the Tripartite Agreement and SLA to improve fairness/equality in the sharing of costs, improve working relationships and allow a greater focus on contract management. This report seeks endorsement of the changes that have been made to the Tripartite Agreement and SLA and the resulting benefits to the working relationships and contract management.

2) Key Issues

2.1. Monthly fixed fee.

2.2. Variable Gate Fee.

2.3. HWRC Management Fee.

2.4. Distribution of targeted grant.

2.5. Service Level Agreement.

3) Monthly fixed fee

3.1. Under the original Tripartite Agreement the authorities Portsmouth and Southampton City Councils shared only in the fixed costs of waste infrastructure in the South East and South West Disposal Contract (DC) areas. However the construction costs of the Energy Recovery Facilities (ERF) varied significantly across the DC areas. This was due in particular to large differences in the architectural treatments required to achieve planning consents for the facilities and, for the Marchwood ERF facility, the additional costs of circa £6 million relating to a change in site.

3.2. The revised Tripartite Agreement changes the arrangements for the sharing of fixed fees to a single-contract whole-county approach. Each authority shares in the fixed costs of all facilities across the whole contract area in proportion to the percentage of waste arising in its administrative area. As such, all fixed fee expenditure (estimated £38 million in 2009/10) is shared in the following proportions:

(i) Hampshire County Council 77.00%;

(ii) Southampton City Council 11.52%;

(iii) Portsmouth City Council 11.48%.

4) Variable gate fees

4.1. The contract specifies gate fees per tonne for each individual type of waste at each individual disposal point. As with the fixed rates, the resultant 100+ variable gate fees varied significantly across the county, creating some cost inequity for the client authorities. This occasionally led to authorities taking parochial positions on some operational and financial issues standing in the way of effective contract management.

4.2. It was therefore accepted that in the revised Tripartite Agreement variable costs would be shared using 13 average unit rates reflecting the type of waste and how it is processed. This meant there is a single rate for each of collected dry recyclables, collected landfilled, collected incinerated, etc.

5) HWRC Management Fee

5.1. Management fees for the majority of Hampshire's 26 HWRCs are paid according to the administrative area in which the site was situated. Where it was likely that a site was used by residents from more than one administrative area, the management fee for that site was shared in proportion to usage based on a site-user survey.

5.2. The management fees varied considerably across sites and it was felt that the cost sharing approach should more closely reflect site usage across the whole network. Therefore under the revised Tripartite Agreement all HWRC management fees are shared on the basis of county-wide HWRC user-percentages as below:

(i) Hampshire County Council: 84.42%;

(ii) Portsmouth City Council: 6.85%;

(iii) Southampton City Council: 8.73%.

6) Distribution of targeted grant

6.1. Targeted Government grants are occasionally provided to fund the cost of unfunded pressures arising as a result of changes in legislation, eg fridge disposal. However the approach used by the Government to distribute the grant based on population as part of the local government financial settlement did not necessarily reflect where the cost pressure arose in Hampshire.

6.2. As a result it was agreed that under the revised Tripartite Agreement targeted grant income would be shared in proportion to the fixed fee percentages reflecting total tonnage arising under the contract from each administrative area.

7) Service Level Agreement

7.1. When the Tripartite Agreement was reviewed it was also timely to review the SLA which described the scope and costs of the contract management and administration services provided by the County Council on behalf of Portsmouth and Southampton City Councils. The original document did not fully reflect all of the services provided and the SLA fee (£24,000 each in 2007/08) did not provide for an adequate share of the costs of the service provided.

7.2. A new SLA was produced which contained considerably greater detail on the contract management and administration services provided. A higher SLA service fee was also negotiated of £55,000 each for 2008/09.

8) Evaluation

8.1. The original Tripartite Agreement was developed prior to and during the first years of the contract becoming operational and was intended to provide a legitimate basis for sharing costs based in part on the principles underlying how HWS charge the County Council and on each sub-region being responsible for waste arising in that area.

8.2. Since 1997, through joint agreement and in response to external factors or financial/operational pressures, the contract infrastructure and service delivery has differed from what was envisaged when the contract was signed. The original Tripartite Agreement and SLA do not fit the new circumstances and can create obstacles to collaborative working with the County Council's client partners.

8.3 The new SLA arrangements with Portsmouth and Southampton City Councils provide greater clarity on what the County Council delivers to the cities, clearly demonstrates the value added by the County Council to joint service delivery and more appropriately compensates the County Council for its inputs.

8.4 The new Tripartite Agreement simplifies the cost sharing arrangements, removes the potential for debate on minor technical financial issues and allows a much greater focus on working together to resolve contractual issues, in particular with HWS. In the two years the revised arrangements have been trialled, the working relationship between the client partners has improved significantly. The authorities continue to work in a collaborative way to secure tangible improvements in contract management, step-changes in performance each year and secure significant savings through efficiency projects such as HWRC Trade Waste Controls and Contract Refinancing Negotiations.

8.5 As shown below there is a net cost to the County Council from the arrangements in the new Tripartite Agreement and SLA of £46,000:

Comparison of costs shares between authorities from New Tripartite, Additional HWRC costs and SLA payment

2008/09	Hampshire County Council (£)	Portsmouth City Council (£)	Southampton City Council (£)	Total (£)
Old Tripartite Basis	46,584,207	6,436,088	7,529,592	60,549,887
	76.94%	10.63%	12.44%	100.00%
New Tripartite Basis	46,896,101	6,285,787	7,367,999	60,549,887
	311,894	- 150,302	-161,592	-
	77.45%	10.38%	12.17%	100.00%
Additional HWRC Costs	-204,000	107,000	97,000	-
Additional SLA Payment	-62,000	31,000	31,000	-
Total Cost/(Saving) under agreement	45,894	-12,302	-33,592	-

8.6 Whilst the cost sharing arrangements under the new Tripartite Agreement and SLA does result in an additional cost to the County Council in 2008/09, the overall difference is negligible when compared to the total service cost and is set to reduce annually. In addition, it is clear that the improved working relationship has already brought significant benefits for contract management, performance and focused work on efficiency projects. It is arguable that without this improvement and working collaboratively on the HWRC Trade Waste Controls and Contract Refinancing Negotiations projects, savings of £4.5 million may not have been delivered within the timescales they have.

9) Conclusions

9.1. The County Council shared waste disposal contract costs with its partners Portsmouth and Southampton City Councils under a Tripartite Agreement drawn up in the early years of the contract operation.

9.2. Over time, as the contract delivery and ongoing operation became adapted to ensure financial and operational efficiency, the Tripartite Agreement needed revisiting to ensure it remained suitable and supported a positive collaborative working relationship between the clients.

9.3. The County Council provides contract management and administration on behalf of Portsmouth and Southampton City Councils through an SLA. This too has become outdated and does not now reflect the scope or cost of services provided by the County Council.

9.4. A new Tripartite Agreement and SLA have been prepared and agreed with Portsmouth and Southampton City Councils which better reflects the new contractual and operational circumstances, and removes many of the obstacles to a positive working relationship.

9.5. The additional cost to the County Council of £46,000 under these new arrangements is more than outweighed by the financial gains to the County Council from efficiency projects in 2008/09, which arguably may not have been delivered to these timescales under the previous arrangements.

10) Recommendation

Please see Executive Summary for recommendation.

1967Rpt/650/CH

CORPORATE OR LEGAL INFORMATION:

COMPREHENSIVE RISK & IMPACT ASSESSMENT:

1) Equalities Impact Assessment:

a) The Tripartite Agreement will not compromise the County Council's policy on race and equalities.

2) Impact on Crime and Disorder:

a) No adverse impact.

3) Climate Change:

a) How does what is being proposed impact on our carbon footprint / energy consumption?

· The improved working relationship has resulted in continued performance improvements meaning increased landfill diversion and thus further reductions in methane levels.

· The client authorities are also working together more effectively on feasibility studies for projects which will have a real carbon footprint impact, eg introducing Combined Heat and Power (CHP) within the ERF infrastructure.

b) How does what is being proposed consider the need to adapt to climate change, and be resilient to its longer term impacts?

· The improved working relationship means it is more likely that further joint working on environmental matters will take place.