Meeting documents

1. THE ISSUE

1.1. A market test exercise has been undertaken to establish the best value option for delivering "front line" waste services for the next 10 to 14 years. This was prompted by the recommendations of a Best Value Review. These services are currently undertaken in-house with the exception of the green box service (collection and sorting and bulking of recyclables) which is provided by ECT.

2. RECOMMENDATION

The Council Executive resolves that:

2.1. Appendix C Results of Tenders Received constitutes exempt information according to the categories set out in the Local government Act 1972 (amended Schedule 12A) because it contains information relating to the financial or business affairs of a particular person (including the authority holding that information), and therefore that the public interest is best served by exemption of the information.

2.2. The Council does not award contracts for waste services (Lot 1 and Lot 2) and these services are provided in-house (as paragraphs 7.4.1.8 and 7.4.2.2 of the report).

2.3. The collection, bulking and selling of recycled materials is put through a further procurement process to ensure best value (as paragraph 7.4.1.9 of the report).

3.  FINANCIAL IMPLICATIONS

3.1. The "benchmark" figures used to establish the cost of undertaking the works in-house have been assembled on the required tender basis and these do not therefore directly relate to existing Council budgets. However, the underlying resource position can be demonstrated as similar to that in place at present. Further details of the underlying resource position can be found in Appendix A.

3.2. The Service Plan and budget preparation for 2007/8 has been taking place alongside this market test for Waste Services as a whole. Two key factors arise from a comparison with the in-house benchmark model.

3.2.1. The resource basis has not been reduced to achieve the £100,000 savings expectation included in the budget. This saving will now need to be found in an alternative manner.

3.2.2. The increase in cost from the potential harmonisation of staff is significant and is not provided for in the budget. This is before any further consideration of potential Single Status impacts. The proposal to continue with an outsourced green box collection arrangement seeks to mitigate these costs.

3.2.3. The increased costs are expected to be mitigated by:

(i) The proposal to continue with and outsourced green box collection

(ii) More efficient operation of the in-house service

(iii) Increased efforts to reduce landfill costs and increase recycling rates

4. COMMUNITY STRATEGY OUTCOMES

Sharing resources, working together, and finding new ways of doing things

Taking responsibility for our environment and natural resources now and over the long term

Improving our local economy

Improving our local environment

5. CORPORATE IMPROVEMENT PRIORITIES

Reducing Landfill

Developing a sustainable economy

Improving the public realm

Improving customer satisfaction

6. CPA KEY LINES OF ENQUIRY

Ambition for the community - i.e. What the council, together with its partners, is trying to achieve

Prioritisation of ambitions

Increasing capacity of the council to deliver ambition for the Community to ensure we achieve what we say we will

Managing performance of community ambition to ensure we achieve what we say we will

7. THE REPORT

7.1. Contract Development

7.1.1. As a prelude to the full market testing of Waste Services, a Soft Market Test (SMT) was undertaken at the end of 2005 to establish the views of the major waste management companies on various elements of the likely contract e.g. contract length, operational methods and partnering. The results of the SMT were used to inform the content and packaging of the contract.

7.1.2. The Waste Services Contract length is for 10 years, with the option to extend for a further 4 years and was packaged into two lots:

Lot 1 - Refuse, recycling and garden waste collections, including sorting and bulking of recyclables.

Lot 2 - Operation of the Household Waste recycling Centres, Transfer Stations, haulage of waste and the operation of the Bulky Waste Collection Service.

7.1.3. Companies were invited to tender for either or both lots. The closing date for the receipt of tenders was 11^th December 2006.

7.1.4. It was made clear in the tender documents that the Council would not award a contract(s) if the tenders submitted did not represent better value for money than is capable of being delivered through the current service provision.

7.2. Receipt of Tenders

7.2.1. Tenders were received from the following companies: Cory; ECT; Hills and SITA. In addition, to give a "benchmark" of the in-house costs, a financial comparator (identifying the cost of doing the work in-house) was established by the Association for Public Service Excellence (APSE), an independent local government consultancy. The in-house Waste Services team provided a service improvement and development plan alongside this.

7.2.2. An independent consultant undertook the full contract evaluation and further information on the evaluation process can be found at Appendix B.

7.3. Results of the Tender Evaluation

7.3.1. The results of the bids received are shown at Appendix C. These are expressed as price and overall score, taking account of all the criteria included in the evaluation model.

7.3.2. The margins between the lowest price contractor and the in-house alternative are small. For Lot 1 the lowest price contractor is £51,883 lower than the in-house comparator and for Lot 2, the lowest price contractor is £21,797 higher than the in-house comparator. The same contractor tendered both of these lowest prices and offered a further discount of £53,400 for the award of both Lots.

7.3.3. These margins should be weighed against any extra cost to the Council of externalisation in order to establish the "Best Value" option. The tender documents provided that "In comparing tenders with the cost of in-house provision, account will be taken of any additional costs of a Council monitoring function. The cost of this Council function will take into account tenderers' proposals for performance measurement and self monitoring." Furthermore it was made clear within the tender documents and at the Bidders' Conference that the services would only be externalised if there was a best value benefit and that to externalise in the absence of such a benefit would not be in the Council's interest nor would it deliver the Council's duties.

7.3.4. If the contract were awarded to a private contractor, the Authority would incur an additional £93,000 in direct costs, with a further £237,000 of internal costs that would have to be defrayed against other services. Details of these additional costs can be found in Appendix D.

7.3.5. Analysis of the Service Delivery Plans provided by tenderers and the and the service improvement and development plan drawn up as part of the in-house comparator has identified some benefits which would not be forthcoming through externalisation. Details of these can be found in Appendix E. The net financial margin of the in-house comparator, added to these benefits suggest that there should be no increase in the amount of services provided by contractors and provide an argument for carrying out the entire service in-house.

7.4. Contract Award

7.4.1. Lot 1

7.4.1.1. Two of the bids received showed the highest cost and also showed the lowest scores in terms of service development. There is definitely no benefit to the authority from appointing either of these companies to deliver the services contained within the tender documentation.

7.4.1.2. The bid received from the lowest price contractor and the in-house comparator is very close in every aspect. The in-house figure was stronger in the waste collection cost whereas the contractor bid was stronger in the area of recycling.

7.4.1.3. The role of a sales agent for collected recycled goods is vital and a sum of £50,000 has been allowed within the in-house bid to take account of this.

7.4.1.4. If Lot 1 were to be provided in-house, ECT employees would transfer to the authority under TUPE. ECT's employees have less favourable terms and conditions to Council employees in terms of holiday allowance, sickness absence payment and pension arrangements, though wage rates are broadly comparable. Former ECT employees' terms and conditions would have to be harmonised with those of B&NES, including improved pension rights. The financial impact of this has been assessed at £193,000 per year and this extra amount of money has been included in the in-house comparator.

7.4.1.5. The contractors were not required to include the cost of harmonisation in their tender as it would not apply to them. Excluding this cost from the in-house comparator would give the same evaluation score for both the in-house comparator and the lowest price contractor. It would also make the in-house comparator price significantly less expensive than the lowest tender.

7.4.1.6. The lowest contractor costs are £51,883 less than the in-house comparator, but when the additional monitoring costs and other costs to the Council are considered, the in-house option is overall the lowest financially.

7.4.1.7. ECT possesses a detailed knowledge of recycling systems and local knowledge. Whilst it is possible that this could be transferred and used by the in-house team it is likely to be most beneficial to employ a specialist recycling team to carry out this part of the works. It may therefore be prudent to appoint a contract partner through a procurement and tendering process to undertake the recycling collection, sorting and selling of material on the authority's behalf. In this way the expertise would be retained and the cost involved in TUPE transferring the staff to the Council avoided.

7.4.1.8. As there is no margin of best value to gain from externalising the services offered within Lot 1 it is recommended that these services are provided by the in-house team.

7.4.1.9. It is also recommended that the existing interim contract with ECT for the collection of recycled materials remains in operation in the short term whilst the long term collection, bulking and selling of recycled materials is put through a further (13 week) procurement process. The outcome of this process would result in the Council either letting a contract for these services if a significant gain in terms of cost and / or deliverability would be achieved, or taking the services back to be delivered in house.

7.4.2. Lot 2

7.4.2.1. The bids from three of the companies offered no financial advantage or any added value and can therefore be discounted from the process.

7.4.2.2. The bid from lowest price contractor was £21,797 higher than the in-house comparator and in view of the fact that they have no proven record in this activity and that their Service Development Plan did not offer any other added value, it is recommended that the service continue to be provided by the in-house team.

7.4.3. Lot 1 & 2

7.4.3.1. The lowest priced contractor offered a further discount of £53,400 if they were awarded both lots. Overall for both lots the lowest price contractor is £83,486 less than the in-house comparator, but when the additional monitoring costs and other costs to the Council are considered, the in-house option is overall the lowest financially.

7.4.4. Legal Challenge

7.4.4.1. It was made clear within the tender documents and at the Bidders' Conference that the services would only be externalised if there was a best value benefit and that to externalise in the absence of such a benefit would not be in the Council's interest nor would it deliver the Council's duties.

7.4.4.2. None of the tenders received have offered the Council a financial benefit and all bidders failed to provide a Service Improvement Plan that shows offers significant innovation or added benefit.

8. RISK MANAGEMENT

8.1. The report author and Lead Executive member have fully reviewed the risk assessment related to the issue and recommendations, in compliance with the Council's decision making risk management guidance.

8.2. There are several risks that could occur if the award of the contract is delayed. The first is that the tender documentation states that the prices were to be valid for a period of 180 days from the final date of submission (11^th December 2006) and therefore the prices would be valid until 11^th June 07. As no further executive meetings would be held until after this date, all contractors would have to be formally contacted to see if they will extend the period of validity for their prices. If contractors are not willing to extend their period of validity, new prices would need to be submitted and re-evaluated, increasing costs to both the Council and Contractors.

8.3. The other risk is the increased costs of continuing to operate the existing ECT contract which is currently an interim arrangement. The budget that has been submitted for the first 3 months of 2007/8 financial year is £34,430 (10%) higher than the budget allocation for that period. This overspend will continue to increase the longer the interim arrangements remain in place.

9. RATIONALE

9.1. The market test documentation specified that services will only be externalised if there are sound financial and/or operational benefits. The evaluation of the tenders indicated that there was no best value gain from externalising the services offered within Lot 1 and Lot 2.

9.2. It is however recognised that for the green box recycling service it may be beneficial to have a specialist recycling team to carry out this part of the works and it may therefore be prudent to appoint a contract partner through a procurement process for the collection, sorting and selling or recyclables.

10. OTHER OPTIONS CONSIDERED

10.1. As part of the tender evaluation process the option of externalising these services to a private contractor was considered but rejected as this showed no margin of best value gain.

11. CONSULTATION

11.1. The Project Board which managed the Market Test process included the Executive Councillor and representatives of the O&S panels for PTS and Major Projects. Trades Unions representatives were invited to attend as observers where appropriate. The Section 151 Finance Officer and the Monitoring Officer have been consulted and their advice taken as appropriate throughout the procurement process.

11.2. Other Council services have been consulted to ensure robust financial, legal and Human Resource advice has been taken into account in arriving at the recommendations of this report.

11.3. Potential tenderers were consulted on the content, packaging and process of the procurement exercise through the Soft Market Test and their views informed the Council's approach.

11.4. The specifications used in the tender process were informed by the Council's Waste Strategy which has been (and continues to be) the subject of wide consultation with the public, stakeholders, Members, etc. The Market Test exercise itself was a component of the action plans contained within the Waste Strategy.

12. ISSUES TO CONSIDER IN REACHING THE DECISION

12.1. Customer Focus; Sustainability; Human Resources; Property; Impact on Staff; Other Legal Considerations

13. ADVICE SOUGHT

13.1. The Council's Monitoring Officer (Council Solicitor) and Section 151 Officer (Strategic Director - Support Services) have had the opportunity to input to this report and have cleared it for publication.