Procurement

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The Advantage in the Waste Industry

Applying Procurement Best Practices to Achieve Cost Savings and Enhance Waste Management Service Performance
Dr. Adam Read and Hannah Lawrie
The UniTed Kingdom (UK) governmenT and European Union (EU) have set stringent targets for the solid waste management industry to meet over the next 10 years. The UKs failure to meet the landfill diversion targets will result in potential fines from the EU for non-compliance of 150 (about $242) per ton and landfill tax in the UK is set to increase to 80 (about $127) per ton by 2014/2015. As such traditional collection and treatment systems are increasingly no longer economically viable in the UK. The UK met its 2009/2010 EU Landfill Directive1 target (to reduce biodegradable municipal waste [BMW] levels landfilled to 75 percent of 1995 levels) and England achieved a recycling and composting rate of 39.7 percent. This achievement has required significant investment in new systems and services, but further improvements will be necessary to achieve future recycling and composting, and landfill diversion targets. The challenge facing the UK is that this requirement sits against the backdrop of increased financial pressures resulting from the UKs biggest ever peacetime economic deficit. The recent comprehensive spending review undertaken by the UK Government has resulted in real-term reductions of 28 percent of local authority budgets over the next four years. This means that local authorities (LAs) are faced with very real and tough choices about which services they can keep running and at what levelmany authorities are considering fortnightly residual waste collections, whilst others are halting their procurement of new infrastructure to re-assess their planned expenditure and look at cheaper and more short term solutions to meeting their landfill diversion targets. Going forward it is more important than ever before for LAs to look to realize cost reductions in their services. One way to achieve this is to ensure that procurement programs (when contracts for services and new infrastructure are contracted out to the private sector) secure the right services and facilities to deliver against these targets in an economically affordable and environmentally acceptable way. Current UK procurement procedures allow LAs to award the provision of their services in a competitive environment thus helping to drive up the quality and reduce the costs of those services. Privatization of the UK waste management sector dates back to the early 1990s when a number of U.S. and French waste management companies were successfully awarded contracts under the Thatcher Conservative Government. A number of local authority waste management service procurement assignments have been completed over the last three to four years which have achieved cost benefits, improved performance and/or increased environmental benefits as a result of going out to the market and using best practice approaches, some of the lessons from which are shared here.

Recent procurement activity in the UK has deliveRed moRe costeffective Recycling and ResidUal waste collection and tReatment solUtions.

Project Resourcing
To achieve the best possible results, the procurement process must be adequately and appropriately
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applying Procurement Best Practices to achieve Cost Savings and enhance Waste management Service Performance
resourced. The internal project team must be in place and have the necessary level of manpower and decision making powers for the duration of the procurement process to ensure it progresses smoothly. In addition, the contract management team must have the necessary skills and knowledge required to effectively manage the contracts once they are let. The value of retaining external technical, legal and financial advisors cannot be underestimated, providing additional resources, expertise and experience that can be applied to the project as and when needed. refuse collection, MRF operations, etc.) a decision will need to be made about how the contract(s) should be packaged. Disaggregating waste contracts can open up the market to smaller companies or niche providers for the the Waste Industryservices, creating The Advantage in different a more competitive bidding environment and thus driving down the price of the solutions. This approach has proved popular in the UK where the government has recently advised that LAs must seriously consider disaggregation of their current bundled service contracts before going to market. However, when deciding to split the number of contracts/services, an authority must also consider the timetabling of the procurementswill they all happen in parallel, or would the letting of one contract be more important in setting the scene for latter procurements? Authorities must also consider the resourcing needed to manage parallel procurementsa tough challenge for many municipal departments.

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Project Scope and Design

A detailed appraisal and modelling exercise of the various options (whether collection or treatment) for the management of waste both now and in the foreseeable future must be undertaken prior to commencing procurement. This can help provide assurance to local authority elected members that they are going to market with a solution that is affordable and deliverable, whilst giving the private sector comfort that this is a rational and fully supported solution. Bear in mind that this can only be fully tested when going to market and getting their proposals in terms of actual solutions and costs.

Procurement Documentation Development

A very important part of any procurement process is the development of the documentation. In some cases the existing documentation may be stronger and more effective than in other cases. Poor documentation (specification, instructions, contracts etc.) will mean a great deal of work upfront will be required to ensure the contract documentation is robust enough to give the internal team managing the contract going forward the tools to do this effectively. It is recommended that proposed changes or variations to the service,

Procurement Strategy
If a number of services are being contracted out at the same time (street cleansing,

Three Case sTudies

The examples cited here are drawn from three case studies in the uK: Thurrock Council, Milton Keynes Council and Charnwood Borough Council. The benefits achieved for each of these las is summarized as follows.

ThurroCK CounCil
The procurement process (for six parallel contract lots covering waste collection and recycling, household waste recycling centers, material recovery facility, composting facility, organic treatment facility and landfill) was completed in only a nine-month periodthis is almost unheard of in terms of UK waste management service procurement. The procurement culminated in the successful procurement of the six waste contracts listed above and a separately procured seven-year interim residual waste treatment contract with estimated savings of approximately 2M (about $3.2M) per year for the Authorityan 18 percent annual savings to the Authority compared to the costs incurred for the delivery of these services in previous years. It is anticipated that the new contract will achieve the increased recycling and composting targets set out in the Councils waste strategy of up to 50 percent and will realize significant environmental benefits (reduced carbon footprint). The Council also has in place strong contract documentation resulting from the procurement process that will allow far greater control over the performance of the contract over the next seven years.

MilTon Keynes CounCil

The Council procured a new street cleansing and waste collection contract that increased recycling and composting performance from 38 percent at the end of the previous contract to 54 percent in 2010/2011. This is in part due to the Council being able to add an enhanced food and garden waste collection service at no extra cost because of the competitive prices realized through the procurement process. The Council separately procured a new operating contract for their materials recycling facility that resulted in an estimated fivefold increase in income to the Council and the introduction of infrastructure improvements resulting in a 50 percent reduction in rejected materials from the facility.

Charnwood Borough CounCil

The procurement process delivered a more reliable waste and recycling collection service and an extensive new marketing budget to help drive up residential recycling and composting ratesincreased from 40 percent to 57 percent in 2011/2012, thus bringing the Council into the top quartile of all UK authorities. This was achieved alongside estimated annual savings of 20 percent of the operating budgetequivalent to 1.3M (about $2M) per year.

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which are anticipated over the life of the contract (and can be adequately scoped at the procurement stage), are also incorporated so that competitive quotes could be sought for these changes. This avoids expensive variations in years one to seven of the contract. Good documentation provides bidders with guidance on the scope and level of service required, and the extent of information required during the bidding process. This reduces the possibility of bidders under (or over) pricing (by interpreting the quality of service required in different ways) and results in competitive bids being received. Many waste related procurement processes in the UK use output-based (the contract requires the bidders to meet specific targets, but does not specify how the service is to be delivered, leaving this up to the bidders to propose their ideal approach) performance driven contracts which enable LAs to deliver continuous improvement in service performance over the contract life. A reward and deduction system is often introduced, which enables the LA to reward the contractor for meeting contract performance standards and penalize the contractor for failing to meet them.

Hannah Lawrie is a Principal Consultant in AEAs Waste Management and Resource Efficiency Group. A leading UK waste procurement specialist with a portfolio The single service to of major waste service and infrastructure projects fromAdvantage in the Waste Industryintegrated service delivery, and from refuse collection to MBT facilities, Hannah has led and delivered procurement support to both the public and private sector. She has brought her expertise to major clients like Essex County Council, Milton Keynes Council, Shanks Waste Management and Atlantic Waste Paper. She has spoken at UK and U.S. conferences on waste service design, procurement and monitoring and has written papers on best practice in procurement and in delivering value for money consultancy support.

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Notes 1. Landfill Directive 1999/31/EC (European Council, 1999).

Tender Evaluation Process

Historically, many UK procurement processes focused heavily on the lowest priced bid, but now service quality based criteria are commonly used to ensure that the local authority drives up service performance through the procurement process in addition to assessing cost. To support this approach, an experienced evaluation team with a high level of technical understanding is integral to ensuring tenders are accurately evaluatedto fully understand the cost submitted against the level of service offeredand to provide an independent review of the bid submissions. The input of specialist external consultants is particularly critical here in judging the quality, reliability and deliverability of the proposals. For LAs responsible for the collection, treatment and disposal of municipal solid waste, effective procurement is integral to ensuring services and contracts are delivered that drive up recycling and composting rates, increase diversion from landfill and promote sustainable waste management. Crucially, it will need to do so at a reduced overall cost to the tax payers (residents). The right support from external advisors has been vital in realizing many of these benefits, and with the public sector looking to make annual savings through redundancy programs, the role of specialist consultants is likely to grow. Although based on UK experience, the best practice approaches set out above are valid for any U.S. municipal authority or organization looking to drive up performance and drive down costs through the future procurement of their waste management services. Saving money and protecting the environment are now major features of public sector service provision the world over, and with the recession expected to continue to impact on public sector funding for years to come, effective procurement is critical in delivering better value for money solutions. | WA Dr. Adam Read is Global Practice Lead for AEAs Resource Efficiency and Waste Management Group. A waste management specialist with over 17 years of operational experience in both the UK and overseas, he was awarded an honorary professorship in 2002 for his pioneering work on waste communications and public engagement. Adam leads a team of waste and resource management consultants at AEA specializing in resource efficiency, product design, clean technologies, waste management strategy, procurement, technologies, training and behavior change. He is recognized as a leading waste management thinker with an extensive portfolio of research papers, conference articles and collaborative investigations. He is a Fellow of the Royal Geographical Society and a Fellow of the Chartered Institution of Wastes Management. Adam can be reached at +44 (0) 870 190 2552 or e-mail on adam.read@aeat.co.uk.

2011 Waste Advantage Magazine, All Rights Reserved. Reprinted from Waste Advantage Magazine. Contents cannot be reprinted without permission from the publisher.

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