Decision details

12.1

The Executive Director, Place submitted a report recommending alternative service delivery solutions for each service area and, where appropriate, to procure contractor(s) to deliver the services post April 2018. The report also seeks approval for project costs. 

12.2

RESOLVED: That Cabinet:-

(a)

Approves the strategy for the alternative service arrangements for waste services being:-

(i)

Waste and Recycling Collection Service(s)

A seven-year contract (with extensions of up to three years) with a requirement for bidders to set out how they will introduce new ways of working to deliver greater efficiencies and continued safe working practices,

(ii)

Energy Recovery Facility

A five-year (with extensions of up to five years) operation and maintenance contract including the sale of electricity and supply of heat to the District Energy Network,

(iii)

District Energy Network

A two-year (with extensions of up to two years) operation and maintenance contract,

(iv)

Call centre

Insourcing the Call-centre and Communications Service and Management Systems,

(v)

Disposals

Procure a number of disposal contracts depending on which material streams and what can be aggregated.

(b)

approves and budget the project costs as described in section 4.2.12 of the report; 

(c)

delegates authority to the Director of Business Strategy and Regulation:

(i)

in consultation with the Director of Finance and Commercial Services and the Director of Legal and Governance and the Cabinet Member for Environment to approve the final procurement strategy;

(ii)

in consultation with the Director of Finance and Commercial Services and the Director of Legal and Governance  to agree contract terms and enter into contracts at the conclusion of the procurement, and

(iii)

in consultation with the Director of Finance and Commercial Services and the Director of Legal and Governance and the Cabinet Member for Environment to take such steps not already delegated as he deems necessary to achieve the outcomes outlined in the report.

12.3

Reasons for Decision

12.3.1

The option of a fully integrated contract (as now) was discarded as this option did not allow the Council to best meet its objectives, in particular:

·         the opportunity to put in place contracts that match the requirements of specific service areas.

·         procuring separate services is likely to attract more market interest (specialist providers) and competition, and dependence on a single contractor is reduced.

·         services are not tied into a fixed contract cycle and benefit from flexibility of different contract lengths and differing service requirements.

12.3.2

The preferred option is to make separate arrangements for each service, reflecting their specific nature, the Council’s requirements for each service and enabling it to deliver a lower-cost, more flexible service overall.

Collection Service: It is recommended that a seven year contract (with an option to extend by up to three years) provides the best opportunity to meet the Council’s objectives, in particular the opportunity to maximise savings, to put in place a contract that is likely to attract more market interest and service specific requirements focusing on the collection service.  This also provides a contract length that reflects the life cycle of vehicles.  However, the contract will include a requirement for bidders to set out how they will introduce new ways of working which should bring greater efficiencies and safer working practices. It will also seek from bidders a commitment to ensure all components of pay and the staff working arrangement results staff being reasonably remunerated only for work actually undertaken giving regard to the good pay practices in the public sector.

Energy Recovery Facility: To be procured separately from the DEN because the Council has fundamentally different objectives and  there are very different risks.  There is a specific commercial and technical risk of filling the ERF capacity from third party waste, and specialist technical expertise required to manage the ERF.  However the ERF is a well-understood technology and there are a number of potential bidders for a contract.  Based on advice from the Council’s Technical Advisers, the recommendation is to let a five year (with an extension of up to five years) operation and maintenance contract including the sale of electricity, and supply of heat to the DEN.

District Energy Network: There is the opportunity for the Council to strategically develop the DEN.  This combined with the uncertainty over the condition and customer base of the DEN and the risk that this poses to a procurement, leads to a recommendation to let a short-term operating and maintenance contract for the day to day management of the DEN for two years (with an extension of two years).  The Council can then retain ownership and strategic control of the DEN as well as life-cycle development and maintenance costs. It may be necessary to establish a project within the Council to develop a business plan for the future growth and expansion of the DEN. This would include the opportunity to:

·         invest to improve efficiency and performance of DEN, expand the customer base and introduce low-carbon heat sources.

·         allow the Council to take a long-term investment view that is appropriate for DENs, and match that with low cost financing.

·         use DEN expansion to tackle fuel poverty and reduce carbon footprint.

·         generate heat sales income, and

·         assess the true condition and commercial viability of the DEN.

Call centre and communications service – An insourced solution brings the opportunity to regain control of management information and influence the delivery and efficiency of the service, which is considered to be a key benefit and outcome of this project. There will however be a need to ensure the necessary interfaces with the various service providers so that service requests can be transferred to and from the relevant parties following customer contacts. Insourcing this element of the service will also enable the Council to provide an improved service to customers and residents.

Disposals – procure a number of disposal arrangements.  The number of contracts will depend on which material streams can be aggregated together and the condition of the market when procurement is due to commence.

12.4

Alternatives Considered and Rejected

12.4.1

The key strategic objective established for the options review is to significantly reduce the cost of Waste Services and to allow for a more responsive, flexible and sustainable service in the future. The four key project drivers established to assess the options are:

1. SAVINGS: Provides best opportunity to reduce costs and enhance income

2. SIMPLER: Provides best opportunity to focus on outcomes, performance, good working relationships, and not be 'bogged down' by contractual disputes and complex mechanisms to make improvements

3. BETTER: Best able to provide a service that is responsive and flexible to meet Council requirements and changing policy initiatives, such as delivery of the waste strategy, employment and skills, environmental considerations and budget pressures

4. TIME: Is best able to be ensure commencement of new arrangements by January 2018

The OBC describes in detail the alternative options considered and the reasons for the recommended options.

12.4.2

Option One: The first option was to review the advantages and disadvantages of an integrated contract compared to disaggregating the individual functions and contracting on an individual basis. 

12.4.2.1

The table below shows the component parts of IWMC which could be procured/ delivered separately. 

12.4.2.2

The key advantages and disadvantages of an integrated approach are shown in the table below

Key advantages of the alternative approaches.

Advantages of integrated approach.

Advantages of service specific solutions.

• Maximise efficiencies through economies of scale.

·         Reduces the Council’s procurement and contract management costs.

·         Large contract generates significant market interest from leading contractors.

·         Reduces reliance on single provider,

·         Separate contracts generate market interest from specialist providers.

• Integrated contract is large and unwieldy.
• Contract terms canmatch differing service requirements.
• Greater flexibility.

12.4.2.3

The option of a fully integrated contract (as now) was discarded as this option did not allow the Council to best meet its objectives, in particular:

·         the opportunity to put in place contracts that match the requirements of specific service areas.

·         procuring separate services is likely to attract more market interest (specialist providers) and competition, and reliance on a single contractor is reduced.

·         Services are not tied into a fixed contract cycle and benefit from flexibility of different contract length

12.4.3

Option 2 – Review for each Service Area

• Energy Recovery Facility
• District Energy Network
• Waste Collection

These three service areas were reviewed in more detail using a SWOT analysis for each option. The main options included consideration of insourcing, Teckal (company owned 100% by the Council) and an external procurement route. The option review set out the costs, benefits, opportunities, risks for each option, these were then evaluated against the four key project drivers as set out above in section 5.1.

12.4.3.1

Energy Recovery Facility

The ERF is essentially a ‘static’ asset, which needs to be operated at maximum capacity and as efficiently as possible but with no scope for expansion.  The business drivers are to minimise risk and maximise income over the life of the asset.  Income is from a very limited number of ‘customers’, from gate fees for waste processed, and from sales of electricity, heat and associated ROCs (a government subsidy for generating renewable energy).  The ERF is capable of generating significant profits, but there is a high risk associated with filling the capacity and the technical expertise to operate the facility.

The commercial and technical risk of filling the ERF capacity with third party waste, together with the technical expertise required to manage the ERF and the ability to secure long term electricity and heat sales contracts, means the option of insourcing this service would result in too much risk for the Council. It therefore would not meet the Council’s prime objective of securing savings.  The Teckal option does not significantly reduce these risks to the Council and so the recommended option is to procure a contract for the operation of the ERF.  However, it is recommended that the new contract is for a shorter term than the current IWMC in order to provide flexibility to the Council.  The new contract will also seek a significantly higher share of the income that the ERF generates.

12.4.3.2

District Energy Network

The DEN is a more ‘organic’ and strategic asset that is capable of expansion (or contraction) with a very long-term potential operating life.  The DEN has the capacity to grow in length and number of customers supplied, to accept heat from other sources in addition to the ERF, and to deliver strategic benefits including low-carbon heat, energy security, and contributing to tackling fuel poverty.  The business drivers are the need for long-term, low cost capital, delivering a low but secure return on investment.

The Sheffield DEN is the largest, and one of the longest-established heat networks in the UK.  Due to its age, the condition of the pipework of the network is uncertain.  This uncertainty is exacerbated because of the lack of transparency in the IWMC with Veolia.  To be able to realise the potential of the DEN as a strategic asset, the Council would need to take ownership, strategic control, and responsibility for the life-cycle development and maintenance costs of the DEN, however it should be noted that this presents significant risk to the Council. In addition there is uncertainty about the level of investment required to develop the DEN.

Principally because of the opportunity that the Council may wish to strategically develop the DEN, together with uncertainty over the condition and customer base of the DEN and the risk this poses to procurement, the option of selling off the asset or entering into a long-term strategic partnership was discarded and the recommendation is that the Council retains strategic ownership and direction but lets a short-term operation and maintenance contract (which may include billing) to manage the day-to-day functioning of the DEN.

12.4.3.3

Collection Service

There are a number of risks and issues that would arise from insourcing the Collection Service.

An insourced solution would require significant operational and management change in order to drive through service improvements and efficiency savings.  The Teckal (Wholly Owned Company) option was dismissed as the Council could still be considered as an associated employer (determined by the level of control imposed by the Council on the direct employer) and therefore the risk of equal pay claims still exists. The main financial and human resources implications are explained in the table below

Based on the analysis, the option to insource this service at this stage was discarded as this would result in too much risk for the Council and would not meet our prime objective of securing savings.

However, the recommendation is that the contract will include a requirement for bidders to set out how they will introduce new ways of working to bring greater efficiencies and safer working practices and at the same time enable the Council to consider insourcing this service following expiry of the contract.

12.4.3.4

Customer Service Centre & Communications

A key driver for the Council is the opportunity to regain control of management information and influence the delivery and efficiency of the service, which is considered to be a key benefit and outcome of this project. Although a procurement option can provide these support services, the weakness is that the Council would not directly control the management information and be less able to influence the delivery and efficiency of the service.  A procurement option is therefore not the preferred route, however, there is a risk that additional costs could be incurred through an insourced option.   The Teckal option was rejected because the Council already has the infrastructure to provide the required customer service function.

12.4.3.5

Disposals

Under the IWMC Veolia is responsible for the onward disposal or processing of materials collected from Sheffield’s households, bring sites, HWRC’s and residues from the incineration process.  A number of disposal sub-contracts are in place and are market tested every 5 years.

Processing and onward transfer of recyclates and residues requires specialist providers with the necessary technologies and infrastructure, which the Council does not not have.  In addition it is not envisaged that TUPE will apply to these elements of the service.  The options of insourcing and a Teckal arrangement have there not been considered and the only viable option is to conduct a procurement(s) for disposal contracts

12.5

Any Interest Declared or Dispensation Granted

None

12.6

Reason for Exemption if Public/Press Excluded During Consideration

None

12.7

Respective Director Responsible for Implementation

Simon Green, Executive Director, Place

12.8

Relevant Scrutiny and Policy Development Committee If Decision Called In

Economic and Environmental Wellbeing