Agenda item

17.1

The Executive Director, Place submitted a report seeking authority to agree terms in settlement of a number of disputes that have arisen between the parties under the Integrated Waste Management Contract (IWMC) and to agree amendments to the IWMC to realise cost savings that will ensure the IWMC remains affordable and sustainable for the Council. The intended outcome of this strategy is to significantly reduce the cost of Waste Services and to allow for a more responsive and sustainable service in the future.

17.2

RESOLVED: That Cabinet:-

(a)

approves the terms of the settlement of a number of disputes that have arisen between the parties under the Integrated Waste Management Contract (IWMC);

(b)

agrees amendments to the IWMC in line with this report to realise cost savings that will ensure the IWMC remains affordable and sustainable for the Council; and

(c)

to the extent not already covered by existing delegations, authorises the Executive Director of Place, in consultation with the Director of Finance and Commercial Services and Director of Legal and Governance, to take such steps as appropriate to implement the above recommendations.

17.3

Reasons for Decision

17.3.1

Resolving the disputes that have arisen between the parties under the IWMC and agreeing proposals to realise cost savings will ensure the IWMC remains affordable and sustainable for the Council. 

17.4

Alternatives Considered and Rejected

17.4.1

There are two alternative options open to the Council:

Option One: No change to current contract;

Option Two: Go out to procurement as set out in the Cabinet Report of January 18^th 2017 and pursue the disputes.

17.4.2

Option One: The Council could continue with the IWMC in its current form but this would mean that the Council would not achieve any financial savings. The implications of not achieving budget savings would mean that the Council would need to find savings elsewhere and potentially result in service cuts in other parts of the Council. The Council would also have to resolve any outstanding disputes and as, mentioned in the report, above there is no absolute guarantee that the Council would be successful in such matters.

This option is dismissed as it does not achieve any financial savings.

17.4.3

Option Two: Proceeding with the procurement is still a viable option, but this report is seeking the opportunity to reach agreement with Veolia to resolve outstanding disputes and realise significant savings. If the recommendations detailed in this report are not approved the Council will revert to the procurement route and would need to resolve any outstanding disputes through other means.  The key reasons why, on balance, the recommendation is to reach agreement with Veolia is because of the following key risks in relation to the procurement option:

•      Level of termination payment:There is a risk that the Council and Veolia may not be in agreement on the compensation payment due to Veolia in the event the IWMC was terminated, which could result in a lengthy and costly court process to resolve.

•      Competition in the market (& tender prices): Although the procurement option provides an opportunity for savings compared to current contract prices, there is no guarantee that such savings can be realised until fully tested in the market.

•      3^rd party waste to fill Energy Recovery Facility capacity: The risk to the Council if a contractor is not able to fully secure the feedstock (other waste) for the Energy Recovery Facility (ERF) which would mean reduced income share to the Council, and could cause operational issues to the ERF.Also the Council’s share of income from the ERF will be exposed to energy market price risk.

•      District Energy Network condition: The short-term Operation & Maintenance contract proposed would only take on low level maintenance risks, so the Council would retain responsibility and the risk of major repairs and maintenance under this model.

•      Management Information: Through remaining with Veolia the Council is mitigated from the risk of knowledge and information transfer between the existing and any new contractor.

This option is therefore dismissed because the preferred option, although challenging, provides greater certainty of savings that can be applied at least 12 months earlier than the procurement option.

17.5

Any Interest Declared or Dispensation Granted

None

17.6

Reason for Exemption if Public/Press Excluded During Consideration

None

17.7

Respective Director Responsible for Implementation

Laraine Manley, Executive Director, Place

17.8

Relevant Scrutiny and Policy Development Committee If Decision Called In

Economic and Environmental Wellbeing

17.1

The Executive Director, Place submitted a report seeking authority to agree terms in settlement of a number of disputes that have arisen between the parties under the Integrated Waste Management Contract (IWMC) and to agree amendments to the IWMC to realise cost savings that will ensure the IWMC remains affordable and sustainable for the Council. The intended outcome of this strategy is to significantly reduce the cost of Waste Services and to allow for a more responsive and sustainable service in the future.

17.2

RESOLVED: That Cabinet:-

(a)

approves the terms of the settlement of a number of disputes that have arisen between the parties under the Integrated Waste Management Contract (IWMC);

(b)

agrees amendments to the IWMC in line with this report to realise cost savings that will ensure the IWMC remains affordable and sustainable for the Council; and

(c)

to the extent not already covered by existing delegations, authorises the Executive Director of Place, in consultation with the Director of Finance and Commercial Services and Director of Legal and Governance, to take such steps as appropriate to implement the above recommendations.

17.3

Reasons for Decision

17.3.1

Resolving the disputes that have arisen between the parties under the IWMC and agreeing proposals to realise cost savings will ensure the IWMC remains affordable and sustainable for the Council. 

17.4

Alternatives Considered and Rejected

17.4.1

There are two alternative options open to the Council:

Option One: No change to current contract;

Option Two: Go out to procurement as set out in the Cabinet Report of January 18^th 2017 and pursue the disputes.

17.4.2

Option One: The Council could continue with the IWMC in its current form but this would mean that the Council would not achieve any financial savings. The implications of not achieving budget savings would mean that the Council would need to find savings elsewhere and potentially result in service cuts in other parts of the Council. The Council would also have to resolve any outstanding disputes and, as mentioned in the report, there is no absolute guarantee that the Council would be successful in such matters.

This option is dismissed as it does not achieve any financial savings.

17.4.3

Option Two: Proceeding with the procurement is still a viable option, but this report is seeking the opportunity to reach agreement with Veolia to resolve outstanding disputes and realise significant savings. If the recommendations detailed in this report are not approved, the Council will revert to the procurement route and would need to resolve any outstanding disputes through other means.  The key reasons why, on balance, the recommendation is to reach agreement with Veolia is because of the following key risks in relation to the procurement option:

•      Level of termination payment:There is a risk that the Council and Veolia may not be in agreement on the compensation payment due to Veolia in the event the IWMC was terminated, which could result in a lengthy and costly court process to resolve.

•      Competition in the market (& tender prices): Although the procurement option provides an opportunity for savings compared to current contract prices, there is no guarantee that such savings can be realised until fully tested in the market.

•      3^rd party waste to fill Energy Recovery Facility capacity: The risk to the Council if a contractor is not able to fully secure the feedstock (other waste) for the Energy Recovery Facility (ERF) which would mean reduced income share to the Council, and could cause operational issues to the ERF.Also the Council’s share of income from the ERF will be exposed to energy market price risk.

•      District Energy Network condition: The short-term Operation & Maintenance contract proposed would only take on low level maintenance risks, so the Council would retain responsibility and the risk of major repairs and maintenance under this model.

•      Management Information: Through remaining with Veolia the Council is mitigated from the risk of knowledge and information transfer between the existing and any new contractor.

This option is therefore dismissed because the preferred option, although challenging, provides greater certainty of savings that can be applied at least 12 months earlier than the procurement option.