The city council claims that whatever the outcome, the cost of the contract will be “substantially higher than the cost of the existing service provision.”
Southend determined the increased cost at a series of early market engagement exercise events in March, hosted to “speak to the leading companies in the waste industry” and help inform their procurement approach.
The council said it had become clear during the events that “the market is now extremely risk-averse.”
A report which will go before the cabinet said that, previously, contractors would take on most risks and often price for them. Now, the council claims many have become so-called ‘showstoppers’, meaning that they simply would not entertain bidding.
Risk aversion
The council noted the following reasons as why the market appears risk-averse:
- Inflation/indexation risk – inflation clauses reflect “uncontrollable” cost rises during the life of the contract. This is especially relevant to employment and fuel costs
- Value and volume of recyclates – the revenue from the sales of recyclates should go to Southend and not be ‘underwritten’ by the service provider
- Any form of significant penalty for not increasing recycling levels/reducing residual waste. This is due to contractors’ “limited ability to affect it”. Southend would wish to have some form of incentive or penalty to drive performance in this area
- Payment mechanism – would need to incentivise performance and allow flexibility as the contract and legislation evolve over time
Southend also said the market showed “little interest” in including commercial waste collections as “some felt it would be hard to compete with those who are already established in the area.”
Procurement
In January, Southend opted against renewing Veolia’s collections contract, which it signed in 2015 on an initial eight-year deal, with the option to extend by a further eight years (see letsrecycle.com story).
At the time, the deal was valued at around £150 million over its 16-year lifetime.
Veolia fought off competition from Serco, Urbaser, Amey, Biffa and SITA UK (now Suez) to secure the deal.
Southend noted that, when reprocuring, continuing weekly collections will be “popular” with residents, but expressed concern that to do so would not increase recycling rates as much as other options.
The two-stage procurement process, to be approved at next week’s meeting, will see bidders submit two priced outline proposals in late 2022 – one for a full weekly collection service and a second allowing bidders more flexibility.
Southend’s cabinet will then be asked to decide on the service model required and frequency of collection ahead of the second stage of procurement. This will need a more detailed proposal which will be evaluated ahead of the awarding of a contract in autumn 2023. A new contract would start in May 2024, with an extension to the current Veolia contract put in place in the meantime.
‘Useful’
Commenting on the market engagement exercises, Cllr Paul Collins, cabinet member for asset management and inward investment, said: “These sessions have been incredibly useful for us to better understand the waste sector, the current challenges it faces and how that affects us and help inform our approach to the procurement of this new contract.
“This report clearly lays out the feedback from the industry, and a two-stage procurement process will allow cabinet to make an informed choice towards the end of the year about what sort of waste contract we want to go for in the future, taking into account a range of issues including environmental and financial factors alongside frequency and method of collection, for example.”
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