Pension costs feature in Croydon’s collection contract process

The south London borough is to look for an external contractor, partly because of fears that bringing the work in house would be more expensive because of corporate overheads and pension liability – and that establishing a viable and high-quality in-house service provision would be high risk.

The south London local authority is one of four boroughs within the South London Waste Partnership and all agreed to not continue with Veolia as their collection contractor after 31 March 2025 when the company’s eight year work for the authorities is up for renewal.

Instead the boroughs are all to source their own contractors. Croydon’s cabinet met last week and discussed a report which said the tender would be attractive to bidders given the size of the borough and its assets such as transfer stations and depot.

We are confident that this will be an attractive contract and generate a competitive interest

– Report to Croydon council cabinet

“We are confident that this will be an attractive contract and generate a competitive interest from the market,” the cabinet was told in a report on the waste procurement plans.

Outsourcing

Croydon has looked at bringing the work in-house or setting up an arms-length company but councillors were warned that this had its drawbacks. They were told: “The outsourcing model carries much lower risks for the council in terms primarily of HR and pension contributions and is thus the recommended option.”

Following the cabinet approval for a procurement process to start, the borough’s executive mayor Jason Perry said that the decision to procure came “after listening to concerns from residents” and said the new contract will “improve the image of our borough and provide more reliable services for our residents”.

A statement from the borough reported that a new contractor would be held to account if it underperformed, explaining: “Executive mayor Jason Perry has also been clear that the council will be taking a greater focus on contract management within any new agreement to enable the council to hold contractors to account if they underperform.”

Risks

Croydon’s cabinet were advised in a report that the procurement process had a number of risks.

A red warning was given over costs. The cost of delivering these services on a like for like basis will increase for the reasons set out in the report, the cabinet were told. To counter this, the report said: “The council will continue to review service designs, technology, commercial dialogue will enable the council to highlight the markets proposed financial cost early in the process and gives the flexibility to amend the specification and service requirements within an agreed financial envelope.”

Other risks (amber) include that all 4 neighbouring borough are currently considering approaching the market for a new waste and street cleansing service in 2023. This may cause the market to be selective or result in resource pressure within their respective bid teams.

And, another risk was given as “the private sector is changing and focusing on quality contracts along with reducing their appetite for risk. This significantly reduces the size of the market and level of competition.”