Councils turn to Teckal-exemptions for waste

Teckal-exemptions are a viable option for councils looking to branch out into commercial waste operations, an advisor for the Association for Public Service Excellence (APSE) has claimed.

The procurement model, which is becoming increasingly popular among local authorities, was adopted by Cheshire East last week in order to allow it to compete for waste collection contracts from other councils (see letsrecycle.com story).

Teckal exemptions apply when a contracting local authority exercises arms-length control over a legally separate, wholly-owned company which carries out services that may have previously been undertaken by an in-house provider. It means a council wishing to award a contract does not need to run a lengthy procurement procedure or outsource it to the private sector.

Cheshire East is not the first council to use wholly-owned companies to handle its in-house waste services or branch out into commercial operations.

Waste Solutions SK, a subsidiary company of wholly-owned Solutions SK Ltd, was established by Stockport council following a resource management and governance scrutiny committee report circulated in 2004. It continues to provide local commercial waste and recycling service for businesses in Stockport and the surrounding areas.

Elsewhere, City of York council is also looking at revising the way it manages its waste services in order to drive up revenue with a pre-meeting agenda report published last month suggesting the local authority could enter into a Teckal arrangement with local waste services provider Yorwaste.

SCS

But Swindon Commercial Services, which remains wholly-owned subsidiary of Swindon council, was brought back in-house by Swindon council last year after increased competition and a decrease in local government funding saw it struggle to find local contracts. The firm began operations at the solid municipal waste plant in February (see letsrecycle.com story).

Commenting on the renewed interest in Teckal, Mo Baines, a principal advisor for APSE said: As spending reductions force local councils to look differently at service delivery models Teckal company models are a viable option for many local authorities as this route enables the parent local authority the control and ownership which is not present in traditional outsourcing models.

However equally useful for councils to consider is using both historical, and new powers, to be more commercial in some services, developing charging and trading strategies to take a more entrepreneurial approach to service delivery.

The new General Power of Competence introduced under the Localism Act provides a good basis on which to consider how services could be delivered by exploiting the benefits of charging and trading, with both other public bodies, and indeed providing services to the private sector or individual people on a more commercial footing.

Criteria

However, in order to meet the criteria for Teckal exemptions, a council must exercise the same control over the company in question as it does over its own department known as the control test or in-house provider rule.

Furthermore, there should be no private sector ownership in the company, which itself must carry out all essential activities with the contracting authority. In terms of company turnover, no more than 10% can be carried out in the open market, (meaning that 90% must be for the local authority owner) while financial transfers between the two parties must be limited to cost reimbursement.

Several authorities can together set up a Teckal exempt company, which will still meet the parameters of the control test under collective control. However, the company should not be market-orientated, which can be reflected in the geographical proximity of those participating.

Location

A public procurement advisor told letsrecycle.com: In this way, a Teckal-exemption wont necessarily assist a subsidiary that is bidding for a contract at the other end of the country. It helps primarily in relation to the contracting council.

I cannot comment on the reasons for the [Cheshire East] decision to launch a wholly-owned company, but it may be that they are starting a trend. In certain circumstances it can be a more efficient way of providing services.