Municipal waste services: in or out?

Since the 1980s there has been a need for local authorities to contract out their waste management services, or to test their in-house provision against the market. We have seen Central Government periods of CCT (Compulsory Competitive Tendering) and BVPIs (Best Value Performance Indicators) to help direct local authorities regarding their service provision, with a waxing and waning on the priority afforded to out-sourced contracts. In recent years the influence of BVPIs has declined and local authorities have been ‘freer’ to select their service provision option, as long as they could evidence that it was value for money.

Against this backdrop of privatisation and value for money service provision we now have over 42% of all waste related service being contracted out, over 31% delivered ‘in-house’ and some 30% being delivered in some form of partnership or hybrid manner. Clearly the privatisation agenda of the 1980s has worked, but a significant number of authorities have resisted the tide and have been able to keep their service provision ‘in-house’ because they feel this offers them the best value for money and greatest flexibility. Most authorities that looked to externalise in the early years have continued with this trend, reducing their operational teams and taking on a contract management and strategy role only.

Those authorities that kept their services in house have tended to retain the status quo, favouring a direct labour force with flexibility over its deployment. Very few authorities have tended to change their approach to service provision, reflecting the political ideology of the council in question (out-source or in-source)….. and those that have, have either done so as a reaction to a poor performing contract / contractor, or more often when there has been a political swing and a traditional Conservative/Liberal authority has become Labour controlled.

Political ideologies – dictating service decisions

Much of the split in service delivery structure can be attributed to a north-south divide, or a red-blue divide with Labour-run authorities significantly more likely to have retained their in-house service providers. But with the sector’s pain over the last few years, concerning austerity measures, budget cuts and the need to meet ever increasing performance targets, even the most ardent of ‘in-house’ ideologies have been tested, with increasing number of authorities testing the market to see what they could get in comparison to their traditional model.

However the waste sector has raised its concerns that many of these ‘soft market exercises’; have been little more than a tick box exercise, and the authorities in question were always planning to retain the service in-house. These authorities may be missing out on the efficiencies available through private sector expertise and experience, but if they are not fully committed to testing all delivery models then any potential efficiencies and improvements will be unlikely to be realised, and the private sector could be turned off from bidding for future contracts with these authorities if they believe their approach to market engagement has not matured with time.

In-sourcing – the new hope?

However, and in direct contrast to the trend to look to the private sector for innovation and efficiencies, the trade press over the last few months has reported a significant number, many of them high profile including Birmingham city, Middlesbrough council and the London Borough of Hounslow, of authorities who have decided to being their previously contracted service in-house.

This trend has been at the heart of a research exercise undertaken by Ricardo Energy & Environment, in partnership with the Environmental Services Association (ESA) and supported by LARAC. The report which looks at current trends in waste service delivery and procurement, will provide a deeper review of what is driving local service provision decision-making. The report should be available in February, with a planned launch event to be hosted by the ESA.

In the meantime, the findings of the report will be presented at the forthcoming Waste services – Remunicipalisation Conference where I will be looking at the debate from a consultant’s perspective. But here is a sneak preview of what I might discuss on the day:

A call to arms?

In-sourcing is not the trend we think it is, even with a few high profile authorities going down this route. The overall percentage of waste services that are contracted out remains consistent and just as many in-source services are being actively market tested and procured to help deliver the efficiencies and budget reductions required. In-sourcing as a significant market trend is a red herring!

However, a large proportion of authorities are assessing their service and the best way of delivering it, and this opens up both in and out-sourced models. This group of authorities are the ones I am most interested in. They can be influenced and should be in attendance at the Remunicipalisation Conference, looking to learn from the experiences of others.

All authorities that aren’t in a contract that runs beyond the next two years, should be reviewing their performance (annually if you are in-sourced or as part of their contract management process). They should be setting out their service agenda clearly – what do they want, by when and what budget do they have to play with? Only when they have robust baseline data and a clear idea of what they need can they then consider what option is most appropriate, and perhaps an open procurement where both in-house and outsourced solutions and providers can be assessed is the most likely outcome. If this is done well and has good data and a clear and transparent approach to service and cost evaluation then I am sure the contractors will be engaged, whilst the current in-house team can be sure of a fair fight. Ultimately this should drive efficiencies and ensure the customers get the best possible value for money service.

I appreciate that some of my thoughts may not be to everyone’s liking, and please don’t think I am pro-privatisation or ‘anti-insourcing’ because I am not. I am pragmatic and want sensible decisions to be taken. So I am looking forward to debating how we ensure the delivery of better value for money waste services later this month. If you think the answer is out-sourcing then great! If you prefer to deliver services in-house then that is great too! Or if you want to bring it in for the first time in many years, then why not, but make sure you know why you are making that decision (not just for political reasons), using robust data, quality comparators and a clear options assessment. That way no one will challenge you down the line – which nobody wants to see.

Remunicipalisation Conference

• The merits of bringing waste services in-house or out-sourcing will be debated in-depth at the Remunicipalisation Conference in London on 28 January. For more information click here.