Waste firms urge councils to share recycling risk

That is the message from waste management companies through their trade body, the Environment Services Association (ESA). It claims that too many local authorities expect their waste contractors to handle all the risk of selling recyclate, leaving the companies very exposed in the current turbulent market.

However, while some local authorities believe there are advantages in this approach, other cash-strapped councils told letsrecycle.com that they are wary of changing the way they let contracts, particularly if any new deal could be viewed as less favourable to those already in place.

Historically, many local authorities have entered into waste collection contracts where they receive a fixed price for their recyclables and this is used to offset collection costs, with the risk involved in selling the material shouldered by their waste contractors.

But, in recent years, the volatile price of commodities has seen contractors claiming they have lost out from this arrangement and in some cases contracts have even collapsed.

According to the ESA, this situation is ‘unsustainable’ and the organisation and some of its members are calling for councils to share in the risk and reward and for this to be kept separate from the pricing for waste collection.

The ESA, through the new industry body Resources & Waste UK, has recently commissioned consultancy Eunomia to draw up guidance on the subject, building on guidance issued by WRAP last year, in a bid to persuade councils to change their approach. The guidance is to be published later this month.

‘Exposed’

Jacob Hayler, ESA executive director, said: “What we have found in the last couple of years with a big drop in recyclate prices, is that a lot of contractors are not able to subsidise the [waste collection] service. It is leading to contract failure in some places which are particularly bad for local authorities as they are left extremely exposed.”

He continued: “You get pockets of good practice where local authorities get good advice and are sensible about what is achievable and they come to a reasonable risk sharing arrangement. But we think those pockets are not sufficiently widespread.”

The ESA believes that sharing risk and reward in contracts is in the interest of councils because the alternative is that they will be forced to pay over the odds for contracts if all the risk is taken on by their contractors. It also claims that if councils procure for risk-free contracts, they attract less interest from private firms, leading to less competition in the market and less innovation.

Biffa

One company and ESA member which believes strongly that things have to change is Biffa. The company is currently working to a strategy whereby a flexible commodity pricing model is applied to all new contracts, where appropriate.

Ian Wakelin, Biffa chief executive, said: “Biffa would very much welcome measures to separate the pricing for local authority waste and recycling collection from the sale of recycled materials. At present significant risk is shouldered by the waste industry due to the volatility of commodity prices. This has to change if there is to be a long-term sustainable recycling industry in the UK.”

Local authorities

Responding to the ESA’s comments, local authorities, represented by the Local Authority Recycling Advisory Committee (LARAC), agreed that there were benefits to risk and revenue sharing and said that many of their members were already changing the way they were working.

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For instance, the 11 local authorities which make up Project Integra in Hampshire already share recyclate revenues with contractor Veolia.

LARAC chair Andrew Bird said: “It is really important for local authorities to work closely with their contractors and partners to ensure we get the best economic deal for tax payers, and sharing risks makes this easier to achieve.”

LARAC added that pricing collection and recyclate sales separately could foster more cost “transparency” and help to build trust between councils and their contractors.

Risk averse

However, some local authority officers told letsrecycle.com that they did not believe councils would be rushing to change their contractual arrangements given current spending restraints, which have seen councils’ budgets slashed by up to 50% over the past few years in some parts of the country. They added that many councils were still, understandably, very risk averse.

One senior officer said: “I would be surprised if local authorities hurried to make this change.”

Another recycling officer, who asked not to be named, agreed. She said: “With budgets under pressure councils will be under pressure not to enter into contracts which appear less favourable than current arrangements.”

Another reasoned that it seemed to be a case of “contractors taking the profits when times are good” but when the markets are tougher, the firms were wanting councils to pick up the costs.

One leading waste company remarked that as yet, they were not seeing changes within councils tenders and that the approach by local authorities was still generally to want companies to take the risk.

Somerset

Steve Read, managing director of the Somerset Waste Partnership, said that the ESA’s approach “made sense”, particularly because it encouraged local authorities to take more responsibility for the quality of the material collected.

But, he acknowledged that under Somerset’s current collection contract with Kier, Kier took all the recyclate income risk and that at the moment it was in Somerset’s advantage.

He said: “At the moment it is in our advantage that we are in that kind of contract. For instance, Kier has had to secure new outlets for newspapers and pams which were previously going to Aylesford. They are taking on the risk but it is less of a risk than elsewhere due to the [high] quality of the material.”