Cabinet
6 February 2012
Agenda Item No______12_______
MATERIALS RECYCLING FACILITY (MRF) CONTRACT PROCUREMENT
Summary:
1.
This report outlines the issues around procuring a
contract to handle the dry recyclable waste collected
by the Council. The current contract, which the
Council shares with a Consortium of the other six
Waste Collection Authorities in Norfolk, runs out in
March 2014, and is of significant financial and
reputational importance to the Council
1.1.
Conclusions:
It is believed that the Consortium based approach offers us all the
best in terms of overall value for money and based on the success of
the Consortium to date, officers believe that the Consortium
arrangements should continue.
If however, the Consortium approach should fail, officers are confident
that alternative options are available.
Any procurement exercise, because of its potential value, will need to
be fully tested against market competition and comply with EU
procurement rules.
External consultants will probably be required in order to assist the
Consortium in moving this project forward and this will be in addition to
the internal support provided by Consortium members.
The risks associated with this procurement are known and can be
appropriately managed.
Recommendations:
1)
That the Council continues with its membership of the MRF
Consortium in Norfolk on the basis that all costs associated with
the new procurement and
future processing will be equitably
shared amongst
its members
2)
That through the MRF Consortium, the Council enters
into
an EU compliant procurement process for dealing with dry
recyclables. This contract to commence 1 April 2014 for the
most effective term, as yet to be decided
3)
That a budget of £25,000 is allocated for the
procurement process across the 2011/12 and 2012/13
financial years
4)
That delegated responsibility is given to the relevant
Corporate
Director, s151 Officer and Portfolio Members
for Environment and Resources
respectively to make appropriate
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6 February 2012
decisions relating to this procurement up until the award of the
contract
which will need to be approved by Cabinet and Full
Council
Cabinet member(s):
All
Contact Officer, telephone number,
and e-mail:
1.
Ward(s) affected:
All
Nick Baker, 01263 516221
Nick.Baker@north-norfolk.gov.uk
Background
Members will be aware that the seven Waste Collection Authorities in Norfolk (the District,
Borough and City Councils) have a contract as a Consortium for the sorting and onward sale of
the dry recyclables collected from domestic and in some cases, commercial premises.
The contract is currently held by Norfolk Environmental Waste Service (NEWS), a part of the
Norse Group, which in turn is wholly owned by the County Council.
The initial contract was for seven years to March 2011 and this allowed for an extension of up to
five years. The Consortium has already agreed a three year extension, to take the contract
through to March 2014, during which time decisions would be made about the procurement of
future MRF services.
The financial impacts of this contract are significant. The MRF handles 8,750T of the Council’s
material per year at a gross cost to us of £198,000. As a result of the sale of recyclate material,
the Council has received a profit share totalling £302,172 for the 2010/11 financial year and this
will rise significantly this year due to the prices secured by NEWS following the decision to
extend the contract by 3 years.
NEWS runs the Materials Recycling Facility (MRF) at Costessey which, seven years ago, was
seen as state of the art. The arrangement with NEWS has been successful overall. The
company has generally been able to ensure high quality recyclate and to secure local (UK)
markets for recyclate with good prices in the market place. Subsequently, profit share for the
Consortium has been achieved which is then divided between the Councils in the Consortium.
The full procurement and commissioning of MRF Services is a lengthy process, especially if
new facilities are required where planning and other regulatory requirements need to be met.
This is the main reason the Consortium extended the contract for 3 years i.e. to enable enough
time to look at the options available to us and to allow bidders time to commission a new plant
(if necessary) from inception. However, bidding companies are able to make interim provision
where build times exceed procurement windows.
Since this item was informally discussed with members in mid 2011, NEWS/Norse have made
the offer of a joint venture to the Consortium, without the need to go the market through a formal
procurement process. Whilst this offer may offer good value, it is considered almost impossible
to judge against other options without comparing it within a formal process which is compliant
with European procurement rules. Legal advice to the Consortium broadly supports this view.
Officers from the Consortium will be presenting a paper to the Norfolk Waste Partnership
meeting on 6 February which will detail the options available and outlining likely procurement
timescales and methods and thereafter, it is anticipated that the process will move quickly. It is
for this reason that officers are seeking Cabinet approval to move forward, as each Consortium
member has to agree to this in principle.
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2.
6 February 2012
Legal Issues
As part of the initial examination of our options, we took legal advice on the potential to further
extend the existing contract with NEWS. Recognised Local Government Procurement Counsel
was asked for an opinion and their advice was that the least risky option was for the Consortium
to procure a new contract to commence from the end of the current term i.e. from 1 April 2014.
Originally this was the course of action proposed.
However, NEWS were informed of this position and subsequently came back with a very much
improved, fixed price offer should the Consortium extend by a further two years to March 2016.
The Consortium has therefore taken further legal advice around the lawfulness or otherwise of
such an extension and to better understand the legal risks involved. Not surprisingly this advice
repeated that previously received.
Following the NEWS Joint Venture offer described earlier, further legal advice was received that
indicated the offer as it stood was probably not compliant with procurement legislation. In
addition, in the interim, the Consortium had held a market testing exercise and a number of
competitors were then aware of the likelihood of work coming forward, thus increasing the
likelihood of a legal challenge.
3.
Procurement Issues
The relevant officers from each Council in the Consortium have since met and relevant Portfolio
Members have been briefed as to the proposed way forward as follows:
3.1
Consortium or Sole Council Approach?
It is clear that, although for some Councils, there may be some small local benefits in taking a
“sole Council” approach to processing of dry recyclables (eg in terms of transport costs), the
benefits of a Consortium contract are potentially significant. The economies of scale for
processing, despite the transport costs involved, may be large, especially when taking large
tonnages of material of a given quality to market.
In terms of the actual procurement process, the Consortium option gives all members access to
the expertise of their partner Councils. Costs are shared, as are risk and again, economies of
scale may be realised.
The Consortium already works well together and officers have reached a broad agreement that
the benefits will continue to be realised should we move forward with a Consortium approach,
on the basis of sharing costs, expertise etc.
A recommendation therefore follows later in the report that we should continue with a
Consortium approach.
Notwithstanding this approach, it is still possible that the Consortium may disagree to the extent
that some Councils may choose to split away from the Consortium and in view of this possibility,
officers have looked at alternative options which again would be EU compliant. In the unlikely
event that the Consortium splits, officers are confident that other options could be found.
Ultimately, we are dealing with finite resources which are likely to gradually go up in value.
3.2
Procurement Options
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Assuming a Consortium approach, the only option, other than going to a formal procurement
process, would be to investigate a buy-out of, or buying into a joint venture for, an existing MRF
facility. However, a number of Consortium Members have already stated that they would not be
interested in this option due to the increased risk and legal issues involved.
This then leaves us with a procurement of future dry recyclable related services via a
Consortium contract, the process for which would have to be compliant with EU procurement
rules.
Officers from the Consortium Councils have met and considered options around the
procurement process. The view has been expressed by two Councils that the Consortium
should now consider procuring for a contract which starts in 2016. This would mean extending
the existing NEWS contract for an additional 2 years. Whilst this would give us longer to
procure and would remove some risk for potentially successful bidders, there are two significant
negative issues with this approach.
Firstly, this would be the second extension to the NEWS contract. This will increase the risk of
a legal challenge, as per our previous advice from legal Counsel.
Secondly, officers who are supporting the Consortium from an accountancy perspective have
compared the financial position of extending with NEWS for an additional two years against
procuring for a contract which starts in April 2014. Using a recent procurement in Lincolnshire
for similar materials as a comparison, they estimate that the cost to North Norfolk of not
commencing the contract until 2016 would be £528,000 - £598,000, with the overall cost to the
Consortium being in excess of £2.679m.
3.3.
Resources Required
As has been stated, due to the value of the contract, this would require an EU Compliant
procurement process. In turn, this will require legal, financial and procurement expertise which
will be provided from and payment shared within the Consortium
In addition, we will require some technical procurement and waste expertise not available within
the Consortium, which will mean appointing external consultants to assist in the process. Again,
it is proposed that these costs will also be shared amongst the Consortium.
3.4.
Likely Costs
At this stage, we have not obtained quotes for the external consultants as this work is still being
scoped. However, officers do not believe that the total costs (including internal support) will
exceed £175,000, this to be divided equally across each member of the Consortium (£25,000
per Consortium Council Member).
4.
Risks
4.1
Financial
In terms of the procurement process itself, this risk is very low. We will quickly have accurate
costings for the process in question and the budget when shared between seven local
authorities is in itself relatively small.
However, the actual level of cost, and indeed reward going forward, contained in the bids, will
reflect the perceived risk of the project to bidders. As there many potential service delivery
options, it may well be that we will require a Competitive Dialogue process so that we can
compare different delivery methodologies from bidders.
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The main financial risk however, is the future market price for raw materials and recyclate which
means that future income streams will always be subject to market conditions. Whilst over time
the overall trend should always be upwards because of the finite nature of the resources
concerned, there is always the potential for downward fluctuations which makes budget
planning for Consortium members much more difficult.
The mitigation here will be around ensuring that any future contractor is working with those in
the markets to ensure that an optimum and secure price for recyclate is received.
4.2
Legal
The main legal risks come from ensuring that the procurement process is lawful and that
challenge is minimised. This risk will be mitigated by ensuring legal advice is taken at all
necessary stages and is followed and that, where necessary, higher level legal opinion is taken
on key aspects of the process.
The consortium has already agreed in principle, that North Norfolk will provide the Council level
legal support to the project, the cost to be shared by all seven Councils. Additional Counsel’s
opinion will be sought where appropriate.
4.3
Reputation
As well as the statutory obligations in terms of collecting a certain level of dry recyclable waste
from households, the waste collection and recycling service is seen by most Councils as being
of key reputational importance. It is therefore essential that Councils maintain high quality
waste and recycling services and that in the context of dry recyclables, we seek to build on the
range of materials already collected successfully across Norfolk.
Officers believe that we would take current recycling activity as a minimum for any new contract
with other additional options then being costed. Moving forward through the life of any new
contract, we would then expect technological innovation from any new contractor to take
advantage of new markets for different dry recyclable materials.
A procurement exercise at this stage would give us the chance to consider adding in, additional
dry recyclable materials depending on the value that they will add in terms of the overall
finances to the waste collection authorities. In addition, any changes to the range of dry
recyclables being collected will need to be communicated very clearly to residents in order to
ensure that they “buy in” to any future schemes.
4.4
Project Management
It is important that any incoming contractor is able to deliver recyclate processing arrangements
with effect 1 April 2014. Officers recognise that there is a potential risk in terms of procuring
and commissioning both land and a building for a MRF in the timescale available if a new
supplier were to be awarded the contract who did not already operate from a suitable
operational base. However, this risk is mitigated by alternative arrangements which potential
contractors can put forward in terms of using other facilities as an interim measure.
Whilst the Consortium is no doubt a very cost effective solution to procuring a MRF, at the same
time this does mean that seven Councils’ constitutional, legal and finance rules have to be
satisfied and that Cabinet and Council meeting arrangements for seven Councils may also
cause timetabling problems. Whilst at this stage, officers believe that this should not cause a
significant problem; there is a need for all seven authorities to very positively commit to the
procurement process once it has started. Here at North Norfolk, it is proposed that all process
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decisions will be delegated to a Corporate Director, s.151 officer and relevant Portfolio
Members, with Cabinet and Full Council approval only being required for key decisions such as
the award of the contract. However, Members will be kept informed of progress via regular
communication by officers.
There are a number of other project management issues also to be considered and these
issues and risks can be mitigated by the use of appropriate project management expertise
during the procurement process. During the early stages of the project, informal arrangements
have been maintained for project management from within local authority resources but this will
need to be supplemented by a formal project management regime, along with procurement
expertise and this has been offered by Kings Lynn and West Norfolk Council to the Consortium
at cost. It is recognised however, that this may well need to be augmented by external
consultancy resources.
5.
Conclusions
It is believed that the Consortium based approach offers us all the best in terms of overall value
for money and based on the success of the Consortium to date, officers believe that the
Consortium arrangements should continue.
If however, the Consortium approach should fail, officers are confident that alternative options
are available.
Any procurement exercise, because of its potential value, will need to be fully tested against
market competition and comply with EU procurement rules.
External consultants will probably be required in order to assist the Consortium in moving this
project forward and this will be in addition to the internal support provided by Consortium
members.
The risks associated with this procurement are known and can be appropriately managed.
6.
Recommendations
1)
That the Council continues with its membership of the MRF Consortium in
Norfolk
on the basis that all costs associated with the new procurement and future processing will be
equitably shared amongst its members
2)
That through the MRF Consortium, the Council enters into an EU compliant
procurement process for dealing with dry recyclables. This
contract to
commence 1
April 2014 for the most effective term, as yet to
be decided
3)
That a budget of £25,000 is allocated for the procurement process across
the
2011/12 and 2012/13 financial years
4)
That delegated responsibility is given to the relevant Corporate
Director, s151 Officer
and Portfolio Members for Environment and
Resources
respectively to make
appropriate decisions relating to this procurement up until the award of the contract which will
need to be
approved by Cabinet and Full Council
MRF Contract Procurement
Final Version