The perils of contracting out waste services

Waste authorities need to be wary of contractors offering too good a deal when outsourcing their services or it will be the tax payer who loses out in the end, argues Paul Langham

The waste management sector has always been a great sector for people to work in, whether within local authorities or the private sector. But over the past 10 years we have seen a 'dog eat dog' culture develop within the industry, leading to council contracts being won on ridiculously low prices and in some cases services deteriorating as a consequence.

The results are not pretty. Many small companies - and some bigger ones - have fallen by the wayside because they simply couldn't survive in a marketplace where demands rose while profits fell. Contracts that had been with a supplier for five, 10 or even 15 years suddenly changed hands, not because the existing supplier was offering a poor service, but because a new supplier offered apparently the same service at a lower price.

For cash-strapped councils the temptation has been too great, and many have seen services changing hands between contractors over and over again. But the question that needs to be asked is, if a contract has been running efficiently and effectively for that long, how can genuine cuts to costs be made without the service being affected?

While local authorities may have been making hay while the sun shines and benefitting from short-term savings, the long-term effects on both councils and the private sector contractors can only be negative.

At best the constant changing of contractors has a detrimental effect on the way a service is delivered. At worst, companies are bidding for tenders and winning them on unrealistic prices, meaning they can't in the end deliver the service they have promised. Neither of these situations are good for the tax payer and neither represent best value in its true form - that of price and quality.

For the private companies bidding for these contracts, the work involved and the increasing turnover of the contracts is making the process more and more onerous. Local authorities have got tighter on what they require, meaning there is now less room for generating profits and providing extra services outside of the contract, as used to be the case.

In addition, taking on contracts that involve transferring a workforce means even tighter controls with the TUPE regulations and the liability for pension schemes. If a contract like this is won, it often needs to be maintained for at least 10 years to make it financially viable in the first place.

The private sector needs to take a long look at itself if it genuinely wants to provide a long-term good quality service to the public sector. Fighting for contracts with unrealistic prices is not a sustainable business model. Well-run, ethical companies with genuine experience in their sector will go out of business simply because they cannot compete with unworkable contracts.

From the public sector's perspective, its tax payers will lose out because of poor service. But more than that, if the public sector continues to award contracts on price alone we will see more and more private sector companies going out of business or consolidating with other companies. In the long-term that can only lead to fewer companies bidding for the contracts, which will in turn drive the cost to local authorities back up.

One solution may be that councils should enter into more dialogue with contractors prior to tenders being awarded. While this might be sensitive to some private companies, it would allow a complete understanding of what is required and what can realistically be offered. It is certainly something I think we should aspire to and something we are willing to lead the way on.

Paul Langham is managing director at Go Plant


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