Tender shake-up for LA procurement protocols

Two influential reports have called for greater competition in the municipal waste sector. Alan Davis and Paul Rice look at what this means for procuring authorities

In line with the Kelly review – a government initiative to improve competition in procurement – the Office of Fair Trading (OFT) and the Office of Government Commerce (OGC) have recently published reports on competition in the municipal waste sector.

While some of the recommendations are general in their application and show a lack of understanding of current waste procurement procedures, they are likely to give rise to pressure for some change – most notably in the proliferation of regional players and perhaps also the length of contracts.

The OGC report concluded that competition within the municipal solid waste (MSW) sector was limited because there were too few suppliers in the market. It stated that there was an over-reliance on regional presence to succeed with bids, and a lack of a systematic and clear procurement policy among procuring authorities.

The OFT considers that competitive markets are vital to the delivery of Defra’s objectives to ensure the diversion of municipal waste from landfill and to help local authorities deliver around £300 million worth of efficiency gains in waste services.

The OGC recommends a more centralised approach to procurement with greater co-ordination between local and central government, standardised procurement procedures and centralised monitoring of contracts. It also considers that funding and procurement models should follow set outlines with fewer integrated contracts.

This last recommendation will be unpopular with many in the waste management industry which, because of the sheer size of bid costs, are more selective in selecting those tenders where they are willing to submit a bid.

The OFT report sets out several recommendations to central and local government to ensure that they maximise the benefits of competition. These include that waste collection contracts should be restricted to a five-year duration which would allow suppliers only to recover their sunk costs.

Shorter contracts would also reduce the incumbent supplier’s advantages when the contract is re-tendered and encourage other firms to bid. The ability to recover sunk costs in such a short timeframe in all but the simplest of collection contracts is questionable.

A push for more bidders

To maximise the number of bidders, the report says that the bundling of waste treatment and landfill contracts, and collection and other waste management services, should be avoided unless significant cost savings would arise.

In addition, procuring authorities should ensure that their selection criteria for waste collection contracts are not overly restrictive to encourage smaller suppliers to bid, and that they should remain open to consortia bids.

The report remarks that as MSW collection is relatively simple, previous experience of providing such services should not be a vital specification. In terms of waste treatment technology, the specification of outputs rather than inputs should also be considered to avoid restricting potential bids.

To avoid the creation of regional monopolies, bids from suppliers outside the region should be encouraged. Authorities should provide access to necessary facilities such as waste treatment facilities, vehicle depots or transfer stations so as not to deter potential suppliers who may not bid because they have no access to such facilities.

Open procurement procedures should be used and the straightforward nature of municipal waste collection services should not justify the use of restricted or negotiated procedures. There should also be open and fair competition between LA in-house service providers and private sector bidders.

The OFT also warns local authorities to be aware of the “risk of collusion” particularly in relation to bid-rigging and market-sharing. The OFT considers that there are certain characteristics of the sector that could facilitate collusion and encourages LAs to keep an eye out for this type of behaviour and to encourage bids from suppliers outside the region.

Companies in the sector should therefore consider implementing appropriate competition compliance programmes in response to the likely scrutiny of the sector by the OFT.

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