Waste contracts: do they help or hinder?

Working with a contractor may mean you're hampered by a contract that stifles opportunity. Pete Dickson explains the dos and don'ts for cracking the conundrum

Waste contracts naturally must have legal status and weight. But they should be more than just legal documentation of services provided – and many miss major opportunities to enhance service delivery.

Councils outsource services for many reasons, but primarily for one of three – to save money, to access service delivery expertise, and to transfer risk. They must decide on what cost means to them, whether it’s service or financial based, as they are not the same thing. Best value doesn’t always mean lowest cost, and many councils issue tenders in the hope that someone will under-bid. From the outset, it’s important to consider whether you are buying a service, or a defined level of resource.

A good contract enables flexibility. They must be adaptable as there will inevitably be service changes at some point. If you want to change a service after three years, the contract must have a mechanism for enabling this. If not, there will be a standalone proposal and costing, which may be more expensive than anticipated, for a variety of reasons.

Not just in it for the money
The false perception that contractors are only in it for the money can undermine contracts. The contracts that experience the worst problems are those where this perception exists – ironically, the contracts where this exists are almost always those that under-perform financially. If there are service problems, the contractor’s focus on fixing them is likely to require more money that wasn’t bid in the first place.

Revolving blame and arguments about service delivery, variations and costs also abound when contracts don’t have the clauses and conditions that foster better understanding and mutual resolution. For instance, at a council where compulsory recycling was introduced, the response was so good that more resource was needed to keep up. The contractor accepted where the risk was allocated and provided extra rounds at its cost.

Subsequently, the client requested a service variation for additional cleansing. The contactor quoted for this, but the client felt the resource allocation was too much and therefore too costly. The contractor pointed out the inconsistency, and the client accepted they was paying for a service, rather than a level of resource. This straight talking resulted in an excellent professional working relationship that benefits substantially both the contract and residents.

When considering procurement, try and package services together, rather than separately. Such packaging is more cohesive and helps contactors integrate processes and resources for greater cost and service efficiencies. I would advise against using competitive dialogue as your procurement route if you know exactly what it is that you want to procure. It is time-consuming and expensive for both council and contractor, so only use it if you want to narrow down a range of options.

Test the market
I’d recommend soft market testing – identify some potential bidders, and get them in to discuss potential service requirements, and the offerings that might meet your needs. This can help define where you may go and the options you’ll have. Clarification is essential at the bidding and evaluation stages. For example, one council’s tender could have exposed it to an expensive legal challenge because there was inconsistent evaluation of prices bid, which could lead to an incorrect contract award.

So clarify anything and everything that could be ambiguous – ie how the council interprets data provided by bidders. Clarification works both ways and is quite normal, whether it’s about financial or service quality aspects, so ask questions, however foolish they may seem.

The most important thing is to allocate risk (the management and ownership of resources, be they fixed or human). Don’t load all the risk and liability onto the contractor. For example, don’t only say that there will be financial penalties if recycling percentages aren’t achieved: there may be valid reasons why targets aren’t hit. Rather, use the carrot and stick, risk and reward approach. What about a sliding scale of penalties, and bonuses, for missing or hitting commonly agreed, reasonable service targets?

Set a contract period for seven or eight years. Experience shows this is the optimum period for getting the best from a vehicle fleet purchased new at the contract start. And use the same multiples for service extensions. Give a fair termination clause – millions are invested up front so a notice period to terminate is unacceptable.

Service your deal with teamwork
Consider partnership as it can enhance local service delivery – it can be formalised in contract terms and overseen by a partnership committee. It can also be more informal, a mindset and a culture that permeates both council and contractor. Partnership means you’re both more involved in the local community, that you can jointly address issues and problems, and that you both do what’s needed to maintain or restore services when there are disruptions.

My advice to councils is to get the best possible advice on procurement. Be open and fair about risk allocation. List the risks and ask bidders where they think these should be allocated. Embed flexibility for future change by building in relevant clauses. And remember that the cheapest bid is not necessarily the best option for delivering the service quality you want, and that your residents deserve.

Pete Dickson is development director at Verdant

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