The iESE waste framework contract – will it deliver what it promises?

Posted by Adam Read, Practice Director: Resource Efficiency & Waste Management on 31 January 2012

I guess for those of us in the waste management sector you must have been on a desert island for the last few weeks for you to have not noticed the launch of the Government’s new waste services framework which is currently being procured by iESE  (Improvement and Efficiency South East - one of nine Regional Improvement and Efficiency Partnerships funded by the UK Government).

 

The argument for?

iESE believes that councils going to market individually for waste collection, street cleansing and associated services leads to fragmentation, unnecessarily large consultancy costs and a large number of full tenders for suppliers to handle which results in poor quality tenders. Plus, iESE believes that some councils, because of their size, do not have staff with the right depth of knowledge and market intelligence needed to determine whether they are getting the best deal possible, nor do they have the buying power to influence that market.

 

In a framework that will run for 4 years from April 2012, covering domestic and commercial waste collection and street cleansing services, iESEs expect to save around £85m for 141 ‘partnering’ councils (in London and the South East), with a potential value in the region of £1.7bn going through the framework.

 

Clearly, this makes a lot of sense given the budgetary constraints being placed on local authorities across the UK, but is it as good as it sounds?

 

A different opinion?

As one of the leading consultancy companies supporting councils on waste collection, recycling and residual waste treatment contract design and procurement, you would expect me to disagree with these claims. And I do. Councils will often know what they want, and need a little external help to get it. Consultants can provide the extra manpower, market intelligence or experience to assist at critical times in a procurement process without costing the council inflated fees.  If councils that have used consultants in the recent past to support their programmes were to be surveyed I would expect a large proportion of them to be supportive of the work undertaken by consultants on their behalf. Consultants can often get a bad name, but in procurement terms we can be very cost effective in helping councils streamline processes and deliver services on time and under budget.

 

What will the framework cost?

The basic principle of the framework is to reduce the costs of procurement for both councils and the service providers, thereby delivering overall savings. However, any of the named partner authorities (141 so far) that choose to use the framework will be charged a fee of 0.5% of the value of any contracts let.  This does not sound like value for money to me. If I was to compare the costs incurred in securing a 7 year refuse and recycling collection contract worth £3M per annum, the total fee paid to iESE would be £105,000. Now depending on what level of consultancy support the council required, you could be looking at as little as only £25,000 in total. This might well rise up to nearer £75,000 if we were to lead onto document development and evaluation, but this manpower will also be needed even if the framework contract is used. So, from my calculations, this is not going to save the average council much in terms of consultancy fees.

 

However, the framework fee for a multi-service contract covering grounds maintenance, waste collection and street cleansing for a London Borough worth £15m per annum over 7 years would be £525,000, way in excess of the costs incurred in appointing a good consultant! And what will councils get for their fee?  It seems at this stage they will get some indicative prices for simple services, a set of ‘Conditions of Contract’ plus a basic specification (which will need to be tailored to the local situation), plus a list of approved (shortlisted) contractors. This seems poor in comparison with what a mainstream consultancy can help deliver for a smaller budget.

 

What about the waste contractors?

As for the contractors, they are currently spending an extensive amount of time now trying to qualify for a framework that may not require them to ever bid for a live project. Each of those selected will have to pay an annual fee of £10,000 (per lot, although there is a discount for contractors qualifying for more than one lot). Most of the waste management contractors we have spoken to are spending the time and effort to qualify because they don’t know what the implications would be of not being on the framework in terms of business opportunities, However, most of them believe this approach is not in the interests of the sector and will not deliver better and more affordable solutions on a council by council basis. To my knowledge over 20 suppliers are planning to submit tenders to IESE on 7th February 2012, but most remain unconvinced of what opportunities they will be tendering for over the 4 year duration.

 

How many will councils use it?

So far there has been no commitment in terms of hard cash, just a statement of interest only. Of the 141 partner councils, about 60 will not have any contracts to let in the lifetime of this contract (current contracts run beyond this time), whilst a further 50 or so currently deliver their services in-house and may decide not to procure at all. A number of councils have publicly stated that they have every intention of keeping the services in-house, whilst others may follow the current trend of market-testing through Competitive Dialogue, in which case the framework would not be appropriate. Of the remaining 30 councils, they would need to be sure that their contract fitted with the framework, which might not be the case. The maximum contract length under the framework is 10 years (including extensions), whereas many authorities prefer the option of a longer period (e.g. seven years plus a potential seven-year extension). Given the likely small uptake of the framework, has the significant investment by iESE (using public funds) to date in developing the materials and programme been good value for money? Probably not, and unlike using consultants, all the costs are upfront in the case of the framework, whereas consultants charge as and when they are needed.

 

What does the sector think?

As it stands the industry seems divided on the suitability of this framework. The Local Government Association and Chartered Institution of Wastes Management clearly sees the rationale for the framework but have so far not committed their support to it. The waste contractors appear to be unhappy participants, whilst local authorities have signed up but as yet none have had to commit any money. WRAP has remained tight lipped to date and they will have a significant role to play in supporting UK authorities in modelling, designing and preparing for procurement. And as for the sector’s consultants, well as you might expect we can see the pitfalls of this approach, and not just because we are concerned about the potential impact on our revenues.

 

Most of our recent procurement exercises have seen considerable savings to local authorities in terms of contract prices and performance, and I am sure other consultancies would be able to provide their own examples to support this claim. I hope local authorities question whether they need support to secure a new contract and then look at the best route to get there. They may have discussions with WRAP early on and that may influence their decision too. In some cases the framework contract in the South East may be the most appropriate route, for a simple service, with low annual contract values, whilst in other cases where internal resourcing levels are low and where an innovation in scheme design and performance is required then perhaps a consultant can offer better value? But you must know what service you want and then Shop Around, that’s the only way to guarantee value for money!