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Guidance Principles: Best Practice for Recycling and Waste Management Contracts

Acknowledgements

Preface

Executive Summary

1 Introduction

2 Planning

3 Scope of Services

4 Additional Considerations

5 Evaluation

6 Contract Form

7 Contract Management

Other Useful Links

Further Reading

Appendix 1: Case Studies

Appendix 2: Flow Charts Outlining Common Decision Processes for Procurement of Services

Appendix 3: Tender Evaluation Plan Example

Appendix 4: Pre-non-priced Evaluation

2 Planning

Before developing a contract, you need to plan carefully to identify the objectives and desired outcomes of the services.  Settling on the appropriate plan is also critical to enable elected members and company management to make informed decisions that will ensure contracts deliver the desired outcomes.

2.1 Key service objectives to consider

The following are key points for councils to consider when establishing their service objectives.  Councils should ensure:

• the expectations of the community and the outcomes of the waste management plan are met
• the overall objectives are clearly defined (eg, diversion from landfill, providing local employment opportunities, supplying materials to reprocess in the local area or within New Zealand, meeting national goals)
• the evaluation criteria meet community expectations (including community group support and access to parts of the contract) and the overall community and council objectives
• the funding for services is clearly determined (rates, user pays or both)
• services focus on priority waste streams (local and national priorities)
• flexibility of services is maintained to accommodate the introduction of additional products to the waste stream (eg, degradable plastics)
• flexibility of services is maintained to allow the collection of additional materials as markets grow (eg, organics)
• the collection method to be used is identified (noting the impacts this may have on other objectives relating to quality of material)
• minimum standards for the quality of the recovered materials are specified so they are acceptable for the identified reprocessing market (eg, local, national, overseas)
• the party to be responsible for education/promotion of new services is clearly identified (eg, new materials to be collected)
• the length of contract is specified, while maintaining flexibility to implement new technology and services
• ownership of recovered materials is considered, particularly if changes in legislation/ policy may have an impact (eg, product stewardship)
• contract components are separated or structured in a way that allows for greater financial transparency
• health and safety issues are adequately addressed
• the ability of the contractor to deliver the proposed services is assessed
• competition within the industry is maintained
• statutory and legal obligations are met (eg, the Waste Strategy, legislation, government policy)
• there is equity of services to ratepayers across the area.

2.2 Confirming service objectives

In the initial planning stage, council managers and elected members must reach agreement on the objectives of the services and the contractual approach.  Developing the objectives serves to link the council’s waste minimisation targets with the performance criteria of the contractor.  It is important that the waste minimisation targets are agreed by the council and the community and fit with national targets, before service objectives are developed.  These performance criteria need to be realistic and achievable, and should be clearly stated in the contract.  It also helps to align the council’s service objectives with national waste management objectives such as the Packaging Accord and the New Zealand Waste Strategy.

Developing service objectives may involve commissioning an assessment report on options for service provision.  This assessment report can include socioeconomic and legislative factors and the waste management strategic direction of the council, as well as key operational issues that have an impact on the services.

Life-cycle assessment can be used to assess the environmental performance of various systems.  Examples of this methodology include the Sustainability Assessment Model (SAM),[Bebbington et al (2001), Moving from SD reporting to evaluation: the sustainability assessment model, New Zealand Business Council for Sustainable Development. http://www.nzbcsd.org.nz/_attachments/Sustainability_assessment_model.doc] Independent Economic Assessment of Kerbside Recycling in Australia[Nolan-ITU Pty Ltd and SKM Economics (2001), Independent Assessment of Kerbside Recycling in Australia – Revised Final Report – Volume 1, for The National Packaging Covenant Council.] and WISARD, a life-cycle analysis tool focused on waste management and adapted for New Zealand conditions.

The Sustainability Assessment Model follows a four-step, full-cost-accounting approach, as follows.

1. Focus the model on a discrete project.
2. Track the project’s sustainable development impacts over its full life-cycle.
3. Identify and measure the impact of the project under four headings: economic, resource use, environmental and social impacts.
4. Cost the externalities identified from the development of the project (damage cost estimates are assigned to externalities).

Another example of a planning tool is the Zerowaste Action Planning (ZAP) system, which consists of methods that councils can use to successfully influence and engage all sectors of the community in the process of waste minimisation.  This includes providing the leadership, resources, incentives and information that will enable the community to participate fully and drive change (see: http://www.smf.govt.nz/results/4186_zap_report.pdf).

It is desirable to hold early discussions with prospective tenderers for the services, to enhance both their understanding of the objectives of the service and the related risks, and also the council’s understanding of the reality of implementing operational requirements.  This process often reduces the need for a number of notices to the tenderer during the tender process.

2.3 Waste stream ownership

Legal opinion varies on who owns the waste stream.  Ownership can vary at different stages of the collection, sorting, processing and disposal processes.  One opinion is that the waste is owned by the person placing it for collection until it is collected by the collector it is intended for, when ownership then passes to that person, and so on down the stream.  The ownership of the waste stream is based on the rules of the service, and these rules are often outlined in council bylaws and/or the contract document.

There are a number of scenarios where the ownership of waste comes into consideration, including where waste is:

• on private property
• on public property before collection
• ‘stolen’ by other parties from public and sometimes private property (eg, recyclables, inorganic waste scavenged)
• disposed to landfill
• in joint ownership due to a risk or revenue sharing arrangement (eg, recyclable product).

To ensure there is clarity of ownership of the waste stream, it should be clearly spelt out in the contract document where ownership lies and when.

2.4 Elected member or company management endorsement

It is essential that political (for councils) or management (for companies) mandate be obtained before procuring services.  Elected members or company management must understand the benefits, disadvantages and possible outcomes of a service option if they are to make an informed decision.  To obtain the best possible contract result, they must also have full understanding of the objectives, type of procurement method proposed, and the trade-offs that may be necessary.

Examples of trade-offs that require consideration include:

• the recycling product market risk, and sharing this risk with the contractor
• ownership of the waste stream - it is desirable for councils to have ownership at some point of the cycle so they have ‘control’ of the decision-making process
• the cost of recycling materials versus landfill disposal
• the term of the contract, and the effect of new technology that may become available during the term of the contract
• the cost of different service options.

Note that the evaluation of trade-offs should take into account local knowledge and the specialist expertise of advisors.

It must be recognised that councils have to meet short-term statutory targets while also developing and delivering longer-term, sustainable waste management policies.  It can be difficult for relatively short-term political administrations to make long-term and potentially unpopular decisions, such as changing traditional weekly collection methods to alternate weekly collection of recycling and residual waste.

2.5 Choosing the right procurement process

There are a number of options for procurement processes.  The appropriate process depends on the state of the market and on how certain the principal is about the particular service they want provided.  Principles of sound procurement to consider include:

• obtaining the best value for money by selecting appropriate trade-offs involving outcomes, quality, price and administrative expense
• conducting a process that is transparent (as far as possible) and fair to all parties
• making the expectations of the principal clear, in both the tender and delivery stages, so that tenderers can plan accordingly
• being consistent in drawing up tender documents and in evaluation processes, so participants can have confidence in the process
• ensuring new entrants have a realistic chance of winning at least some projects to grow their skills and experience.

The expression of interest (EOI), request for proposal (RFP) and request for tender (RFT) are all forms of procurement process available.  They all have different attributes that make them appropriate for certain situations.  For instance, an EOI is used to shortlist prospective tenderers and is useful to allow the market to indicate to the principal the benefits and disadvantages of particular service options.  However, the EOI process can be unproductive for both the principal and tenderers, because tenderers are often unwilling to compromise their commercial intellectual property by divulging it in an EOI.

Another form of procurement is the renewal of an existing contract for a further term, either with or without a variation to the scope of services being negotiated.

Early discussions held with prospective tenderers for services are desirable to help the tenderers understand the objectives of the service and the related risks.  It also helps the council to understand the reality of implementing operational requirements.  This often streamlines the tender process by reducing the need to amend tender documents.

Councils should always review any procurement of services in relation to their policy for delegating authority.  This is because the particular value of the services can determine the appropriate tender process to be followed and who has the authority to undertake that process.

There are a number of documents available which outline best practice procurement processes for waste management and recycling and provide helpful advice with the planning and production of tender documents (see below).

Note: Contract models are developed for both rural and urban situations as well as their country of origin.  Take care to ensure the model chosen is applicable to the local situation.

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