This section looks at the issues to consider when developing the scope of services for a waste management or recycling contract. This is an essential area of contract development, particularly because a number of significant trends are driving a change in the way the scope of services should be specified in a contract. These trends include:
- higher levels of service expected by the community
- higher-profile health and safety standards
- trends towards user pays
- increased choice of receptacle (single stream vs mixed collection)
- quality of recyclable material collected
- stabilisation of the volume of recyclable material, creating a need to encourage further yield
- increasing the range of recyclable products available for collection
- licensing of contractors
- increasing demand for materials by onshore processors
- waste management plans, the New Zealand Waste Strategy and national policy on product stewardship.
Sections 3.1 to 3.3 identify the key issues relating to the development of the scope of services for a contract. Section 3.1 covers generic services for both waste management and recycling contracts, whereas section 3.2 is specific to recycling services and 3.3 to residual waste services. Some sub-sections provide information covering generic, recycling and waste management service situations.
3.1 Generic services
3.1.1 Service objectives
The service objectives decided on in the planning stage (see section 2.1) need to be stated up front in the contract document, with clear links drawn to the service being provided.
3.1.2 Collection system considerations and options
The collection system is largely driven by the choice of receptacle and the term of the contract. In choosing the type of receptacle for refuse or recycling services, there are a number of factors to consider, including:
- community expectations
- willingness of communities to pay for services
- method of collection in relation to health and safety issues
- cost - the tender process may be used to price several receptacle options if there is also uncertainty as to the type of receptacle
- colour - the receptacle or lid colour can be important for users in distinguishing between recycling or refuse receptacles
- supply and storage
- ownership - councils need to retain sufficient control to ensure they are able to make decisions
- recycling targets to be met
- the contamination rate of recyclables and the effect of this on the value of material to recycling markets, particularly onshore processors
- damage to the recyclable product being collected and the resulting effect on its value
- the appropriate size of refuse receptacle, to minimise the use of recycling receptacles for refuse
- the ability to impose a user-pays system on refuse receptacles
- the effective life of collection equipment
- flexibility to increase the scope of the service.
You will particularly need to consider the quality of materials used for the refuse and recycling receptacles. The Ministry for the Environment is encouraging councils to ensure that the quality of material is sufficiently high to meet industry requirements. New Zealand re-processors require material to be of a certain quality, and the Ministry is encouraging onshore reprocessing of materials where possible. Although there is debate on the different collection methods available, the Ministry is not promoting one over another. The quality of material is the key outcome, and it is up to the collection industry to come up with new and innovative ways of safely collecting materials while maintaining high quality.
Tables 1 and 2 outline collection system options for receptacle types, frequency of collection, method and cost.
Mobile garbage bin (MGB)
Other (eg, trash can)
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Frequency of collection
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Method of collection
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Mobile recycling bin (MRB)
Plastic bag supplied by household
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Frequency of collection
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Method of collection
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3.1.3 Organic waste considerations
For a significant number of councils, approximately 50% of the waste stream is organic material (green waste and food waste). Australian research shows that waste volume reduces significantly where a regular green waste service is provided. Public or private enterprise provision of a green waste service is dependent on a council’s waste management policy for their area. It is common practice in Australia to provide a public collection service, whereas in New Zealand local authority drop-off services and private enterprise collection are the more common service options for green waste.
Options for Kerbside Collection of Household Organic Wastes[Ministry for the Environment 2005. Options for Kerbside Collection of Household Organic Wastes. Ministry for the Environment: Wellington.] outlines the following issues that need to be considered when selecting kerbside organic waste collection systems:
- the household organic waste diversion targets to be met
- type of waste to be collected
- whether bags or bins will be used, and which size is appropriate
- the capacity and type of waste treatment facilities available
- any operational constraints (eg, health and safety considerations, multi-tenanted dwellings)
- markets for the compost produced
- frequency of collection (eg, climate consideration)
- ability to monitor the system (eg, through household surveys, waste audits)
- householder co-operation
- whether the scheme will be voluntary or compulsory.
The report lists options for collecting green waste and/or food waste as:
- collecting food waste only
- collecting green waste only
- collecting both food and green waste, but in separate containers
- collecting combined food waste and green waste.
The combined option system increases the yield of organic material collected and only one collection receptacle is required. It is also more user friendly to collect both waste streams together, saving time for the user and potentially helping reduce odour and leachate from the food waste. However, possible drawbacks of this option are:
- the potential economic impact on private green waste collectors through loss of revenue
- less control of the material mix at the treatment plant compared to separate waste streams
- the ratio of food waste to green waste may vary substantially between seasons, affecting the material mix at the treatment plant
- a secondary system for food waste collection may be required from properties where there is no green waste generation (eg, apartments).
The Ministry report discusses the frequency of collection, including the advantages and disadvantages of weekly, fortnightly and seasonal collections. Case studies show that weekly collection is preferred, often with a fortnightly collection of recyclables and residual waste. The main reason for weekly collection is to avoid unacceptable odours.
Kerbside collection methods can be either mechanical or manual. Mechanical collection decreases health and safety risks but reduces the ability to manage contamination, while manual collection provides the ability to manage contamination at kerbside but with increased health and safety risks. Table 1 in Options for Kerbside Collection of Household Organic Wastes lists the issues and options to consider when assessing kerbside organic waste collection.
3.1.4 Transportation options
The transportation options available depend on the distance to disposal sites. Where distances are significant, refuse transfer stations and baling sites can be used to consolidate loads for transportation to disposal sites. Some councils tender transportation services separately because of the specialist plant and equipment required to transport waste long distances and to take advantage of competitive rates.
3.1.5 Service provision options
The management of the waste stream in its entirety must be considered in the scope of services. Three service provision scenarios - separation, bundling and sharing - are outlined below.
The separation of services (eg, separating refuse collection from recycling collection) provides the benefits of transparency of price for the different service components, maintains competition between providers, and supports waste reduction (see section 3.2).
The bundling of services involves combining several services under the one contract. Where there are few providers able to provide the total service, sub-contractor relationships can be developed by the head contractor to provide the different components of the service. In some situations where providers are available, it may be beneficial for the contract to have separable service components so smaller providers, such as community groups, can tender for a portion of the work and be awarded a separate contract for that portion. Bundling of services can provide price advantages, but this may be at the expense of obtaining definitive source data for each waste stream.
For more information
Examples of bundled contracts can be found in: Ministry for the Environment 2004. Review of Waste Management Contracts. Ministry for the Environment: Wellington.
The sharing of services between more than one council depends on a number of issues, including the:
- alignment of objectives
- similarity of services desired
- common disposal location
- geographic location of the population base (important for ensuring economy of scale)
- use of recyclables.
Price savings (typically 5-10%) can be realised through the bundling or sharing of services. If councils want to share services it is imperative that there is a political mandate from all councils involved. This can be formalised through a memorandum of understanding between councils.
The key drivers behind shared services are:
- providing improved services to the community in each locality
- obtaining gains in service cost efficiencies.
When employed correctly, the general benefits of shared services include:
- improvement in the level of services
- consistency of services, making any future regional initiatives easier to implement
- cost reduction due to economies of scale, which will accrue to both the councils and the contractor. Some cost efficiencies for the contractor through servicing a larger area will be passed on to the councils through a lower contract price (eg, rationalisation of facilities, plant, staff, reporting and data collection systems). The council will also be able to make efficiencies through rationalising staffing and resources.
It is important to identify and mitigate risks. In examining the feasibility of a shared services contract, the process is to weigh up the benefits against the remaining risks to make an informed decision on whether a shared services contract or an alternative option is desirable. The following risks arise in shared services contracts. Some of these apply to all contracts, although the risks may increase with a shared services contract and be difficult to mitigate:
- political/community resistance to shared contracts, resulting in implementation issues
- customer perception - the community may perceive a loss of ownership of their services if they are being undertaken from a base outside the council area or managed by another council
- inconsistency of council requirements, which reduces the likelihood of efficiencies and cost savings
- changes and uncertainties during the contract term, which will increase the likelihood that costs will increase and the possibility of contractual problems
- incorrect information in a contract, which increases the risk of a variation being sought with resulting additional cost (this risk will affect both councils even if one supplies accurate information)
- contract administration and management - lack of clear definition of the respective councils’ staff roles and responsibilities can cause problems
- contractual issues - with a shared service contract one council is exposed to any problems and issues that affect any other council
- effect on local contractors - by increasing the size of the contract some local tenderers may not be able to tender, and there is an increased likelihood that a larger contractor will be awarded the contract
- tender evaluation - for a shared services contract the tender evaluation process will be more complex as a result of having to satisfy the needs of all the councils.
There are a number of tender mechanisms that can be used for shared services.
- Joint tender / contingent pricing - separate contracts are developed for each council, each including aligned services and contract provisions to provide economies of scale and consistency for the councils. The tenderer can price either or all contracts. If they tender for all, then they can offer a ‘combined contract’ price. If sufficient benefits accrue to the councils, then this tender would be accepted. Each contract is administered separately by each council.
- Single framework contract - a contract is entered into by one of the councils on behalf of the others, with the others being nominated parties to receive services under the contract. This option does not easily accommodate differences in specification / levels of service, short-term commitment between the councils or political alignment. The council/s who has/have delegated the role of principal to the other would have to seek any legal redress under the contract through the principal, who may not necessarily agree with the contract breach. The tenderer may offer a discount for providing services to all the councils.
- Joint principals contract - a contract is awarded by the councils as joint principals. The resulting contract is managed by a management board, who make the major operative and contractual decisions.
- Joint venture legal entity - a legal entity is formed (probably a council-controlled organisation) with shareholding by the councils. One contract can be entered into for the services they wish to tender and administer together.
3.1.6 Seeking alternative service provision
Innovation in service delivery from contractors is desirable and should be encouraged in the procurement process. You can encourage innovation that leads to diverting waste from landfill or improvements in the quality of materials by providing incentives in the contract for developing solutions that result in a reduction in residual waste stream sent to landfill.
The scope of services needs to be flexible enough to allow for innovative practice. It is also important that the procurement process allows for tenderers to demonstrate how they intend to provide innovative practices. It may be beneficial to outline the scope of services broadly at the beginning of the procurement process and then provide for negotiations between the principal and contractor to finalise an innovative service solution. You will need to carefully consider the assessment criteria used to evaluate the potential a tenderer has for innovation.
It would be a good idea to include a continual improvement clause in a contract that provides for regular reviews (eg, annually) with the contractor to discuss and agree inclusion of emerging and new more ‘sustainable’ products and services to ensure integration of the latest standards throughout the term of the contract.
There will often be a range of service providers offering competing services in the same area, particularly for collection. This has had a pronounced effect since the introduction of user-pays refuse collection, which has created new markets for domestic refuse collection and competition from private enterprise collectors. This, in turn, has affected the type of refuse collection contract issued by councils.
Councils with user-pays collections now sometimes find themselves in direct competition with private operators who can offer a cheaper and more convenient service, focusing on collection from urban areas where collection is more economic. In some urban areas rationalisation is starting to take place, with competitors contracting with each other to uplift refuse and recycling while still competing for the same customer.
Councils should make sure they do not provide a competitive advantage to a contractor by permitting them to collect waste as part of council services while simultaneously offering a private service. However, to promote recycling yields, the contractor should be encouraged to collect recyclables for the council service simultaneously with commercial collections. This different approach means contracts should specify that recycling and waste management collections only occur in separate collection vehicles. This separation of services will help keep the performance of the contract transparent.
Rates funded or user pays?
Payment for refuse or recycling services can either be through rates funding or user-pays systems.
A user-pays service encourages waste minimisation as long as the price of the service is set at a level that encourages use of recycling services over refuse collection systems. You will need to consider the community implications of user pays, including:
- the nature of the council’s rural/urban aspect
- social equity and the householder’s perspective
- management issues (such as an increase in illegal dumping) involved in transferring from a rates-funded system.
The effect of user pays on the competitive market must also be considered (see 3.1.7). Private service providers tend to collect from areas where the most profit can be made, whereas council services are provided throughout the authority’s area and are therefore not as competitive. It is also possible to provide flexible service options to users, including different-sized receptacles and varied collection frequency to suit household needs.
A rates-funded system is by way of an annual uniform charge or general rates. This system can either allow limited or unlimited refuse bags, or provide a certain size of mobile garbage bin (MGB). A service where unlimited bags are provided discourages waste minimisation, whereas those services that allow limited receptacles (either number, capacity or collection frequency) can encourage a degree of waste minimisation.
There are also partial user-pays systems that include a combination of rates and user-pays funding (eg, a set number of bags supplied by council, with any additional bags purchased by the resident).
If a council owns a landfill, there will be a revenue decrease as a result of waste minimisation initiatives, which must be considered when deciding on the appropriate funding system for contracts.
Waste stream ownership
Approaches to ownership of the waste stream are variable and may be influenced by the objectives, but it is recommended that ownership be divided as follows.
- Residual waste from the refuse collection service is owned by the principal until it is disposed at landfill.
- Recyclables during the collection process are owned by the principal if they are to be delivered to a sorting contractor.
- Recyclables become the property of the sorting contractor when they are delivered by the collector to the sorting facility.
Payment for refuse collection is dependent on the receptacle used. For user-pays or resident-provided refuse bags where there is an unlimited number of bags, payment should be priced on a per tonne collected basis. Refuse from MGBs, or where there is a limit to the number of bags that are to be collected, can be priced on a per household basis. Pricing on a household basis requires an appropriate database of households and means that household numbers must be ongoingly tracked. This involves more administration than payment on a per tonne basis.
Recycling collectors prefer a per household/property payment basis. The need for a performance-based component to the collection contract is not considered necessary when the volume and quantities of receptacle are known. The sorting contractor should be paid on a tonnage basis, because this is how product is paid for by the market after processing.
There are a number of other cost considerations when developing a price schedule, including:
- cost of receptacle provision
- buy-back prices for recyclable materials
- additional services such as promotional material production and delivery.
Sensitivity analysis for recycling
It is recommended that sensitivity analysis be completed by the principal before tender evaluation. Sensitivity analysis determines likely costs, using upper and lower limits of recycling yields, product mix, and the council’s philosophy on risk exposure.
Funding for infrastructure
Capital expenditure required for waste management and recycling services can be significant. Capital costs can include:
- construction of refuse transfer stations and resource recovery centres
- initial receptacle provision (crates, MGB, MRB)
- collection vehicles
- sorting plant.
There may also be additional set-up and operational costs associated with shared services contracts.
The ability of small contractors (such as community groups and small companies) and large companies to source capital to develop infrastructure varies greatly. This is a factor to consider when incorporating capital expenditure as a contractor requirement in a service contract.
Contractors are usually required to maintain a bond to guarantee their performance of the services. Bonds are calculated either in accordance with a council’s agreed schedule of bond amounts that relate to the value of the contract, or against the perceived risk of the service being disrupted. They are typically 1-2% of the annual contract value, or, as a minimum, a sufficient amount to continue the service for a limited period until the service is re-established following failure of the contractor. An ongoing check needs to be made by the contract manager to ensure that the bond remains live during the term of the contract.
Bonds are not a significant cost to a larger contractor, but they can be for community groups and small companies. Smaller organisations may find it difficult to obtain a cash bond from a lending institution. Council ownership of facilities and high capital expenditure equipment can reduce the amount of the bond and its cost to the contractor. Consideration could also be given to joint ventures.
Allocating risk between the principal and the contractor is a crucial aspect of forming a waste management or recycling contract. Traditional contract models often saw parties expending time and energy protecting their own position and attempting to ensure the other party bore the consequence of any risk. The trend now is to use the contract to allocate risk to the party who is in the best position to manage that particular risk. Partnering and alliance relationships are useful as a basis to share risk among the parties involved (see section 1.7).
Although risks can be reasonably well defined in waste management and recycling contracts, they are always an issue, particularly in relation to:
- refuse – tonnage reducing where waste minimisation measures are implemented
- recycling – increasing tonnage and fluctuations in the markets for recyclable materials.
These can be provided for in contracts, with provision made for renegotiation in the event of significant reduction in waste tonnage or changes in the recyclable commodity market.
Contract risks also include such things as traffic management, emergencies or natural disasters. Contingency plans can be written outlining management of these risks. These can be regularly reviewed and reported as contract deliverables.
3.1.10 Supporting information
It is important that tender documents contain reliable supporting information on current systems to help the tenderer define the scope of the services for their tender submission. Unreliable information may result in disputes arising at a later date. If the tenderer is uncertain about the information or how reliable it is, the cost of the resulting risk to the tenderer may be incorporated in their tender submission. Information normally supplied includes:
- property numbers to be serviced
- historical tonnage figures (including a breakdown into categories)
- product to be collected
- anticipated percentage of contamination
- location maps
- site plans
- examples of communication materials and promotional programmes
- receptacle specification.
International best practice for procuring recycling services encourages the separation of collection from the acceptance/sorting of recyclable material. There is a growing trend for this kind of separation, and this is likely to become more prevalent in the future.
For more information
Ecorecycle Victoria. This link has further detailed information about the key contract features of split collection and sorting contracts:
http://www.ecorecycle.sustainability.vic.gov.au/ resources/ documents/ BPKRP_Guide_to_Model_Contracts_(2001).pdf
Separating these services makes pricing more transparent and allows for performance components in both contracts. It is also recommended that, where possible, the acceptance/sorting contract is tendered before or at the same time as the collection contract. This means the acceptance/sorting contractor can have input into setting the parameters for the quantity and type of collected materials to be delivered to the sorting facility. Award of both contracts can be made at the same time, when the full implications and commitments are known for both services.
The most common recycling contract system currently used in New Zealand is to have one contract for the collection, acceptance, sorting, marketing and sale of recyclable material. The reasons for this are:
- the size of the operation does not always justify separation, because there are no real benefits to the council
- there is less administrative cost to a council in managing one contract
- the revenue from the sale of the recyclable materials is used to offset the cost of the collection.
3.2.1 Recycling risk
The risk relating to recyclable commodity prices is a matter for debate between councils and service providers. Best practice in Victoria, Australia, is to advise councils to adopt a no-risk option, requiring the contractor to take all risk in relation to commodity price fluctuations to avoid exposure to cost variations over the life of the contract. Alternatively, risks can be shared between the contractor and the principal. For recycling, there should be separation of the known costs (ie, collection and processing costs). Any risk sharing should be targeted at the variable component of recyclables, which are the markets and sale prices.
One risk-sharing mechanism to deal with this is to apply a market realisation index to the recyclable components. An index identifies the individual sale prices at the time of tender, with an agreed margin for the contractor. This can then be monitored and adjusted throughout the contract to ensure that neither party carries all the risk of fluctuations in the market.
3.2.2 Product stewardship support
Establishing an equitable division of the cost to recycle each type of recyclable material is necessary to ensure product stewardship support provided for by the Packaging Accord 2004. This includes keeping the costs of collection and sorting of each material separate and transparent. This can be done via a recycling index (as identified in section 3.2.1), where separate prices are provided by tenderers for recycling each type of material. Issues to consider in determining recycling costs are commonly based on:
- collection vehicles and their maintenance
- operation, including administration, supervision and staff
- sorting facility
- contamination losses.
While the above concept appears attractive, there are a number of issues to consider, including:
- tenderers are reluctant to divulge full costing, because they don’t want to share the benefits with the principal when the market is high for a product
- there may be confusion about the real value of recyclable materials
- tenderers may price items to meet their needs and not to reflect the reality of market conditions
- there is a need to ensure any index does not provide a disincentive to obtaining the best price possible for recyclables
- the index could be calculated by an independent person (index figures can be subjective because they are dependent on the market, quantity and the terms of the contract).
Further analysis is required to better define this process, but this is outside the scope of these guidelines.
3.3 Processing/sorting options
The most common recyclables collected in New Zealand are bottles, jars, plastics, steel cans, aluminium cans, aerosols, paper and cardboard, and plastics. The Government has a desire, expressed in the Packaging Accord 2004, to grow recycling markets and increase the range of materials collected and recycled. This may be accomplished in the future by way of a ‘recyclability index’, which would specify that ‘any material identified as recyclable by the recyclability index’ should be collected. This index may be used in conjunction with recycling contracts. It is essential that contracts contain clauses that do not preclude the addition of new materials for collection.
The yield of material is also directly related to the collection receptacle used. There are losses of material for recycling associated with contamination in receptacles and breakage during the collection process. Contamination can be the result of:
- source material being non-recyclable
- collection methods not being suitable for the material collected.
Losses due to contamination are significantly higher in co-mingled mobile recycling bin (MRB) systems compared with crates. This is partly due to the kerbside sorting that occurs from crates and also the visibility of the contents of crates. Contamination rates are commonly in the region of 2-8% for crates and between 15 and 20% (this includes contamination as well as process loss) for co-mingled MRBs. The net yields from co-mingled MRB systems are higher than for other systems, and contamination rates may be lowered with the introduction of systems such as cameras on vehicles, MRB electronic identification systems and computer-generated letter follow-up.
The over-compaction of co-mingled recyclables decreases their value. Where there are separate collection and processing contracts, provision is often made in the contract for a maximum compaction rate. The compaction rate is defined as the weight of the load divided by the volume of the vehicle. Sustainability Victoria state in their Guide to Preferred Service Standards for Kerbside Recycling in Victoria that, as a general rule, collection should not result in compaction rates above 140kg per cubic metre.[See: http://www.sustainability.vic.gov.au/ resources/ documents/ PSS_final_doc_sept.pdf] The collection contractor is then responsible for paying the acceptance/sorting contractor for the processing of any over-compacted loads.
3.3.1 Markets for recyclable materials
Markets for recyclable materials are vulnerable to change, and prices for recyclables may vary greatly during the term of a contract, particularly for paper, plastics and glass. Sharing of these risks between the principal and contractor is discussed in section 3.2.1. A reduction in the value of a material may make it uneconomic to collect, process and transport it to market, especially where the market is some distance away.
When specifying recyclable material for collection, you should also consider the availability of suitable markets. The contract should make provision for the collection of additional materials as viable options become available during the contract term.
For more information
The Australian Council of Recyclers has produced a number of recycling guides for a range of materials, which include kerbside specifications for the recovery of these materials: http://www.acor.org.au
3.4 Residual waste
3.4.1 Landfill disposal options for residual waste
There are two landfill disposal options available to councils: they can own and use their own landfill (either exclusively or with other council or private partners), or contract for the use of another council or private landfill. A decreasing number of councils now own a landfill.
When writing contracts for disposal in circumstances where the council owns a landfill, you should consider:
- security of profit from the landfill
- possible conflict of interest with the council’s waste minimisation plan waste reduction objectives
- community affordability
- the number of refuse transfer stations required, including their location, ownership, operation and value
- diversion payments
- the remaining life of the landfill.
Where a council’s disposal option is a commercially owned and operated landfill (in which a council has no financial interest), a council should be aware of the following when developing and awarding a contract.
- the cost of disposal is dependent on the relationship between landfill owners and collection/transportation companies
- transportation costs may be high because there are increasingly fewer local and more regional disposal facilities, which are often not located in the council area.
- A point that must be noted is that refuse collection contracts that include disposal of the collected refuse provide a competitive advantage to landfill owners and discourage waste reduction.
For more information
Ministry for the Environment 2004. Review of Waste Management Contracts. Ministry for the Environment: Wellington.