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:
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.
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.
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:
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.
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 report lists options for collecting green waste and/or food waste as:
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 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.
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.
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.
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:
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:
When employed correctly, the general benefits of shared services include:
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:
There are a number of tender mechanisms that can be used for shared services.
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.
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 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.
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.
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:
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.
Capital expenditure required for waste management and recycling services can be significant. Capital costs can include:
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:
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.
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:
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.
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 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.
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:
While the above concept appears attractive, there are a number of issues to consider, including:
Further analysis is required to better define this process, but this is outside the scope of these guidelines.
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:
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.
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.
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
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:
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.
Ministry for the Environment 2004. Review of Waste Management Contracts. Ministry for the Environment: Wellington.