Conditions of contract used for waste management and recycling contracts may take several forms. The conditions most widely used by councils are based on the New Zealand Standard NZS 3910(2003) - Conditions of Contract for Building and Civil Engineering Construction. NZS 3910 has a traditional construction and building focus and does have shortcomings for waste and recycling collections. Waste management contracts are more aligned to maintenance contracts than construction contracts, and as a consequence the NZS 3910 conditions of contract should include Appendix C, which shifts the contractual emphasis away from a construction project orientation. Not all contractors are familiar with the conditions of NZS 3910, but with appropriate amendments the conditions are acceptable. If you decide to use NZS 3910, it is important to note its limitations when applied to waste and recycling contracts.
Some councils prefer to develop their own contract conditions for waste management and recycling services, so the conditions are more appropriate for their particular situation.
A five- to seven-year contract term is generally recommended for waste management and recycling contracts. A 14-year term is considered more suitable for material recovery facilities.
Environmental Protection Authority, South Australia, Survey and Audit of Kerbside Waste and Recycling Practices, 2002: http://www.epa.sa.gov.au/pdfs/kerbside.pdf
There are advantages to longer-term contracts where:
On the other hand, the advantages of short-term contracts can be:
Longer-term contracts can also be awarded with a provision for either set review dates or contractor/principal-initiated reviews at any time throughout the contract term. This is to allow for technological changes that may occur during the term, which either party may wish to introduce to the services. These reviews also encourage investment and upgrading of plants. A disadvantage of this is the high capital investment for plant and infrastructure, and its amortisation is required over a shorter timeframe, resulting in a commensurate contract price. A further consideration is a council’s ability to increase budgetary provision at short notice. The term of the contract may also be influenced by the service objectives and if it is a longer-term contract then it is important to maintain flexibility.
Ministry for the Environment 2004. Review of Waste Management Contracts. Ministry for the Environment: Wellington.
A number of core elements need to be addressed when specifying services in a waste management or recycling contract. These include:
There are examples of best practice service specifications in contracts. An example is The Model Waste and Recycling Collection Contract, which is a tool that helps councils streamline the tendering process by providing a comprehensive tendering package. The model contract was developed in NSW, Australia, in consultation with councils, collection contractors and industry: http://www.resource.nsw.gov.au/publications.htm#mcc_reg
Resource NSW: http://www.environment.nsw.gov.au/education/index.htm
There are a number of recognised systems for measuring contract performance through the use of key performance indicators (KPIs). KPIs can be based on either incentives for good performance or penalties for poor performance, although incentives are the preferred approach. The objective of KPIs is not to structure or assess them to score the contractor down to save money. The emphasis should be on assessing performance by the quality of service delivery. One key measure of performance should be the level of waste minimisation.
The set of KPIs should ideally be:
The content of KPIs varies with the contract service, but generally waste management and recycling contracts cover performance for most of the following:
A tender may contain examples of KPIs that provide the tenderer with an indication of the performance measures favoured and required levels of service. The development of KPIs with the contractor following award of the contract encourages greater ‘buy-in’ to contract performance results. Annual reviews, where the contract parties consider whether any changes should be made to the performance assessment provisions to improve workability or better reflect good performance of the contract, can be conducted between the principal and contractor. The principal usually retains the right to implement any changes at their sole discretion.
As outlined throughout this document, there are a number of different contractor interfaces that must be managed. The contract specification should clearly define the roles and responsibilities of parties that are expected to interface with one another and with council contract representatives.
Section 3.1.7 outlines factors that relate to the basis of payment in waste management or recycling contracts. Each contract payment schedule should be unique and should accurately reflect the components of the service. It is important to recognise that the basis of payment may either encourage or discourage waste minimisation.
It is common practice to make provision for cost fluctuations - both increases and decreases - in the cost of the service. Frequently the formula used is based on that outlined in the NZS3910 standard contract conditions, where adjustments are made using an indexation formula and indices published by Statistics New Zealand. However, take care with collection service contracts that the indices utilised in this formula reflect road transport as opposed to construction cost fluctuations.
For recycling contracts, cost fluctuations should cover collection, transportation, processing and sale of the recyclable materials. However, if the contract parties enter into a risk-sharing arrangement that includes revenue received from the sale of recyclable materials, the cost fluctuation adjustment formula would not apply to the revenue from these materials. The cost fluctuation adjustment should apply only to those amounts paid to the contractor for the collection, transportation and processing components.