Council amalgamations present the ideal opportunity to renegotiate waste and recycling contracts and squeeze more out of them, says a waste and recycling consultant.
Mike Ritchie, Managing Director of waste management consultancy firm MRA Consulting, which has around 200 local government clients, said new councils could save between 5 to 10 per cent on new contracts, primarily because they could take advantage of economies of scale when consolidating their contracts.
“Waste contracts seem to be the largest single commercial decision a council makes,” Ritchie said. “They are generally ten-year contracts and worth multi millions per year so it’s very important to get it right.
“The benefits of amalgamations are the economies of scale and that it gives councils the chance to review their contracts.”
Being larger should give newly amalgamated councils the purchasing power to secure better contracts.
Ritchie says that new NSW councils – 19 were created by NSW Premier Mike Baird in May this year – will also be able to cherry pick the best contracts, ideas or practice from each of the old councils.
The opportunities for councils also throw up challenges, chief among them being aligning the different end dates of long-term waste and recycling contracts so they can be combined.
This could involve extend some contracts by a year or two or staggering the start dates of new contracts, giving the advantage of staggering capital investment for trucks and bins for any company taking over the contract.
Breaking a contract can attract heavy penalties, for example councils may have to pay a contractor 30 per cent of the revenue projected for the remainder of the contract’s life.
“It’s very expensive and no-one would willingly terminate a contract without just cause,” Ritchie says.
However, most contracts have a ‘change in law’ clause, which would cover the Local Government Act and the new council proclamations, providing some wiggle room for negotiation with waste companies but the termination must be ‘reasonable.’
Ritchie advises councils not to terminate contracts immediately but to review current contracts and costs.
This means evaluating and benchmark current contracts, including weighing up whether to deliver services in-house or through a private contractor and looking at cost per lift, service frequency and availability, public education and quality of service.
He estimates that about 80 per cent of local council waste and recycling is done privately and the trends continues towards this.
“Councils are asking us to flag all of the commercial and contractual issues early in all of their contracts before they go to tender or make a decision so they understand their options,” Ritchie says.
The downside of mergers, as far as waste and recycling contracts are concerned, is that councils could lose the element of creating tailor-made solutions for local communities.
NSW Container Deposit Scheme
July 2017 is the date that the NSW Container Deposit Scheme (CDS) swings into action and councils will need to consider the impact this could have on their waste collection and recycling and build this into new or revised contracts.
Ritchie estimates that around 40 per cent of the capacity of yellow kerbside recycling bins will be freed up when the CDS gets underway. This opens up the chance to offer additional services. This could include people being able to dispose of batteries, textiles or bonded polystyrene in separate bags in the yellow bin.
It also makes yellow bins more valuable as bottles and containers can be redeemed for 10 cents and means waste material recovery facility (MRF) operators will probably be able to claim some of this.
“It makes the bin a hell of a lot more valuable to MRF’s. Councils will be expecting to see the benefit passed back through and tenders need to reflect the changes and the value of the kerbside recycling bin.”
He suggests establishing a NSW forum involving state government, local councils and operators to discuss how the new scheme will change kerbside recycling and contracts.
“It’s a pretty major change that’s about to happen after twenty years of kerbside recycling. It is fundamental and revolutionary change that offers enormous opportunities,” he says.
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