ESA urges councils to rethink bringing waste services in-house
The Environmental Services Association (ESA), a trade association representing the UK’s resource and waste management industry, has today (10 April) launched a campaign to promote the use of outsourcing by councils as a way to make cost savings and drive innovation in waste service delivery.
Accompanying the launch of the campaign is a briefing paper called ‘Delivering best value through competition’, which details what the ESA feels are the advantages of opening competitive tenders to the private sector over bringing waste services back in-house or using a ‘Teckal’ company, an arms-length company that is owned by the local authority.
Several local authorities have made the move to bring their waste services back in-house as a way of driving down costs and extricating themselves from inflexible long-term contracts with waste management providers. In February this year, Blackpool Borough Council announced it would be bringing its service back in-house to ‘achieve significant savings and give the Council increased control and oversight of a key service’, following the example set by authorities such as those in Slough, Powys, East Cambridgeshire, Rushmoor and Bristol.
ESA members, which include waste management big-hitters such as Veolia and Biffa, are growing increasingly concerned by this pattern, and the ESA asserts in its briefing paper that competition and contestability in a market setting is the best way for councils to deliver value to their residents through driving down costs and incentivising innovation in service delivery.
The briefing paper acknowledges local authorities’ desire to save money and retain a degree of flexibility in service provision as valid, but reiterates that efficiency savings made over the life of an outsourced contract will outweigh the upfront savings from avoiding procurement costs, contractors will be incentivised to drive efficiencies due to the low profit margins on collections contracts, while stating that a well-commissioned contract should provide for flexibility to deal with any unforeseen arisings or changes in waste legislation.
The ESA goes on to make the case that many of the claims made in favour of in-sourcing are not reflected in reality. Private sector contractors often have wide experience of working with councils and are able to take advantage of economies of scale due to their multiple contracts to push down costs, while a service’s risk burden is transferred to the private sector, supposedly insulating the local authority from unforeseen costs, which the ESA claims would only rise with the use of a Teckal company - it would only take a 1.5 per cent annual cost increase to nullify projected savings from Texkal options, according to the paper.
The ESA’s Executive Director, Jacob Hayler said: “It is no surprise that councils across the country are examining all their options during a period of unprecedented financial challenges for the local government sector. Local authorities are under huge pressure to maintain service levels for their residents, improve recycling performance, and above all to save money. ESA agrees that councils are best placed to decide how they want to manage these trade-offs, but we believe that the market is best placed to deliver value for money.
“By transferring risks to the private sector, local authorities are able to insulate themselves from unforeseen costs and gain greater certainty over their budgets. The risk for delivering a quality service to cost lies with the contractor and is enforced through its legal obligations under the contract. This provides transparency and accountability in the delivery of the services, which improves outcomes for council tax payers.
“ESA recognises that many local authorities are concerned about locking themselves into inflexible arrangements for up to 10 years for their waste services. But we believe that competitive tenders – open to both private and publicly owned service providers – can be used to protect councils from changes in future legislation in the most affordable way. We are keen to work with the local government sector to explore new contracting solutions which would help to address this.”
You can read the briefing paper ‘Delivering best value through competition’ on the ESA website.