The Eastern Waikato Joint Solid Waste Committee
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1 Report To: From: Mayor and Councillors District Engineer and Utilities Manager Date: 4 April 2013 File reference: Document: Portfolio holder: Councillor Thorp Meeting date: 10 April 2013 Subject: Joint Contract Solid Waste Operations Recommendation: THAT the report be received, and THAT Council approves the recommendation of the Eastern Waikato Joint Solid Waste Committee that a joint contract to deliver solid waste operations for a ten year period be entered into by Hauraki, Matamata-Piako and Thames-Coromandel District Councils with Smart Environmental Limited based on their alternate tender. Purpose This report submits the recommendation of the Eastern Waikato Joint Solid Waste Committee in regard to the award of the contract for Solid Waste Operations. It sets out the details of the offer by Smart Environmental Limited, who have previously been identified by the Eastern Waikato Joint Solid Waste Committee as the preferred tenderer, to carry out solid waste operations under joint contract with Thames Coromandel and Matamata Piako District Councils. Acceptance of the recommendation will allow a contract to be put in place to provide Council s solid waste activities of kerbside refuse collection, kerbside recycling and transfer station operation for the ten year period commencing 1 October Background The procurement process delivered competitive bids from three contractors: Trans Pacific Waste Management Envirowaste Services Limited Smart Environmental Limited. The tender evaluation process identified Smart Environmental Limited as the preferred tenderer, for both Core Service and Alternative Service tenders. This was reported to and approved by Eastern Waikato Joint Solid Waste Committee, and negotiations were then entered into to arrive at acceptable contractual arrangements. Negotiations discussed both Core and Alternative Service tender offers. Both tenders include provision of a materials-recovery facility at the contractor s cost. Page 1
2 The outcome of the negotiations has been reported to the Eastern Waikato Joint Solid Waste Committee. The full report is available if required; this report summarises its contents. The committee has taken the following resolution: Resolved That Eastern Waikato Solid Waste Joint Committee: 1 Receives this report and following the procurement process and subsequent negotiations resolves to; 2 Note the amendment to the table of figures on page 36 of the order paper that kerbside recycling for HDC changes to $177,162 and MPDC kerbside recycling changes to $323,624, however the total remains unchanged. 3 Approve the alternative methodology from Smart Environment Limited for service delivery for Solid waste Operations 4 Recommend to the Hauraki, Matamata-Piako and Thames-Coromandel District Councils that a joint contract to deliver solid waste operations be entered with Smart Environmental Limited based on their Alternate Tender. Core Service Moved/Seconded By: Milner/Fox This service is delivered using pre-paid refuse bags and the type of recycling crate currently in use. A fleet of specially configured collector vehicles operating over all three districts will pick up both kerbside refuse and recyclables using the same truck. The proposed fleet will comprise 6 trucks configured as Low Entry Vehicles with separate capacity for 10 cubic metres each of refuse and recyclables plus separate glass storage, used in most of the urban areas, supported by smaller combi trucks for rural recycling and refuse collections. Weekly Collection days will be: Thames Coromandel: Hauraki: Matamata Piako: Monday, Tuesday part of Wednesday Wednesday, Thursday Thursday, Friday Alternative Service This service is delivered using pre-paid refuse bags, a recycling crate for glass only of the type currently in use, and a wheelie bin for other recycling. A fleet of vehicles will operate as a fleet over all three districts collecting refuse and recycling in separate trucks. A truck configuration with an automated side-lifting arrangement will be used to serve the recycling wheelie bins, which are automatically side-lifted onto the vehicle. The fleet will comprise 3 of these vehicles and 3 refuse trucks with glass storage bins used in most of the urban areas, supported by smaller combi trucks for rural collections. Collection days will be: Thames Coromandel: Hauraki: Matamata Piako: Monday Tuesday and part of Wednesday Wednesday, Thursday Thursday, Friday. Page 2
3 Refuse bags will be collected weekly, glass recycling bins and recycling wheelie bins will be collected fortnightly on alternate collection days. Advantages of using the alternative service are: Wheelie bins for recycling reduce the issue of windblown recycling Improves Health & Safety aspects of collection Separate glass crate aims to reduce glass fragment contamination of recycling Large capacity of recycling wheelie bin facilitates increased household recycling This will in turn reduce disposal to landfill Currently recognised as Best Practice Negotiations Negotiations over several days with Smart Environmental Limited, staff of Hauraki, Matamata- Piako and Thames-Coromandel District Councils and legal advisor Kensington Swan reached the following positions for recommendation to the Eastern Waikato Joint Solid Waste Committee: The Alternative Service was preferred over Core for the improved level of service associated with use of 240 litre wheelie bins for fortnightly collection of recyclables. Entering into a risk sharing arrangement regarding income from sale of recycling was not favoured due to the budget uncertainty this option could create and the perceived limited upside potential for the Councils. A single point of contact for contract management representing all three councils was seen to have potential for savings. A partnering committee could be established to oversee governance and contract methodology variations and implementations, meeting twice annually or more frequently as required. Ratepayer education in regard to changes in collection days needed for the contract operation should be at the cost of the contractor with joint branding, utilising best of material successfully used elsewhere in New Zealand. A communication plan is essential and will need to begin early. Phasing in the alternative service during the contract period was not feasible due to the need for a differently configured fleet. It would not be cost effective to change the configuration part way through the contract period. Ten to twelve Key Performance Indicators will be confirmed for inclusion in the contract and will include significant penalties for non-performance. The benefit of experience gained elsewhere will be sought, also possibly to incorporate incentives to reduce waste to landfill where possible. It was recognised that the recycling income is in itself an incentive. It would be preferable for the contractor to fund the supply of the initial wheelie bins at a cost of approximately $2 million. A contract term of 10 years as an alternative to the originally proposed 7 years was considered for the following reasons: The longer period is advantageous for capital write-off of the wheelie bin purchase. Page 3
4 The 7 year contract term was originally proposed as the expected lifetime of the collection fleet. It has been recognised that generally only the engine and running gear of vehicles would need replacement to economically extend the service life. The materials recovery facility equipment is being depreciated over 10 years. Council would still be able to terminate contract for non-performance. Cost escalation below a threshold value of 1.5% would not apply to the final 3 years of the contract, minimising council exposure to accumulated escalation. The Councils will allow the contractor to pick up commercial recycling and commercial refuse when doing the domestic collection, subject to agreed systems to ensure there will be no cost to Council for this provision. Separate escalation to cover the variation in fuel prices would be reviewed at regular intervals. The following factors favour purchase and financing of the wheelie bins by the contractor: 1. Smart Environmental has negotiated with supplier Sulo Talbot to provide an extended manufacturer s warranty of ten years for the wheelie bins instead of the usual seven year warranty. 2. The risk of repair and maintenance due to operator damage, a common cause of repair costs, is more appropriately placed with the contractor. 3. As owner of the bins the contractor has a vested interest in effective maintenance and asset tracking and will be responsibility for MGB database management throughout the contract term Issues and options Financial Issues The following table shows the annual cost apportionment to individual councils, excluding escalation, GST and disposal costs, of the alternative tender. Charges to Council HDC MPDC TCDC Total Kerbside Collection of Refuse 161, , ,643 1,271,705 Kerbside Recycling 1 177, , ,031 1,375,817 Drop off Servicing , ,693 Transfer Station Operations 120, , , ,966 Transport of Waste to Landfill 19, , , ,996 Overhead & Sundry 2 172, , ,084 1,290,831 Processing Costs 232, , ,959 1,617,715 Income 961, ,403 1,480,556 2,993,743 SEL charge(cost to council) 78,361 1,209,305 3,090,036 4,220,981 The income figures include the income to the contractor from sale of recyclables and in Hauraki District Council's case the user charges from prepaid bag sales and transfer station fees which the contractor keeps. Page 4
5 It should be noted that the alternative tender is favourable in price terms compared with the core tender, for all Councils, although initially the alternative tender appeared less favourable for Hauraki District Council than the core tender. A significant difference in the alternative tender for Hauraki District Council is the reduction in user charge income from reduced sales of pre-paid bags, an expected effect of the increased diversion from refuse to recycling. It should be noted that the reduction in bag sales is a direct benefit to the user. The reduction calculates to an average of 5 bags per year fewer per user. For the other Councils increased diversion from refuse to recycling will also reduce this income but as the income is received by the Councils direct the effect of the reduction in sales does not affect the contract income. It does affect the activity net cost for the Councils. The figures shown in the table above include a correction of $13,183 for a misallocation by the tenderer of MPDC costs for Kerbside Recycling to HDC. The operational savings compared with the 2013/14 Hauraki District Council Annual Plan provision are estimated to be of the order of $46,000, including the estimated reduction in disposal charges to landfill. The direct benefit to users from reduced bag purchases could potentially amount to about $60,000 or approximately $10 per user annually. Operational Issues The same contract offer needs to be accepted by all three participating councils. Acceptance of the core service offer by one council and the alternative service offer by others is not feasible. The contract as tendered includes for a uniform level of service throughout the presently served areas of the district. This includes a recycling collection service for the Kaiaua area which currently has only a prepaid bag collection. The option of not providing the recycling collection can be negotiated with the contractor if required. Council has the option of approving the recommendation of the Eastern Waikato Joint Solid Waste Committee or not approving it. If not approved the process of securing delivery of the service could recommence. Some of the cost benefits to the other two councils would be reduced. It is unlikely that a new process would secure a better result for Hauraki District Council. Budget Implications / Decision Making Process Awarding the contract is expected to result in a saving of the order of $46,000 compared with the provision made in the 1013/2014 Annual Plan. Conclusion and recommendation The corrected Alternative Service Tender offers an improved level of service at a reduced cost. A ten year contract period delays the cost of procuring the service for the next delivery period and offers the advantages set out in this report. It is therefore recommended that Council approves the recommendation of the Eastern Waikato Joint Solid Waste Committee that a joint contract to deliver solid waste operations for a ten year period be entered into by Hauraki, Matamata-Piako and Thames-Coromandel District Councils with Smart Environmental Limited based on their alternate tender. Ken Thompson District Engineer Mike Charteris Utilities Manager Page 5
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