Mike Read, head of energy and environment, Grant Thornton UK LLP, describes the pros and cons of local authorities delivering ‘in house’ waste collection and streetscene contracts, or procuring a private sector contractor to deliver it.
The issue of who delivers council waste collection and wider streetscene contracts is nothing new. The norm has been for council’s to choose between delivering ‘in house’, often through some form of Direct Service Organisation (DSO), or to procure a private sector contractor to deliver it. However, in recent years, the battle for service delivery has intensified, with the rise of a ‘third way’ – the development of local authority alternative delivery models (ADMs).
With local authorities under pressure to be more commercial and deliver services more cost effectively, the growth of ADMs has been rapid and is being seen across all areas of local authority service provision. However, the contractor’s through the Environmental Services Association (ESA) have questioned whether these new alternatives can offer value for money – a concerning question from experienced contractors that are well placed to deliver cost effective solutions. With so much at stake for parties involved, it is unsurprising that there is intense debate around determining – what is the best model for delivery?
It is clear that there is more to the current debate than purely the broader rise of local authority companies. Firstly, there have been some high profile contract and company failures, often linked to risk issues in contracts, which then translate in to risk on the outputs – primarily recyclable materials.
It is clear that one size does not always fit all. Across all sectors, the most common reasons behind local authority companies either succeeding or failing has been down to clarity around their rationale for existence, vision as to their purpose and USPs.
In the days before recycling and recovery, this was never an issue. Waste was collected, streets were swept and the outputs largely ended up in landfill. So, whether this was done in house or by a contractor was largely a result of the local authority’s political preference. The significant issues around commodity price risk, plus contracts linking collection and processing, creates a web of complexities at a time where local authorities are in a flux from historic risk adversity but are also striving for greater commerciality and exploring areas of income generation.
This is where ADMs and the linked growth of the specialist Teckal providers, such as Norse, come in to the mix – delivering the services but also meeting the commercialisation agenda. There have been successes but there have also been failures as highlighted in Grant Thornton’s latest report on ADMs. Whilst they are one alternative that can lead to success, they may not always be the right one.
It is clear that one size does not always fit all. Across all sectors, the most common reasons behind local authority companies either succeeding or failing has been down to clarity around their rationale for existence, vision as to their purpose and USPs. This is not surprising given that they are juggling between service delivery, cost reduction and competing in a commercial market. These all require the right management skills in the organisation from the outset. Take this into the waste and streetscene arena and the issues are heightened. Being one of the highest profile services a local authority has, the market is highly congested, highly competitive and income generation is tough.
So, in determining the right option, a local authority must carefully evaluate and explore the options available. Key issues must be addressed and local authorities need to consider issues such as level of independence and decision making by a newly formed company, the risk appetite, the local market conditions and if employees are on private sector terms and conditions. If there is no clear purpose or USP, or willingness to change, then an ADM will be on a rocky road from the start, and other options are better. So, the message is clear – local authorities need to do their homework and make the right decisions for them and not just follow trends.