Extended Council and Joint Collection Contract Terms Fail Public Benefits Test
I have long advocated and remain absolutely of the view that the greatest threat to our industry’s operating norms and of the principles to having fair and open competition is Government itself. Whether it is Local, State or Federal the threat is the same.
It comes directly from ill-conceived policy decisions by the very community representatives that we elect as stewards of our democracy, and those that spin the expressions: ‘public’s best interest’, ‘best for ratepayers’ or ‘best for community’.
No better demonstration of the reality of this risk is the continuously increasing number of applications now being made to the ACCC by Local Governments across Australia, seeking approval for joint tendering and extended contract terms for waste, recycling and other sector operations.
In June 2015, an application made by Redland’s City Council on behalf of the Council and Brisbane City Council (applicants) sought approval to conduct a joint tender process for waste, recycling and green waste collection services. The application sought permission for Brisbane City Council to negotiate the contractual framework on behalf of the Applicants to make a ‘joint decision regarding the ongoing management of the contract for the waste and recycling collection services’.
Perhaps unsurprisingly, Redland’s who made the application have left the larger of the two Council’s to do all the work. The devil, however, is always in the detail. The application sought approval for authorisation for a period of 19 years, comprising a three- year tender period and contract term of up to 16 years.
The Request for Proposals (RFP) for Waste and Resource Recovery Services by Brisbane was issued on July 4 2016 to industry, closing on 21 December 2016. The sceptic in me notes this RFP occurred merely 48 hours after the close of local election booths for the 2016 Federal Government election.
Similarly, in November 2015, South Australian Council Solutions (CS) made application on behalf of ve Councils in Adelaide for a similar application for joint tender and contract arrangements for a term of 17 years.
In demographic terms, the Brisbane / Redlands application for a preferred two eight-year terms for waste, recycling and green waste services, effectively represents services to more than 50% of the total Queensland population. In Adelaide, Council Solutions (CS) ve Councils represent around 34% of all Adelaide services. With other existing Adelaide Council arrangements effectively already ‘locked away’, if the CS bid is approved, effectively 86% of the Adelaide market will be controlled by just three groupings/ contracts.
Implications for the industry in Australia are profound, if this ‘bigger is better’ contract mantra continues. The only independent umpire to challenge this bureaucratic nonsense is the ACCC. Despite repeated evidence provided by industry who have the core knowledge to articulate and present sound arguments against such applications being approved, the ACCC fails to see and acknowledge these risks, both in community and industry terms.
Starting at the bidding process, the costs of putting together a tender response to the scale of these bids is significant to ensure that the bid is properly made and project risk and time frame is well measured. Coupled with the scale of what is being offered by Councils and their risk adverse capability to share any of the forward contract risks, this model has substantive commercial implications to any bidder, as a direct result of both the tenure of term, as well as the nature and quantum of the capital costs required to fill the contract terms. Such scale capability also directly limits the numbers of real competitors capable of actually bidding for these Council offerings.
Not to mention, locking not only waste collection methods and valuable resource streams away for such lengthy terms signicantly reduces all incentives for any industry long-term technical development. As an example, in the Brisbane / Redlands situation, if more than 50% of Queensland’s populations waste and recyclables are contracted to a single company (or a single collection or treatment method) and ‘locked away’ for such lengthy periods, there is a real risk for failure that any real innovation will occur. Innovation in this industry is reliant on access to materials and supply. Shut that down and we restrict those creative engineering solutions that the sector has long led.
In terms of equipment, providers and general suppliers to the industry for compactors, GPS systems, lifters lights, truck bodies (the list is endless), their future is also challenged as any unsuccessful bidder, or party to an unsuccessful bid, will be locked out of that opportunity for potentially up to 16 years. Such businesses will need to look to future opportunities outside South East Queensland and, in fact, even out of the state altogether.