More Competition, Less Waste Public procurement

1
More Competition, Less WastePublic procurement
competition in the municipal waste management
sector
Fazleen Ismail Competition Advocacy Team,
OFT CIWM Annual Conference 15 June 2006
2
Background

• OGC Second Kelly Market (SKM)
• OFTs competition advocacy role
• Policy context - Landfill Directive efficiency
  savings
• Competitive markets vital

3
Scope of Report

• Assesses how procurement can affect competition
• Actions which restrict participation or create
  incumbency advantages
• Contract aggregation collaboration
• Level of in-house provision
• Actions that may facilitate collusion
• Actions that may have knock-on effects on other
  buyers

4
Municipal Waste Collection

• Relatively simple economic activity
• Relatively short lifespan of assets ability to
  recover sunk costs on exit
• Limited economies of scale, efficient geographic
  scope of contracts restricted
• LA suppliers include DSOs, private suppliers,
  voluntary community sector

5
Key Recommendations

• Set contract length to reflect ability of
  suppliers to recover sunk costs
• Shorter contracts allow LAs greater flexibility
• 5 years appropriate upper limit
• Do not set overly restrictive selection criteria
• Relative ease of specifying monitoring services
• Limited economies of scale

6
Key Recommendations

• Ensure fair competition between in-house
  private sector bidders
• DSOs hold 52 of collection contracts
• Cost effectiveness of in-house provision
• Effect of presence of DSO in bidding
• DSOs may have greater incumbency advantages
• Competition will drive efficiency improve value
  for money

7
Municipal Waste Treatment

• Need for LAs to procure more waste treatment
  facilities
• Waste treatment complex capital intensive
  process
• Suppliers previous experience often a
  prerequisite
• Numerous different treatment technologies
• Considerable risks relating to planning permission

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Treatment - Key Findings

• LA suppliers include LAWDCs private sector
  suppliers
• Primarily 8 major firms offering waste treatment
  services
• Different suppliers much more prevalent in some
  regions than others

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Key Recommendations

• Consider carefully what services are aggregated
  why
• Economies of scale or scope may justify
  aggregation of contracts
• Larger contracts may attract more bidders
• But, potentially exclude smaller suppliers
• Particular care should be taken about aggregating
  treatment landfill contracts
• Could strengthen regional position of suppliers
  who own landfill sites

10
Key Recommendations

• Encourage bids from suppliers active outside the
  region
• Access to necessary facilities, e.g. landfill
  sites
• Be aware of the risks of collusion tendering
  results should be subject to independent
  monitoring
• Certain characteristics of sector may facilitate
  collusion

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Questions?

• For further information see OFT report
• More Competition, Less Waste Public procurement
  competition in the municipal waste management
  sector
• Available at
• http//www.oft.gov.uk/NR/rdonlyres/DC0DC271-05BA-4
  56C-B93D-392FC086A4FB/0/oft841.pdf