ENV 11/8

MUNICIPAL YEAR 2011/2012 REPORT NO. 39 MEETING TITLE AND DATE: Cabinet 13th July 2011 JOINT REPORT OF: Director - Environment and Director of Finance and Corporate Resources

Contact officer and telephone number:

Nicky Fiedler, Head of Waste, Street Scene and Parks Client

Helen Waring, Interim Business Partner (Environment and Health and Adult Social

Care)

E mail: Nicky.fiedler@enfield.gov.uk N.B Glossary attached at end of report.

Subject: Approval of the Inter Authority Agreement KD No: 3277 Wards: All

Agenda – Part: 1

Cabinet Members consulted: Cllr Bond & Cllr Stafford

Item: 15

1. EXECUTIVE SUMMARY

1.1 This report provides an overview of the Inter Authority Agreement (IAA) between North London Waste Authority (NLWA) and the seven constituent boroughs, Waste Collection Authorities (WCAs), of which Enfield is one. The IAA follows the previously agreed (and amended) 12 principles presented to Cabinet on the 9th March 2011 (appendix 2).

1.2 The IAA document will govern the interface between the NLWA and its seven

WCAs with regards waste management over the life of the NLWA’s proposed future waste management contracts. These contracts are currently in the process of being procured and are expected to last for 30 years.

1.3 Approval of the IAA is required from each of the seven boroughs to ensure that

the NLWA can smoothly progress the procurement during the summer and reduce the risk transfer.

1.4 All of the WCAs are expected to agree the IAA subject to minor amendments

and complete the relevant Schedules during July and August 2011. Details of progression towards this are set out in appendix 5. To date Hackney, Islington and Waltham Forest have approved the IAA.

ENV 11/8

3. BACKGROUND

Procurement

3.1 The NLWA is a Statutory Joint Waste Disposal Authority (JWDA) for 7 North London boroughs. The NLWA area jointly disposes of almost one million tonnes of rubbish every year, making it the second largest waste disposal authority area in the country. The current waste disposal contract, awarded in 1994, expires in December 2014. The NLWA in partnership with the WCAs is now in the process of procuring a replacement contract. The WCAs will not be a party to this contract but the terms of this contract will impact on the

2. RECOMMENDATIONS 2.1 To agree that the Council should enter into the IAA as set out in section 3 of this

report, subject to final amendment 2.2 To delegate authority to the Director – Environment and Director of Finance and

Corporate Resources, in consultation with the Cabinet Member for Environment, and Cabinet Member for Finance & Property, to agree:

2.2.1 Minor amendments to the IAA; 2.2.2 The final decision on the inclusion or not of the HWRC, based on value

for money, clarification on the recharging of existing and additional sites and approval of heads of terms of the proposed lease for the HWRC to NLWA.

2.2.3 The completed Schedule 1 Part A and Schedule 2 Part A of the IAA; 2.2.4 The execution of the IAA accordingly.

2.3 To agree the Director - Environment as the Council’s representative for the

purposes of the IAA (Schedule 9) 2.4 To note that the signing of the IAA by all seven WCAs will constitute a unanimous decision to change the method of apportionment of NLWA’s costs from one of charging on the basis of a flat rate for all tonnages to one of menu pricing with effect from 2016/17 for household waste, and one of Council Tax base to one of Visitors Survey for HWRC tonnages. 2.5 To note that agreement to the IAA does not constitute agreement to

Transitional Menu Pricing (TMP), which may apply for the period 2012/13 to 2015/16.

2.6 To amend the recommendation 2.4 in Report No.206 - Approval of the Inter

Authority Agreement Statement of Principles between the North London Waste Authority and Enfield Council (Cabinet - 9 March 2011 - KD 3129) to bring the report back to Cabinet prior to final signoff of Schedules 1 and 2 parts B and any changes to the proposed pricing and charging mechanisms.

ENV 11/8

WCAs through their relationship with NLWA. Appendix 1 sets out the background in detail.

3.2 The replacement contract between NLWA and its contractor, yet to be appointed, will be to design, build and operate the new waste facilities across North London which will require significant investment. Therefore due to the level of investment required the new contract is for 30 years. This duration of contract is normal for waste infrastructure projects and helps to smooth the repayment costs. The new proposed contract will replace the current facilities including the energy from waste facility with more sustainable waste solutions which will be brought forward by bidders through the invitation to submit detailed solutions and which will be designed to increase recycling, and mitigate the increasing cost of waste disposal due to landfill tax increases.

3.3 The replacement contract will now be let in the form of two contracts; the

Waste Services Contract and the Fuel Use Contract. The Waste Services Contract currently incorporates the following, with the option to remove bullet points 1 and 3 during the procurement if the NLWA feels they do not offer value for money:

• The management of Household Waste Recycling Centres (HWRCs);

• The reception and transfer of waste collected by the Constituent Boroughs;

• The processing and marketing of materials separately collected for recycling;

• The composting or anaerobic digestion of separately collected organic waste

(food waste and garden waste);

• The treatment and disposal of residual waste and the production of a Solid

Recovered Fuel (SRF).

Officers have sought clarification from the NLWA that WCAs can still remove

composting or anaerobic digestion from their tonnage projections when updating

Schedule 2 Part B in line with the agreed 12 principles in appendix 2. Ultimately

WCA’s are only statutorily obliged to deliver residual waste to the NLWA under

the Environmental Protection Act 1990.

3.4 The second contract is the Fuel Use contract and is for the SRF produced in

the waste services contract.

Inter Authority Agreement

3.5 To start off the process towards developing an IAA between the NLWA and WCAs a Memorandum of Understanding (MOU) was developed and agreed by all parties. In Enfield this was approved by Cabinet in May 2008, where Cabinet resolved to work together with the NLWA and the other six boroughs.

ENV 11/8

3.6 This was then followed by the updated the North London Joint Waste Strategy (NLJWS) and Affordability Letter, which Cabinet approved in October 2008. All of the other six boroughs also approved these documents at this time.

3.7 During 2010 a set of 12 principles were developed with the boroughs as a

starting point for the IAA. In March 2011 Cabinet approved the 12 principles. 3.6 The 12 principles have been approved by all WCAs with the exception of

Barnet to date. WCAs have approved them in varying ways: Enfield amended principles 4 and 8 which related to Household Waste and Recycling Centres (HWRCs) as set out in Appendix 2.

3.7 This report now seeks approval of the full IAA as the procurement is reaching

the Invitation to Submit Detailed Solutions (ISDS) stage. The IAA will be the formal legal framework that covers the entire scope of the interface between NLWA and the WCAs and has been built on the 12 principles. Approval of the IAA has no bearing on the technology choices brought forward by bidders through the IDSD or dialogue stages.

3.8 Appendix 3 sets out the procurement timetable as it currently stands. 3.9 To date, the NLWA has supplied bidders with working assumptions relating to

the waste collection systems used by WCA’s. At Invitation to Submit Detailed Solutions (ISDS) in the procurement process, the NLWA is seeking a significant degree of certainty for bidders through the IAA.

3.10 At the ISDS stage, which has been timetabled for June 2011, the NLWA is

proposing that WCAs approve a ‘full legally binding’ IAA (see Appendix 4 for the document and Appendix 5 for the approvals to date by boroughs), which will become the contractual interface between the WCAs and the NLWA for the term of the waste disposal contract.

3.11 The signed IAA will provide certainty to bidders during the procurement

process with regards to the intended and ultimate WCA collection systems and waste streams, which will inform the bidders’ resultant solutions coming forward, thus reducing the amount of risk bidders price into their solutions. Even a 1% uplift in costs will be substantial.

3.12 The IAA will also set out the WCAs’ intentions to bidders on whether they

intend to consign recyclables and/or compostables to the waste disposal contract. Currently Enfield has its own contracts for bulking and processing of the recyclables and compostable waste collected. Some other boroughs do the same and some deliver this waste to the NLWA. The Environmental Protection Act 1990 provides the legal requirement for the WCAs to deliver residual waste to the NLWA.

3.13 The IAA covers aspects such as:

• The responsibilities of each of the parties,

• How any changes will be managed,

ENV 11/8

• How the costs of the services will be apportioned between the boroughs,

• The requirement for the Authorities to meet a 50% recycling target

• The tonnages each WCA is guaranteeing to deliver by waste stream, and

• The transfer of HWRCs and the development of the HWRC network. 3.14 The main body of the IAA document sets out the terms, definitions and

clauses of the agreement. There are 9 schedules that set out processes and relevant information. The main clauses and Schedules are summarised below starting at section 3.17.

3.15 The approach being sought in the IAA is that the information in some of the

schedules (as set out later in the report) can be updated during the process and so this will enable:

• WCAs to have an ongoing ability to amend their decisions during the procurement process as bidder information becomes more certain;

• Bidders to have base information to enable them to build up detailed solutions as part of the ISDS; and

• The NLWA to have the ability to explore key issues with bidders on the WCAs’ behalf through competitive dialogue and so refine the prices that they might expect to pay through the future charging mechanism going forward.

3.16 Each WCA will sign a different counterpart IAA agreement after completing their WCA specific information with regards Schedule 1-3 Part A and Schedule 9 but leaving empty the corresponding information in those schedules relating to other Boroughs. The document will be completed once each of the eight Authorities has executed a counterpart agreement. After completion, each of the eight Authorities will be provided with a copy of the other seven counterparts. The eight counterparts will become the fully completed document.

3.17 If the WCAs do not complete the IAA, the NLWA will not be able to confirm

any borough level detailed information or assumptions to the bidders about the contracts that are being procured. The IAA serves to provide certainty for the bidders for the waste services contract and the information will be used by the bidders to model solutions that should provide value for money for the parties involved.

3.18 Without the information, the waste services contract that is being procured by

the NLWA may not be tailored to the needs of the WCAs that have not provided information. Without an IAA in place the relationship between the NLWA and the seven WCAs concerning payment, co-operation, change of the waste services contracts and future developments in the north London area will be uncertain. Failure to let a contract and do nothing to replace the current facilities has been considered and it is estimated would add costs of £500m - £1bn over the term of the contract.

ENV 11/8

3.19 The IAA does not set out the technology that will be used in the contract; it only provides the bidders with the WCAs’ collection systems and projected tonnages by waste stream.

Inter Authority Agreement Document

3.20 The IAA sets out the rights and responsibilities of the NLWA and the WCAs mainly relating to the waste services contract, waste collection systems, recycling obligations, forecast tonnages, HWRCs and payment.

3.21 The IAA applies during the period leading up to the appointment of a

contractor for the waste services contract and during the lifetime of that contract, which is anticipated to be up to 30 years.

3.22 Set out below is an overview of the main parts of the agreement that impact

upon the Council. The full document is set out in appendix 4.

Partnering Ethos

3.23 The IAA specifies that the NLWA and the WCAs must act reasonably and co-operatively with each other, which reflects the previously agreed approach in the MOU. This is referred to as the 'partnering ethos'. Clause 2 goes on to specify that the parties must act in a timely manner, work to mitigate any losses arising under the IAA, use reasonable endeavours to work together and co-operate with the Waste Services Contractor to be appointed by the NLWA and to not knowingly do anything that that would put the NLWA in material breach of the Waste Services Contract.

Representatives

3.24 The Council will need to appoint a representative to be the authorised signatory for the IAA. The representative is recommended in 2.3 and may appoint others to exercise this role on their behalf. The role of the representative includes:

• being the main point of contact under the IAA for the serving of any notices or correspondence;

• being required to meet with the other parties to discuss any change requested under the Change Procedure to the IAA;

• supplying the part B schedule information to the NLWA; and

• considering the introduction of Transitional Menu Pricing (see 3.51. point 2).

Any act of the representative, or appointed deputies, will be binding on the Council.

ENV 11/8

Waste Disposal Contracts

3.25 NLWA will award contracts for the disposal of the waste collected by the WCAs, known as the Waste Services Contracts. NLWA will rely on the WCAs to perform their obligations in the IAA to ensure that the NLWA can perform its obligations in the waste services contract. Each WCA must pay to the NLWA a proportion of the costs incurred by the NLWA in the performance of the waste services contract.

Principal Obligations of the NLWA

3.26 NLWA commits to providing information to the WCAs to allow them to perform their obligations under the IAA, this particularly relates to the information that the WCAs will need to provide to NLWA to update the schedules prior to the Call for Final Tenders. The completion of the Part B Schedules is required to take place three months after notice to do so which will coincide with the provision of anticipated gate fee information from the NLWA.

3.27 Where a WCA suffers loss from an act or omission of the NLWA, caused by

one of their contractors, or a direct act or omission by a NLWA contractor, the NLWA must use their reasonable endeavours to pursue remedies and will set off any sums due from NLWA or contractor against future payments from the individual or multiple WCA(s). If the NLWA does not pursue a remedy for a significant breach it must explain this to the Partnership Board. NLWA will apportion the costs to be paid by the WCAs to the NLWA for the waste services contracts and supply yearly reconciliations of these costs to the WCAs.

3.28 NLWA commits to the following:

• Use best endeavours to ensure that it procures the proper performance from its contractors and consult the WCAs on service delivery plans;

• Use reasonable endeavours to pursue remedies or payment deductions available to it if its contractors fail to meet their performance standards and cause loss to one or more WCAs;

• Notify the WCAs of any changes under its contracts that might be of relevance or affect its obligations under this agreement;

• Not knowingly allow a change to the waste services contracts that would materially affect a WCA without prior consultation with that WCA;

• Use reasonable endeavours to ensure that its main waste contractor acts reasonably and cooperatively with the WCAs and their contractors; and

• Use reasonable endeavours to ensure that the terms of the waste services contract facilitate and do not conflict with the methods and operations of waste collection set out in the IAA.

ENV 11/8

Principal Obligations of the WCAs

3.29 The WCAs commit to:

• Deliver all waste within the scope of the waste services contracts to the reception points (to note that boroughs are statutorily required to deliver residual waste to the NLWA);

• Comply with the waste acceptance protocol ;

• Not damage any reception points;

• Pay the NLWA in accordance with the IAA;

• Otherwise allow the NLWA to meet its obligations under its contracts; and

• Bear the costs of any relevant losses to the Authority or its contractors or any other Borough caused by an act or omission, including one that prevents the NLWA from receiving performance under its contracts.

Collection Systems 3.30 The WCAs must populate the schedules to the IAA with information about the

collection system that they will use. The detail in the schedules can be updated once NLWA has provided information to the WCAs from the solutions being developed by the bidders in the procurement process.

3.31 Prior to Call for Final Tenders (CFT) the NLWA will provide the WCAs with the

information necessary (gate fees, facility phasing and recyclates prices) to complete Schedules 1 Part B and 2 Part B if they wish to make any changes to the information in the corresponding Part A Schedules. Not less than 3 calendar months after the provision of this information each WCA will notify the NLWA of any changes to the information in Schedule 1A or 2A. The Part B Schedules will then supersede their Part A counterparts. If a Borough does not supply any additional information for the Part B Schedules then the part A Schedules will apply. It is for this reason that the recommendation 2.6 proposes to bring this back to Cabinet and not Full Council due to the tight turn around times.

3.32 For Enfield decisions will need to be considered on the following issues once

the tonnage rates are more certain:

• Whether to collect food waste separately to garden waste from 2016.

• Future policies on bulky waste and other variable waste streams.

• Future aspirations for the commercial waste service and commercial recycling.

3.33 There will be regular meetings between the WCAs and the NLWA prior to the

Call for Final Tenders to discuss proposed changes to collection systems and timescales and any issues arising in dialogue between the NLWA and bidders. In Enfield the new wheeled bin collection system has shown that it

ENV 11/8

will deliver over 40% recycling and so it is not anticipated Enfield will propose any changes to collection systems, however this will be monitored over the next 12 months.

Recycling Obligations

3.34 The NLWA and WCAs agree to the 50% recycling target for 2020 and that 40% will arise from WCAs waste collection systems whilst 10% will come from NLWA’s waste services contract.

3.35 In Enfield, through the roll out of the wheeled bin service borough wide which

will be complete by autumn 2012 this target is achievable, based on the roll out to date from October 2009, to 20,000 households

3.36 NLWA will provide to the WCAs information about the pricing for recyclable

materials as set out in 3.28. The WCAs will then have a period of three months to decide if they will have recyclable and/or organic materials delivered to NLWA.

3.37 This allows Enfield to consider the gate fees provided and decide whether to

consign either or both materials to the main contract via the NLWA for the next 30 years. Currently these materials are being delivered outside of the NLWA as previously stated and rates will be compared to see if they offer value for money, flexibility going forward and an acceptable risk allocation.

Forecast Tonnages

3.38 The levels of the WCAs’ forecast tonnages will be used as a basis for setting

the Guarantee Minimum Tonnage (GMT). The principle of GMT was agreed

by Cabinet in March 2011 as one of the 12 principles. The forecast tonnages

provided in Schedule 2 Part B by the WCAs will be collectively used by the

NLWA as a basis for the setting of the GMT in the NLWA waste services

contract, as agreed with NLWA’s contractor;

3.39 If any liability arises to the NLWA from any net variation in the actual

tonnages, this will be allocated to those Boroughs responsible in the same

proportion as the proportionate variation in tonnage from the forecasts in

Schedule 2B in accordance with the charging mechanism;

3.40 The NLWA is seeking to agree the GMT at 70%, but states that this may change during the procurement process. Officers acknowledge this creates a risk for WCAs, however a GMT rate is required by the banks to finance the facilities that bidders are being asked to build. 70% is considered to be the lowest required rate. In Enfield the trade waste tonnages could be managed to reduce this risk going forward.

3.41 For Enfield it is important then that all tonnages provided are a best estimate

going forward for the next 30 years to avoid any additional costs should there be an overall shortfall in tonnages by all WCAs. If this were the case, the

ENV 11/8

WCA who caused this would bear the penalty. To date officers have been actively working with the NLWA through a bespoke model to project tonnages using an agreed set of assumptions on areas such as household numbers, household growth, waste composition, recognition and participation. This will be continually reviewed over the coming months to ensure the data is as up to date and robust as possible prior to Call for Final Tender (CFT).

3.42 The WCAs will have to provide annual revised forecast tonnages. However

this will not be reflected in the GMT agreed at the outset and are only for contract management purposes. The NLWA has acknowledged that the forecasts are not guaranteed.

HWRCs

3.43 The Government has clearly set out its intention to repeal section 1 of the Refuse Disposal and Amenity Act 1975 (RDA) from the 1st April 2012. This will remove the duty for WCAs to run HWRCs. NLWA have a duty to arrange for places to be provided for residents to dispose of their household waste under section 51 of the Environmental Protection Act 1995.

3.44 Therefore as currently drafted the WCAs agree to transfer the HWRCs to the

NLWA by April 2012 if listed in Schedule 5. Barrowell Green is currently listed. However recommendation 2.2.2 provides for a final decision pending further information and clarification on the wording in the IAA document which is open to interpretation.

3.45 It should be noted that this follows the amended agreement by Cabinet on 9

March 2011 (this stated that the Council would in principle consider the transfer subject to financial, organisational and operational arrangements and where it is value for money). This report recommends that this is delegated in 2.2.2 as clarification is being sought on the terms in order to confirm a decision to transfer the operations of Barrowell Green lease as it is currently proposed and to ensure that the site is returned to the borough at the end of the lease or contract whichever is sooner.

3.46 This section also states that:

• The WCAs will cooperate by providing employment details of any current HWRC staff to the NLWA and agree that the TUPE Regulations will apply to their transfer; and

• The NLWA is solely responsible for making the decision prior to Call for Final Tender whether HWRCs are included in the Waste Service Contract based on a quality and value for money evaluation.

• Any proposed development of a new site will include ‘appropriate weighting’ to the views of the WCA in whose area it is proposed. Although it should be noted that the NLWA does have the ability to purchase new sites and recharge boroughs under the current levy arrangements. The current proposed apportionment of HWRC costs is unclear (refer to recommendation

ENV 11/8

2.2.2) however it is understood it would result in the host borough bearing some if not all of the costs of the new site. It should be noted that new sites are proposed in Haringey and Barnet. A site in Enfield had formerly been considered.

• Transfer of HWRC operations is under the following provisions:

o The site is required for waste management only

o The transfer is on the basis of a lease at a peppercorn rent linked to the contract duration

3.47 The details of the HWRCs are set out at Schedule 5 of the IAA.

Obligation in relation to approvals

3.48 The IAA confirms that it will not prejudice any determination of the Council in its role as Local Planning Authority.

Communications

3.49 A ‘Partnership Board’, chaired by a NLWA representative with representatives

from each WCA will be formed to consider operational strategies relating to the IAA including:

• issues arising from the procurement process and the operational phase of the contracts;

• the improvement, development and reporting of the services provided by the NLWA’s contractors; and

• Any proposed or likely changes to Borough waste collection

3.50 Decisions will be made through consensus or majority vote with the chair having a casting vote. The Partnership Board will not have the power to direct the NLWA or request changes to the Waste Services Contract.

Ownership of Waste and Duty of Care

3.51 This section sets out that the responsibility for the waste transfers to the NLWA upon the WCA delivering waste to a reception point. The detail of this will be set out in the Waste Acceptance Protocol (which will be inserted as Schedule 6 to the IAA).

Financial Contribution

3.52 Payment under the IAA is structured as follows:

• From the Commencement Date until April 2012, WCAs will continue to pay the levy in accordance with the Joint Waste Disposal Authorities (Levies) (England) Regulations 2006. This method applies a flat rate per tonne which does not reflect the actual treatment cost per tonne of household waste and then all other costs (administration and HWRC residual waste) are

ENV 11/8

apportioned via the number of council tax band D properties in each borough each year.

• If agreed by the parties until the date that the ‘Charging Mechanism’ comes into effect Transitional Menu Pricing (TMP) may take effect. This is defined as a transitional recharge arrangement for the recovery of the NLWA’s costs from the WCAs based on a menu of costs which will be considered in good faith by the NLWA and the WCAs. The detail of this is yet to be agreed and will form part of Schedule 4 if agreed by all boroughs through individual Council resolutions. The wording of the agreement states that the NLWA and the WCAs will consider this pricing, but are not committed to it ahead of 2016 (commissioning of the first facility). TMP ahead of menu pricing in 2016 is not viable financially to Enfield and this position has been made clear to the NLWA.

• The Charging Mechanism will apply to the household waste element of the levy, with the levy applying to the remaining items. This is what has been referred to as menu pricing on the household waste element. It is anticipated that this will commence in 2016. Menu pricing is a price per tonne that reflects the actual cost of treatment and reflects on the gate fee being charged by the contractor to the NLWA by which the costs are recovered.

3.53 If any costs are not recovered or recoverable through the IAA the default levy shall apply.

3.54 It is acknowledged in schedule 4 that the charging mechanism for HWRCs is

still to be agreed. As set out in paragraph 3.44 above, HWRCs are proposed to transfer to the NLWA with effect from April 2012. The IAA does not clearly reflect the direction given by NLWA officers on how individual WCAs will pay for the HWRC service, both in the interim period (2012 to 2016) and in the longer term. Amendments have been sought before a decision can be taken as to whether Barrowell Green will transfer (recommendation 2.2.2).

3.55 It should be noted that full agreement via a Council resolution will be required

from all WCAs to move away from the current default levy during the transitional period. The current default levy in the interim period financially benefits Enfield.

Changes and Amendments

3.56 The WCAs can request changes to the IAA, the NLWA’s contracts or the services provided by the NLWA contractors through the Change Procedure in Schedule 7. Any resultant costs or savings will be the responsibility of the WCA that requested the change except where they have a wider impact in which case they will be shared fairly and equitably. The scope of changes that can be made by the WCAs is restricted and there must be agreement on the change between the parties. Where agreement cannot be reached the matter can be referred to dispute resolution.

ENV 11/8

Indemnities

3.57 There is provision for the WCAs to indemnify the NLWA, its employees and its contractors against liability for: death or personal injury; environmental pollution or impairment; loss of or damage to property; breach of statutory duty; or actions, claims, costs, charges and expenses (including legal expenses) where the WCA is responsible either through performance or non-performance of its obligations. There is no equivalent indemnity from the NLWA, but the NLWA has an obligation to pursue remedies against its contractors in the event of loss to a WCA, as set out further in paragraph 3.27.

Schedules 1 (Waste Collection Systems) and 2 (Forecast Tonnages)

3.58 Schedules 1 and 2 are split into Part A and Part B. Part A of the Schedules will be completed prior to entering into the IAA and will reflect information on the waste collection systems and forecast tonnages as at that date. Provision of this information has been recommended to be delegated. Three months prior to call for final tenders upon notice from the NLWA to provide this information, the WCAs will be able to submit up to date information to then be inserted at Part B, allowing the Part A information to fall away. The updated information will be reflective of the solutions that the tenderers will develop during the detailed solution and revised solution stages of the procurement process. If no Part B information is submitted, then Part A will remain as part of the IAA.

Schedule 3

3.59 This sets out the details about the reception points in each WCA area. 3.60 The remaining Schedules are referred to in the relevant sections above.

Standard Provisions

3.61 The IAA contains standard provisions for:

1. Commencement and Duration

2. Representatives,

3. Best Value,

4. Set off,

5. Late Payments,

6. Dispute Resolution Procedure,

7. Exit Arrangements,

8. Confidentiality,

9. Freedom of Information

ENV 11/8

10. Data Protection,

11. Public Relations and Publicity

12. Waiver

13. No Agency

14. No Partnership

15. Entire Agreement

16. Severability

17. Counterparts

18. Notices.

19. Third Party Rights and

20. Governing Law

4. ALTERNATIVE OPTIONS CONSIDERED 4.1 To delay signing of the IAA until September Cabinet or later. This would

either delay the NLWA progressing to ISDS, or, if they did places more risk on to the bidders as the collection systems and projected tonnages for those boroughs not included would not be known. Further any delay in the procurement will result in additional costs as this prolongs the need to continue with landfill capacity, which is becoming increasingly more expensive due to the landfill tax escalator of an additional £8 per tonne year on year.

4.2 Not to sign the IAA.

This would ultimately exclude Enfield from inputting into the process for which it would be statutorily obliged to deliver its residual waste and recharged accordingly through the default levy. The NLWA could still require Enfield to provide data however this would not form part of the contract. This would result in the current default levy arrangements continuing in 2016 instead of the proposed Menu Pricing from 2016 which financially benefits Enfield.

5. REASONS FOR RECOMMENDATION 5.1 It is recommended that Enfield sign the IAA as set out in this report as this is

the next stage of approvals required to support the procurement of the replacement waste disposal contract following Cabinet approvals for:

• The formal adoption of the North London Joint Waste Strategy and retrospective environmental impact assessment

ENV 11/8

• Enfield’s Affordability envelope – a signed letter accepting and acknowledging each borough’s share of the NLWA’s future waste treatment costs based on a reference project and the associated waste collection costs.

• The Signed Memorandum of Understanding - a high level document

that reflects many of the principles in the proposed IAA and agreed the

Councils intention to work with the NLWA and other six boroughs.

• The Statement of Principles - that contained more specific principles to

be included in a future IAA.

5.2 There is no reason on the basis of affordability that the IAA should not be signed up to despite the loss of PFI credits.

5.3 If the WCAs do not complete the IAA the NLWA will not be able to confirm any

detailed information or assumptions to the bidders about the contracts that are being procured. The IAA serves to provide certainty for the bidders for the waste disposal contract and the information will be used by the bidders to model solutions that should provide value for money for the parties involved.

5.4 Without the information and commitment from the WCAs in the IAA, the waste disposal contract that is being procured by the NLWA may not be tailored to the needs of the WCAs.

5.5 A lack of borough commitment through boroughs not agreeing the IAA could

result in lost bidder confidence as bidding costs are substantial. Failure to let a contract would then result in significantly increased costs of waste disposal in the region of £500m to £1bn over the term of the proposed contract.

5.6 Without an IAA in place the relationship between the NLWA and the seven

WCAs concerning payment, co-operation, change of the waste contracts and future developments in the north London area will be uncertain.

5.7 All borough agreement to the IAA will bring the introduction of menu pricing

from 2016 which benefits Enfield financially. 6. COMMENTS OF THE DIRECTOR OF FINANCE AND CORPORATE

RESOURCES AND OTHER DEPARTMENTS 6.1 Financial Implications 6.1.1 Initial indications provided by the NLWA show that their net annual budget will

increase from £43.5m in 2011/12 to between £70.6m and 92.9m in 2016/17, the first year of the new contracts (although NLWA officers are of the view that the lower of the two figures is the more likely). The impact across the seven WCAs is therefore significant. Cabinet has previously agreed that Enfield will accept that the costs of waste disposal will increase under the new contracts by signing an affordability letter in October 2008. NLWA’s latest estimates do not infringe this agreement.

ENV 11/8

6.1.2 There are a number of reasons for the increase, the most significant of which

are as follows:

a) the 2011/12 figure is artificially reduced from £53m down to £43.5m due to a balance carried forward of £9.5m

b) there is an assumption that operating costs for HWRCs currently paid for by the WCAs will be transferred to NLWA

c) there is an assumption that WCAs which currently dispose of their recyclates outside of the NLWA contract will present them back through the contract in 2016/17

d) inflation is included in the figures at 2% per annum (2.5% on goods and services offset by a nil increase in capital financing charges)

e) increased capital charges arising from the required investment into the new services under the new contracts.

6.1.3 For Enfield, the year on year costs as provided by the NLWA are likely to be

as follows: 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17

£000 £000 £000 £000 £000 £000 7177 7807 8729 8689 8961 11200

Annual change

630 922 -40 272 2239

These are included in the Council’s updated Medium Term Financial Plan up to 2015/16.

6.1.4 Menu Pricing The 2016/17 figure assumes that menu pricing is agreed by the WCAs. If menu pricing were not agreed, Enfield’s contribution would increase to £11.7m. Agreeing to menu pricing from 2016/17 onwards would therefore provide a £500k per annum benefit to the Authority if the recyclates currently disposed of outside of the contract were to be returned to the NLWA. From this point of view the signing of the IAA provides the Council with a financial benefit, since it would only opt out of the contract if the annual saving is likely to be greater than £500k. Enfield intends to submit Schedule 2 part A inclusive of its recycling tonnages. Before finalising the tonnage projections to be included in Schedule 2 Part B, however, the Authority will need to weigh up carefully the financial impact of opting in or out of delivering its recyclates to NLWA, since it will only be able to reverse its decision subsequently by using the change mechanism, and this could involve significant financial penalties.

6.1.5 Transitional Menu Pricing (TMP) Of more concern to Enfield at this current time is that some of the WCAs are seeking to introduce an interim arrangement between now and 2016/17

ENV 11/8

whereby the NLWA moves away from the current levy mechanism to the introduction of TMP. Enfield has already in effect taken the decision to introduce its own menu pricing by opting out of the NLWA contract and delivering its recyclable waste under a separate contract. Some £1m per annum of savings has been made as a result of switching dry recyclates to an alternative contract, and the Council has recently agreed to switch its garden and food waste, thereby increasing the potential annual saving by a further £1m. Both of these initiatives have required the Council to invest significant sums in advance in order to secure the ongoing savings. If the NLWA moves to menu pricing now, Enfield will be a significant loser, as allowing a lower cost per tonne for recycling will increase the cost per tonne on residual waste, and Enfield currently delivers residual waste only to NLWA. The IAA has been amended to reflect the fact that TMP may not be agreed by all authorities, TMP will not become legally binding if Enfield sign the IAA.

6.1.6 HWRCs The following two paragraphs of commentary around HWRCs are based upon discussions which have taken place with NLWA Officers, during which they have expressed their intentions regarding charging for HWRCs. The IAA itself does not clearly reflect this stance, and it is for this reason that further clarification has been sought prior to the signing of the IAA.

6.1.6.1Charging on the Basis of Visitors Surveys Enfield currently benefits from the mechanism used by NLWA to recharge for waste delivered from HWRCs (the Council Tax base). This is because it is required to pay 16% of the total cost, even though it presents 34% of the total waste tonnage to NLWA. Were the charging mechanism to move to the visitor survey approach, assuming that 100% of visitors to the Barrowell Green site are Enfield residents, the Council’s annual costs would increase by some £500k which is already factored into 6.1.3. However, should the preferred bidder quote running costs below those currently being incurred by the Council, then there will be some reduction to this figure. The signing of the IAA, as confirmed by NLWA officers, will constitute agreement to move to the visitors survey approach with effect from 2016/17.

6.1.6.2The Transitional Period Prior to 2016/17, WCAs are being asked to consider transferring their HWRCs to NLWA with effect from April 2012. Between this time and 2016/17, if the WCAs cannot agree to a transitional charging system, then the Council Tax base will be used. Under this scenario, and based on very broad figures quoted by NLWA, Enfield would incur £100k of additional cost per annum were it to transfer its site.

ENV 11/8

If the site were not transferred, then Enfield would pick up 16% of the costs of all of the other sites transferred, as well as incurring running costs on its own site. Again, based on broad figures supplied by NLWA and assuming that all other sites did transfer, the additional cost per annum would be £600k (ie Enfield would incur dual running costs). Points in the IAA document as set out in appendix 4 which require amendeding following confirmation from NLWA officers Schedule 4 appears to state that the WCA in whose area the HWRC is located will bear the full running cost of that HWRC and that only disposal costs will be based on visitor survey information. It could also be interpreted that this arrangement will start with effect from HWRC transfer, ie April 2012. The financial impacts of this approach would be that Enfield will start paying an additional £500k per annum with effect from 2012/13 because it will pay more in disposal costs using the visitor survey method of apportionment rather than the Council Tax base

These points will need clarification before the IAA is signed off, however as previously stated the default levy applies until a unanimous resolution is passed by all Councils.

6.1.6.3New Sites The financial risks in the longer term stem from the strategy which may be adopted around refurbishment of sites or provision of new sites. These decisions will clearly have a financial impact on the WCA(s) involved. For example, were the NLWA to decide to build an additional HWRC in Enfield, then Enfield is likely to bear the Lion’s share if not all of the resulting annual costs. Although the IAA states that the WCAs likely to be most affected will be consulted prior to final decision making, as set out in paragraph 3.45 above, the NLWA will reserve the right to uphold its decision and can progress additional sites without boroughs agreement and recharge for the costs. Unless these additional costs could be offset by a reduction in collection costs, then a direct pressure will be experienced.

6.1.7 Achieving The 50% Recycling Target One of the identified risks to the procurement is that the successful contractor builds insufficient facilities for residual waste and surplus capacity for recycling. However, this would occur only if forecast tonnages are significantly adrift across all WCAs compared to what actually happens. By signing the IAA, the WCAs and NLWA agree to achieve a 45% recycling rate by 2016/17, increasing to 50% by 2020. The NLWA have provided an estimate showing that, were Enfield to fall short of its target, then it would incur an additional £200k of disposal cost per annum for every 2%.of shortfall

ENV 11/8

However, the IAA clearly states that only the WCA(s) responsible for any financial penalty incurred under the contract will bear the cost, so, based on the recycling rates achieved from the wheeled bin pilot, Enfield is confident that it can meet the required target, and therefore should not incur penalties in this respect.

6.2 Legal Implications 6.2.1 NLWA is established as a London Waste Disposal Authority under Schedule

1 of the Waste Regulation and Disposal (Authorities) Order 1985. Schedule 1 lists Enfield as one of seven Constituent Councils of the NLWA.

6.2.2 The Council has a duty to deliver for disposal all waste which is collected by

the Council to places that the NLWA directs under section 48(1) of the Environmental Protection Act 1990 (the EPA). This does not include any waste that the Council has made arrangements for the recycling of (section 48(2) of the EPA).

6.2.3 Any contract that the NLWA enters into for the disposal of waste delivered to it

by the WCAs will impact upon the Council. This is because the Council will have to pay the NLWA for services delivered under the waste services contract (for greater detail on this, please see the financial implications above). As the Council will not be a party to the contract that the NLWA enters into, following on from the current procurement exercise, the IAA provides an interface between the NLWA and the WCAs concerning the waste disposal contract. As set out in paragraph 4.2 it is in the Council’s interests to be a party to the IAA in order to input into the outcome of the waste disposal contract procurement.

6.2.4 Entering into the IAA will create a legally binding relationship with the NLWA and the other six WCAs that the parties will be able to rely on. This is in addition to the statutory relationship as set out at 6.2.1. It is anticipated that the IAA will govern relations between the NLWA and the WCAs in relation to the waste disposal contract for a period of up to 30 years. The final form of the IAA must be approved by the Assistant Director of Legal Services.

6.2.5 With reference to the proposed lease of Enfield’s HWRC, the Council must

comply with the provisions of s123(1) of the Local Government Act 1972. Under this section the Council has the power to dispose of land held by it in any manner it wishes. Under sub-section (2) the council is required to obtain the Secretary of State’s consent unless it is intending to dispose the land by way of a short tenancy, ie a tenancy which is for a term not exceeding seven years. The proposed lease is for a term of 30 years therefore the consent may be required, subject to para 6.2.9 below.

6.2.6 It is for the Council to decide whether any proposed disposal requires specific

consent under the 1972 Act, since the Secretary of State has no statutory powers to advise authorities that consent is needed in any particular case.

ENV 11/8

6.2.7 The Council must carefully consider the terms of a proposed lease to NLWA ensure that the facility is properly managed and maintained. The Council should ensure that the heads of terms of the proposed lease are agreed as soon as possible

6.3 Property Implications

6.3.1 Before disposing of any interest in land for a price which may be less than the

best consideration reasonably obtainable, the Council must obtain a realistic valuation of the land, in accordance with the advice provided in the Technical Appendix to the Circular 06/03: Local Government Act 1972 General Disposal Consent (England) 2003 - disposal of land for less than the best consideration that can reasonably be obtained

6.3.2 An application to the Secretary of State for a specific consent to dispose of

land for less than the best consideration reasonably obtainable must be supported by a report prepared and signed by a qualified valuer (a member of the RICS), providing information on the unrestricted and restricted values together with the value of conditions.

6.3.3 The consent from the Secretary of State is not required where the difference

between the unrestricted (market) value of the land to be disposed of and the consideration accepted is £2,000,000 or less.

6.3.4 Any transfer of the Council’s property must accord with the `best value’ principle and the Council’s Property Procedure Rules.

6.3.5 The Council must carefully consider the terms of a proposed lease to NLWA

to ensure that the facility is properly maintained. 6.3.6 Further consideration will need to be given at the appropriate time to the

Council’s position in relation to inter alia , the level of rent to be paid (if any) , the length of lease to be granted together with break clauses (if appropriate), operational costs and who will bear these costs , the ability or otherwise to assign or sublet the lease, the condition of the premises upon handover, whether security of tenure (upon expiry) should be granted , capital improvements and how they should treated at the end of the lease in terms of compensation, and other terms which are usually found within a commercial lease.

6.3.7 The terms of the lease will be negotiated on the basis that they are the best

terms reasonably obtainable and in tandem with the IAA Agreement will deliver demonstrable benefits to Enfield’s ratepayers.

6.3.8 It is recommended that agreement to the final lease terms should be

delegated to the Director – Environment and Director of Finance and Corporate Resources, in consultation with the Cabinet Member for Environment and Cabinet Member for Finance and Property.

ENV 11/8

7. KEY RISKS AND MITIGATIONS 7.1 The 3 month window to update the borough data prior to CFT. This will be

mitigated by working with the NLWA during the bidder dialogue. 7.2 The tonnage projections for a 30 year contract. This will be mitigated by the

ongoing work from over the coming year to ensure these are as accurate as possible. The Council is in any case legally bound to deliver its residual waste to the NLWA for disposal and on that basis would be bound to paying the costs regardless of signing the IAA whilst the NLWA provided projected tonnages.

7.3 The any policy changes in the future that impact on waste flows could have

significant cost implications if they affect the GMT or require the change procedure. This will be mitigated by taking this into accounting an policy or service change.

7.4 There is a risk that Enfield (and other boroughs) do not achieve a 40% front

end recycling rate. This is being mitigated through the roll out of wheeled bins which to date have demonstrated that 40% is achievable and ongoing monitoring is in place.

8. IMPACT ON COUNCIL PRIORITIES 8.1 Fairness for All

The Inter Authority Agreement (IAA) between North London Waste Authority (NLWA) and the seven constituent boroughs (including Enfield) has no direct implications relating to fairness and equality, but should help ensure that all Enfield residents receive an efficient waste collection and recycling service in future years.

8.2 Growth and Sustainability

The replacement waste disposal contract seeks to support the reduction in waste and increases in recycling in North London. The treatment solutions sought seek to be more sustainable for the next 30 years.

8.3 Strong Communities None.

9. PERFORMANCE MANAGEMENT IMPLICATIONS

9.1 The NLWA and WCAs agree to the 50% recycling target for 2020 and that

40% will arise from WCAs waste collection systems whilst 10% will come from NLWA’s waste services contract.

ENV 11/8

9.2 In Enfield, through the roll out of the wheeled bin service borough wide which

will be complete by autumn 2012 this target is achievable, based on the roll out to date.

Background Papers

Report No.206 - Approval of the Inter Authority Agreement Statement of Principles between the North London Waste Authority and Enfield Council (Cabinet - 9 March 2011 - KD 3129).

Glossary ISOS Invitation to Submit Outline Solutions ISDS Invitation to Submit Detailed Solutions CFT Call for final Tenders IAA Inter Authority Agreement WCA Waste Collection Authority NLWA North London Waste Authority SRF Solid Recovered Fuel TMP Transitional Menu Pricing HURC Household Waste and Recycling Centre GMT Guaranteed Minimum Tonnage MTG Minimum Tonnage Guarantee

ENV 11/8

Appendix 1

Background to the Procurement In October 2008 the NLWA submitted an Outline Business Case (OBC) to Central Government for PFI credits to underpin the procurement. In the months prior to this, in line with central government expectations, Enfield and the other constituent boroughs approved:

• The formal adoption of the North London Joint Waste Strategy and retrospective environmental impact assessment.

• An Affordability envelope – a signed letter accepting and acknowledging each borough’s share of the NLWA’s future waste treatment costs based on a reference project (a fully worked up example of how the PFI project might be delivered) and the associated waste collection costs.

• A Signed Memorandum of Understanding - a high level document that reflects many

of the principles in the proposed IAA.

• A Statement of Principles - that contained more specific principles to be included in a

future IAA. The approval was to note them.

A revised OBC was accepted by Government in early 2010, and just under £258m of PFI credits were awarded to NLWA. The decision was then reconfirmed by the Coalition Government in July 2010. However on the 20th October 2010 as part of the Comprehensive Spending Review, Defra withdrew the support of £258m in PFI credits to the North London Waste Authority procurement alongside six other waste PFI projects. The award was worth £500 million in cash terms over a 25 year period. Following the award the following progress has been made:

• An OJEU notice was issued in spring 2010.

• Pre-Qualification Questionnaire (PQQ) was issued spring 2010.

• Invitation to Submit Outline Solutions was issued (ISOS) summer 2010 and re issued in December 2010.

• Evaluation of the ISOS submissions and review of options to respond to the loss of PFI credits.

• Confirmation in April 2011 of the short list of bidders to go forward to ISDS

• Plans to issue Invitations to Submit Detailed Solutions (ISDS) June 2011.

ENV 11/8

Appendix 2

Enfield approved and amended 12 principles

Proposed Approach to the IAA – Main Principles

(amended principles 4 & 8)

1. Boroughs identify their preferred collection system

subject to a final review of projected gate fees.

2. Residual waste is confirmed as in the contract and

it is an NLWA decision to award the contract.

3. An eight authority commitment to work towards

our recycling targets which includes the

consideration of kitchen waste collection (a

separate strategy to be developed)

4. In principle, to consider the transfer, and any

amendments to, levying arrangements of

HWRCs to the NLWA subject to financial,

organisational and operational arrangements

being satisfactory to Enfield and demonstrating

value for money.

5. That Boroughs agree to consider menu pricing

upon consideration of the costs as set out in

Principle 6.

6. At a given date in the procurement, NLWA will

provide Boroughs with treatment costs reflecting

bid positions, to allow costs to be assessed and a

position taken on both recycling and menu pricing.

7. There is an individual Borough ‘opt-out’ covering

i) recycling (whether source-segregated or co-

mingled) and ii) the treatment of separately

collected organic wastes.

8. Based on the value for money considerations of

the constituent boroughs, evaluate whether to

include HWRCs in the contract to be made by

NLWA

Location in draft IAA

Clause 8 and Schedule 1

Clauses 5.1.1 and 5.1.2

Clause 9

Clause 11 and Schedule 4

Clause 15 and Schedule 3

Clauses 6 and 9

Clause 9

ENV 11/8

.

9. Boroughs support the NLWA’s position with bidders

in relation to the 70% Guaranteed Minimum Tonnage

(GMT) on the basis that Boroughs will not be

penalised unless the Authority receives a contractual

default. This position on GMT will only be changed

on the basis of improved value for money prior to the

‘Call for Final Tenders’.

10. Any change mechanisms necessary to up-date the IAA

for ‘Financial Close’ are included in the Agreement

11. NLWA will set-up a dialogue opportunity for Borough

Officers to meet collectively with bidders prior to the

‘Call for Final Tenders’.

12. Recycling performance will be reported at Borough

and NLWA levels. Boroughs report all recycling

activity within their boundaries with the support of

NLWA

25/10/10

Schedule 7 incorporated by specific

clause

Clause 6

Clause 9

ENV 11/8

Appendix 3

Original key dates for the NLWA procurement process in relation to the IAA

• Issuing of ISDS 15/06/11

• Bidders submit Invitation to Submit Detailed Solutions (ISDS) 12/10/11

• Short listing of bidders for ISDS 08/12/11

• Issuing of Invitation to Submit Revised Solutions (ISRS) 20/12/11

• Dialogue Meetings with Bidders and Clarifications 18/01/12 -

29/06/12*

• Issuing of Call for Final Tenders (CFT) 29/06/12

• Option for HWRC Transfer 01/04/11

• IAA Updated Part B Schedules Sign-Off March 2011

• Financial Close 22/03/13

• Operational Commencement (Both Contracts) 14/10/16

* Competitive dialogue is a public-sector tendering option that allows for bidders to

develop alternative proposals in response to a client’s outline requirements. Only when bidders proposals are developed to sufficient detail are tenderers invited to submit competitive bids. The aims are to increase value by encouraging innovation and to maintain competitive pressure in bidding for complex contracts.

ENV 11/8

Appendix 4

Inter Authority Agreement to be placed in Members’ Library and copy to the Group Offices for reference.

ENV 11/8

Appendix 5

Progress on borough approvals of the IAA Borough Approvals Barnet

Principles not approved and no Cabinet date proposed

Camden

20th July

Enfield

13th July

Hackney

Approved 20th June

Harringey

19th July

Islington

Approved 16th June

Waltham Forest

Approved 14th June