A good night's sleep

A partnership comprising May Gurney Integrated Services, consultants Mott MacDonald and Norfolk County Council is pioneering a radical approach to specifying, procuring, funding and commissioning waste management facilities - known as The Norfolk Solution.

Described as 'a real alternative to PFI, which will enable clients to sleep at night', this blueprint is no pipedream. It is being given serious consideration by DEFRA, and the Royal Bank of Scotland is on board as a potential source of finance for local authorities.

"Put simply, PFI is not working for the waste sector - for a whole host of reasons - and there's an urgent need to develop alternatives," says Alan Loughlin, Director of Waste and Environment at May Gurney.

And there are plenty of others who share this view.

The Kelly Report, published by the Office of Government Commerce (OGC) in May of this year, concluded: "Potential new entrants perceive the waste management market as too risky. The construction sector is one source of possible new entrants, but they have identified a number of risks."

The Report goes on to identify these risks, which include: the massive cost of bidding for PFI contracts (it's not uncommon for the large number of expensive people involved - principally lawyers and accountants - to push this figure up to £2m); the limited funding options available to local authorities (at the moment it's virtually Hobson's choice - Government prudential borrowing, or nothing); and the lack of early supplier involvement, which means that all the available options are often not fully explored.

Tim Byles, the recently retired Chief Executive of Norfolk County Council, is another who has concerns about PFI. "In my experience it is not always right to transfer 100% of the risk to the private sector," he said. "There is value to be found in long-term partnerships, whole life costings and working in integrated teams.

"There is heavy reliance on PFI, but there are other PPP solutions," he concluded.

It is this appreciation of the benefits of framework partnerships that underpins The Norfolk Solution.

"The non-adversarial approach we have developed is based on the merits of teamwork and collaborative working," Alan Loughlin explains. "There are numerous sporting examples of a team achieving more than the sum of its parts - most famously, perhaps the England team that won the World Cup in 1966. No one could argue that Jack Charlton or Nobby Stiles were among the 11 best footballers in the world at that time, but they were both vital members of that all conquering team.

"It's also based on the notion of risk-sharing rather than one party bearing full responsibility for all the risk, which in the case of PFI tends to be the private sector organisation bidding for the project," Loughlin adds. "Full risk transfer is an expensive option - sharing the risk reduces a project's initial costs."

For many years Loughlin's employer, May Gurney, has been a market leader in the design and construction of landfill cells and associated engineering works. The company works in partnership with local authorities, waste operators and the Environment Agency to fulfil a mutual responsibility to the environment, and to future generations.

But for some while now, with the climate in waste management changing rapidly, May Gurney has been working with partners to find new ways to deliver more appropriate waste solutions.

Interest in the Norfolk Solution is such that Loughlin was invited to speak at the second annual PPP/PFI in the Waste Sector Conference, which was held in London during October. The conference is firmly established as the premier UK forum on developments in PPPs, and the theme this year was 'Making PPP/PFI work in the waste sector'.

The Norfolk Solution is based on five key principles - flexibility, deliverability, best value, a short procurement period, and increasing the number of companies prepared to, and capable of, bidding for work.

"PFI is a 'big bang' approach that typically delivers an inflexible long-term solution - for example, a huge incinerator that takes three years to procure, several more years to build, and is financed over a 25 year period," Loughlin explains.

"But the waste sector is changing rapidly - recycling and other initiatives are significantly reducing the amount of waste heading for landfill or incineration, and this trend will continue.

"Who's to say that in 25 years time the expensive incinerator commissioned today will not be overkill? Local authorities may find themselves locked into massively expensive PFI arrangements for facilities that no longer suit their requirements," he added.

In contrast, The Norfolk Solution advocates building smaller, local facilities that meet current needs - and building them quickly. Typically the procurement period would be 12 months (compare that with the three years it often takes to get a PFI deal signed off). And, given the onerous targets local authorities have been set - the UK government is committed to reducing municipal waste to 75% of 1995 levels by 2010 and 35% of 1995 levels by 2020 under the EU Landfill Directive - time is of the essence.

Failure to meet these targets will mean substantial fines, and as such there is active on-going dialogue between local authorities and waste operators in pursuit of solutions to the problem.

And because - as explained earlier - not all of the risk is transferred to the private sector, the cost of the Norfolk Solution is estimated to be 25% lower than a PFI deal. The combination of all these factors - smaller projects, delivered in shorter timescales, with less risk attached - is almost certain to attract more bidders to the waste sector.

So how does The Norfolk Solution work?

"There are three stages to the process," Loughlin explains. "First, the local authority appoints an advisor/consultant to help formulate a strategy and work alongside then throughout all stages of the process."

"Next, the authority and advisor appoint a contractor and operator - either two separate companies, or one company to fulfil both roles. This team will then flesh out the strategy, look at all the available facilities options and agree timescales and other details."

"In the third and final stage the partners then appoint technology/facility provider(s) and source funding for the project."

The blueprint recommends an OJEU Notice offering a minimum 10-year partnering framework contract, with partners selected on the basis of 70% 'quality' and 30% 'cost'.

Loughlin emphasises that choosing the right partners is crucial to the success of a framework arrangement. "It's critical that there's a cultural alignment between the parties - they have to be able to work with each other," he says.

Beyond this, he advises that local authorities should seek partners with good partnering experience; a proven track record for delivery to programme, and for offering best value; experience in operating waste management facilities; and experience in PR and communications.

"This last point is often undervalued or overlooked by clients, but it can be crucial to public acceptance of plans for development of new waste processing facilities," he adds.

Partners should also be prepared to be open and honest about financial disclosure, Loughlin says. "At May Gurney we are quite happy to share information about our overheads and the amount of profit we are seeking from the framework. Over and above that, we enter into a profit sharing agreement as an NEC3 form of contract, with additional profits divided between ourselves and the client."

Discussions with Royal Bank of Scotland (RBS) have proved fruitful in developing an alternative source of funding to Government 'Prudential' borrowing. The bank has developed an operating lease to provide flexible 'off balance sheet' funding for local solutions.

"I've been in the waste sector for a good many years and have many friends and colleagues working for local authorities," Alan Loughlin says. "They all want the same thing - a procurement arrangement that will allow them to sleep peacefully at night. And as a taxpayer, I want the same thing as well.

"We believe The Norfolk Framework Partnership Solution will give us all what we want - a good night's sleep for many years to come."