Managing the rising costs of waste collection contracts

The delivery of environmental and waste collection services is one of a number of areas where the cost of living crisis is causing challenges for many local authorities and waste management contractors:

• the change in red diesel tax in April and rising diesel prices means waste management operations, including waste collection and transport of waste and recyclables, face a rising cost base;
• the ongoing challenges around a shortage of HGV drivers in the sector which, together with inflation, is driving up wages;
• a number of local authorities have seen issues with strikes over pay over recent months.

For those local authorities who have outsourced their contracts to waste management contractors, then the risks of those cost rises has been transferred to the private sector, and so the local authorities are, in theory at least, shielded from those rapid costs increases.

However, contractors will be keen to discuss with local authorities where service changes, driven by efficiencies, can be used to generate savings for both parties. Examples of possible service changes include re-routing collection rounds and changing working patterns in order to reduce the cost of vehicle and fuel requirements.

Where service changes are agreed, it is important that such changes are properly documented and in writing.  This is not only so that there can be no dispute at a later date as to what was agreed, but also because the original contract is likely to state that only variations agreed in writing will be binding.

In the event that waste management contractors are struggling to make the economics of the contract stack up (e.g. through the recent unexpected costs increases), then this may lead to disagreements and contractual claims being made by contractors. The source of such claims could come from various places in the contract, including the wording of indexation, force majeure and change in law provisions.  Whether these are applicable will depend on the precise wording of the contract.

We are also seeing an increasing number of claims following the start of new contracts with waste management contractors, in particular in respect of transferring assets (such as the quality of transferring vehicles) or the nature of information provided by local authorities during the procurement itself: 

• Depending on how the contract has been drafted, it may be that the information provided by the local authority will be warranted or amount to a representation. In these circumstances, the waste management contractors may be able to recover additional or losses from the local authority as a result of the information provided being inaccurate. Calculating such costs or losses can be difficult.  However, the typical length of these types of contracts, and the associated operating costs, mean any such claims can be significant in value.
• For local authorities managing waste collection contracts, it is important to ensure that any information provided to the private sector provider as part of the procurement bidding process, or in contract negotiations, is safely stored, including any associated documents and emails. Whilst any warranted information should, theoretically, be set out in the contract, there may be helpful information in, for example, method statements submitted by the contractor which may undermine any argument that they have relied on the data. Where arguments are put forward by the waste management contractor, a robust response in writing, and an audit trail of any conversations relating to the additional costs or losses, should also be retained.

Our dedicated Waste and Resource Management team are advising both local authorities and waste management companies on environmental and waste collection contract management issues all over the UK. As sector specialists, we can help you manage any operational issues which you may be facing and ensure that you achieve a successful commercial outcome.