Waste private finance initiative contracts are to be targeted for retrospective savings as part of probe launched this week, MRW can reveal.
A team of Defra officials has begun scrutinising an existing public private partnership (PPP) waste contract to work out how best to drive out savings in a move that mirrors work being carried out by the Treasury on hospital PFI deals.
The review could have substantial ramifications for the waste sector, which has been a major recipient of funding through the much-maligned PFI programme, along with schools and hospitals.
The project, being conducted by the Waste Infrastructure Delivery Programme (WIDP), a joint initiative between Defra, Local Partnerships and Infrastructure UK, will first target Sheffield City Council’s £26m contract with Veolia, which was signed in 2001.
Officials said a similar study on a street lighting contract had identified savings of 10% of its cost.
Local Partnerships’ Mike Pugsley, an executive member of the WIDP Board, told MRW about 10 people were working on the project and that other PFI and PPP projects could benefit.
He said: “The key areas of focus will be to identify areas which will be win-win for both the council and the contractor.
“In terms of the quantum of savings we cannot make any judgement what is possible in Sheffield as we have only just begun. However we have been able to identify savings of over 10% on a street lighting PFI contract.”
Defra’s Ben Prynn, who is co-ordinating the review, said it would take place in three stages with contract management, contract terms and “changes in the specification which do not impact materially on the quality of the service” all under the microscope.
Sheffield council hailed the probe as a “high level piece of work, which will enable and inform government thinking at a national level”.
Sheffield City Council director of business strategy and regulation Mick Crofts added: “It involves a proactive participation from Sheffield and Veolia looking for ways of collectively improving service and value for money at a local level.”
Chancellor George Osborne has launched a “fundamental reassessment” of PFI following a raft of critical reports on the funding method. The Treasury ran a pilot project in February 2011 identifying savings in existing PFI contracts by scrutinising the contract for the Queen’s Hospital in Romford.
However, Nigel Mattravers, head of waste at Grant Thornton, warned that waste project contracts were “significantly different” to hospital and school PFI contracts and driving out savings would be tougher.
“Most of these contracts will have a gain share mechanism whereby an excess gains made by the contractor goes back to the council,” he added.
£2bn of waste PFIs in the spotlight
The Government has awarded £2bn to 32 waste private finance initiatives, with twice this amount to be paid back over the 25-year operating life of the plants. The awards include:
- £85.5m in 1999/2000 to the Surrey waste PFI scheme, which included two energy-from-waste facilities, three in-vessel composting facilities, and a material recycling facility.
- £57.4m in 1998/99 to the Hereford & Worcester project, which included a 200,000 tonnes per year energy-from-waste plant.
- £90m in 2007 to the Merseyside Waste Disposal Authority scheme, which included a mechanical biological treatment plant and a refuse-derived fuel energy-from-waste site.
- £91m in 2009 to the Norfolk scheme, which included an energy-from-waste plant near Kings Lynn