20 July 2007
Councils face mounting costs in meeting their 'green' obligations. There's much they can do to cut these but they still need more resources, argues Chris Wilson
Can we afford to be sustainable? That is the question facing local authorities, particularly in the light of the forthcoming tight Comprehensive Spending Review. The biggest problems lie in large complex procurement, construction and waste infrastructure projects, including Private Finance Initiative schemes. While excellent progress is being made in these areas, the government will have to ensure that councils have sufficient resources to meet the challenges.
The Local Government Association's Climate Change Commission has identified priority areas in its interim report, Strengthening local action on climate change, published on July 3. These include the sector's £50bn procurement budgets and applying whole-life costing approaches to its £17bn spend on capital projects. Many local authorities have already achieved excellent results in these areas but there is more to do.
At the same time, local government is taking a long hard look at its construction projects, the largest category of procurement spend in the sector. Taking the lead role here is the Local Government Sustainability Task Force, chaired by Nottinghamshire County Council chief executive Roger Latham. It has recommended several changes in response to Procuring the future, the 2006 Simms report from the Sustainable Procurement Task Force.
These include a commitment to integrating mainstream sustainable procurement and asset management into all its activities, including those carried out at arm's length via strategic partnerships, the PFI and public-private partnerships.
This is where 4Ps comes in. We plan to step up our support for authorities, prioritising action on construction and facilities management, followed by waste management, energy and transport.
Working with CIPFA and the Local Government Task Force, we plan to strengthen our guidance on budgeting, investment appraisal and tender evaluation with regard to whole-life costs and benefits. We also want to give sustainability a renewed emphasis in the Gateway Reviews we carry out on local government infrastructure and service projects on behalf of the Office of Government Commerce. Local, regional and national collaboration is critical so that the sector uses its combined procurement power to transform and embed sustainability in our main markets. The Regional Centres of Excellence are likely to take a lead role at the regional level.
Some councils are already way out in front. Bristol City Council is typical of local authorities leading the way in sustainable construction. With its first Building Schools for the Future project to achieve financial close – building four new schools under a contract worth £120m – Bristol found that it could use more than 15% of recycled material at no extra cost over mainstream brands.
The council's PFI project manager, Chris Wiseman, says: 'As a result, we had the confidence to set a requirement in our tender specification for 10% recycled content for the project as a whole without prejudicing our budget. This is important in helping the council and its schools “walk the talk” on sustainable development.'
Partnerships for Schools, the public body responsible for BSF, has included a minimum 10% requirement for recycled content in its model procurement documentation. This will lead to contractors using several thousand more tonnes of recovered material per school that might otherwise have gone to landfill.
While construction waste is a major component of landfill, local authorities in England spend almost £3bn per annum managing 30 million tonnes of municipal waste. Authorities have faced average annual increases in waste of 10% per annum since 2001/02. They believe it is critical that the CSR provides sustainable funding and innovative policy solutions to enable them to meet the national waste challenge, which is increasing rapidly. Forecast spending on waste collection and disposal will grow from £2.6bn now to £4.2bn by 2013.
Local authorities will seek to mitigate this pressure as much as possible through continued use of measures such as alternate weekly collections, as well as striving for maximum efficiency savings. However, these will not remove the need for significant extra investment.
Although the growth in waste volume has fallen in the past year, from 3% per annum to 1.5%, it is vital that the three-year finance settlement is not based on overly optimistic projections that do not transpire, preventing authorities from realistic forward planning.
At the same time, costs are rising relentlessly. Part of this comes from service improvements such as kerbside recycling, which requires more vehicles, more crew, more containers, a skilled labour force and community engagement. Transport costs are also increasing rapidly, with fuel up by 35% in the past three years – adding up to 2% on overall operating costs for some district councils. Then there's the rising cost of landfill, landfill tax and the costs of alternatives, such as composting sites and materials recycling and energy-from-waste facilities.
The 4Ps, in conjunction with the Department for Environment, Food and Rural Affairs' Waste Infrastructure Delivery Programme, is pushing for a significant uplift in the PFI credits and associated capital funding under the CSR to enable much more rapid investment by local authorities in residual waste treatment plants. However, the cost of these facilities is great, with estimates for energy-from-waste ranging from £40m to £100m and for mechanical biological treatment plants from £13m to £50m.
The PFI is still the main funding route for such projects. It is arguably particularly suited to the waste sector because it enables proper risk transfer or technology solutions that many local authorities are not equipped to deal with. But, driven by the need to meet the landfill targets, a number of authorities are pursuing a PPP route using prudential borrowing. The 4Ps wants to provide support to such projects as well as to mainstream PFI projects. It also wants to improve on the delays that have occurred in using PFI, due to planning problems, funding constraints and limited market capacity.
All these issues increase the risk that a number of authorities will not meet the targets of the Landfill Allowance Trading Scheme. This Defra scheme is intended to provide a cost-effective way for England to meet European Union targets for reducing the landfill of biodegradable municipal waste. It does this through allocating tradeable annual landfill allowances to each waste disposal authority in England. The authorities can determine how to use their allocations in the most effective way, by trading with other authorities, saving them for future years (banking) or using some of their future allowances in advance (borrowing).
To understand the scale of the need, a recent survey by CCN showed that 35% of counties believed that their existing and planned waste diversion will not meet the Lats targets and that the majority of counties are looking to buy Lats permits for the 2010 targets. To tackle this, a high proportion intend to invest in new waste treatment technologies (68% for the 2010 targets, 88% for 2013 and 79% for 2020). Approximately three-quarters of counties will engage with waste collection authorities to encourage the diversion of waste (79% by 2010, 76% by 2013 and 74% by 2020). A similar proportion of counties has entered or will enter contractual arrangements with disposal contractors that includes incentives and/or penalties (71% by 2010, 85% by 2013 and 79% by 2020).
Inadequate funding is a significant barrier to ensuring the necessary waste infrastructure is in place. The government needs to provide sufficient resources in the CSR or run the risk of local authorities being unable to afford the necessary changes. This includes sufficient PFI credits and revenue support to enable prudential borrowing. The government might also want to reconsider how support for borrowing is provided through the formula grant system.
Local authorities are increasingly pursuing collaborative procurement deals to reduce contract costs, and making use of standardised documents, contracts and payment mechanisms to reduce development costs. On the broader waste management front, many authorities are optimising their operations and processes via more effective use of depots, vehicles, operational efficiency and productivity improvements and improving their use of finance, capital and asset disposals.
They're doing what they can. Now it's time the government ensures authorities can afford to go green.
Chris Wilson is the executive director of 4Ps, the procurement agency for local government
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