Posted on February 24, 2019 by Stuart Simington and

Joint procurement of waste management services by councils

The Australian Competition and Consumer Commission (ACCC) recently issued determinations under the Competition and Consumer Act 2010 (Cth) (the CC Act) authorising certain councils to jointly procure waste management services.

In 2018 and 2019 the ACCC authorised:

• two regional councils in Queensland to jointly procure waste collection services,
• four councils in Adelaide to jointly procure waste processing and disposal services for recyclables, organics and residual waste and collection services for bulk bins, hard waste and street litter management services, and
• five councils in NSW to jointly procure waste processing services.

Joint procurement by councils in NSW

Joint procurement by councils of waste management services is consistent with the following principles governing the exercise of functions by councils under section 8A of the Local Government Act 1993 (NSW)(the LG Act) :

• councils should carry out their functions in a way that represents the best possible value for residents and ratepayers, and
• councils should work co-operatively with other councils to achieve desired outcomes for their communities.

Councils in NSW are required by section 55 of the LG Act to invite tenders before entering into contracts such as contracts for the supply of waste collection and processing services and the provision of waste processing facilities. The Local Government (General) Regulation 2005 prescribes particular requirements for proposed contracts for domestic or other waste management services. The requirement to invite tenders also applies to joint organisations of councils pursuant to section 400ZH (3)(c) of the LG Act.

Councils may exercise a function jointly with another council or councils pursuant to section 355 of the LG Act. The functions of deciding to invite tenders and accepting a tender may, by resolution, be delegated  to another council, person or body under section 377 of the LG Act except if the tender is to provide services currently provided by members of staff of the Council. A decision to enter into a public-private partnership for waste management services also cannot be delegated (section 400L of the LG Act).

If a council does delegate any functions relating to the tendering process to another council,  person or body, the council is still responsible for ensuring that the governance and probity requirements for the tendering process are met.

An effective tendering process includes an understanding and adherence to competition, consumer and fair trading laws.

Authorisation of joint procurement by the ACCC

Councils may be considered to be each other’s competitors when seeking to procure waste management services. By conducting aspects of the procurement process jointly rather than individually they risk breaching competition laws. In particular Division 1 of Part IV of the CC Act (cartel conduct) and section 45 of the CC Act (conduct that substantially lessens competition).

Accordingly, councils proposing to jointly procure waste management services should seek authorisation from the ACCC which gives legal protection for the proposed conduct. However, the ACCC does not have power to grant authorisation for conduct engaged in before the ACCC considers the application for authorisation, so cannot grant authorisation for conduct retrospectively.

The ACCC has power to grant interim and final authorisation under Division I of Part VII of the CC Act.  To grant authorisation the ACCC must be satisfied that (i) the proposed conduct would result or would be likely to result in a benefit to the public; and (ii) the  benefit would outweigh the detriment to the public that would result, or be likely to result, from the proposed conduct.

In considering applications for authorisations, the ACCC considers the likely public benefits and likely public detriment from the proposed conduct in each case. The ACCC  considered the public benefits likely to arise from councils jointly procuring waste management services include:

• transaction cost savings,
• improved efficiencies,
• increased competition, and
• improved environmental outcomes.

Public detriment may arise from councils jointly procuring waste management services where a joint procurement group comprises a substantial portion of the market and therefore may reduce competition for providers of the services (if, for example, the loss of such a large contract causes some providers to exit the market and new entry is unlikely).

The CC Act allows the ACCC to grant authorisation for a limited period of time. This enables the ACCC to be in a position to be satisfied that the likely public benefits will outweigh the detriment for the period of the authorisation. It also enables the ACCC to review the authorisation, and the public benefits and detriments that have resulted, after an appropriate period.

The ACCC granted authorisation to the five councils in NSW for the joint procurement of waste processing services for a period of 25 years. The factors that the ACCC considered relevant to the length of the authorisation in that case were:

• the proposed conduct was limited in scope,
• the proposed conduct was intended to support new infrastructure,
• the five year period to establish new waste processing contracts is likely to increase competition in the tender process by facilitating new entrants,
• the fifteen year term for the waste processing contract was likely to better facilitate new investment as it was more likely to enable the successful service provider to recoup the cost of its investment,
• the five year contract extension period may allow for the incremental investment in new technology such as upgrading existing waste processing facilities if new technology becomes available.

Conclusion

Joint procurement of waste management services by councils in NSW is enabled by the LG Act. Procurement processes must adhere to the competition, consumer and fair trading laws. Councils considering joint procurement should apply for and obtain authorisation from the ACCC before commencing preparations for any joint tender process, including preparing the request for tenders, draft contracts and specifications, conducting industry consultation and advertising the tender.

If you would like to know more about this topic please contact Stuart Simington on 02 8235 9707.