Agenda Item No.5a
Materials Resource Management Contract (MRMC) Briefing Note for
SESSC
March 2010
Background
Members will know that it is proposed to let a long-term contract to manage
household waste that has not been recycled under the existing Recycling &
Wastes Handling Contract (otherwise referred to as 'Reclaim'). The proposed
new arrangements, referred to as the Materials Resource Management Contract
(MRMC), will place a great emphasis on reducing landfill requirements.
This Committee was consulted several times leading up to the procurement and
a Member Task Force oversaw the process. Members’ approval was given in
September 2008 to select Biffa Waste Services Limited (BWSL) to deliver the
contract, which involved the building of a Mechanical Biological Treatment (MBT)
plant to convert “black bag” waste to a Refuse Derived Fuel (RDF).
Investigations are being carried out to determine whether there is a market for
the RDF. If a suitable market cannot be found, an Advanced Thermal Treatment
(ATT) plant would be constructed which would provide a source of power.
The County Council determined that the project would be delivered in 2 distinct
phases. Through the negotiations, the preferred funding route has been clarified.
For the first phase, the project would be funded through prudential borrowing
and a 10% equity stake from Biffa rather than project finance. Sites for both
developments were identified near Horsham and it was agreed that, to give the
County Council an additional level of security, the sites would be purchased by
the County Council.
Current Status
The Project Team, assisted by legal, financial and technical advisors with
experience in the field, have conducted many months of intensive negotiation
with Biffa. With a 25 year contract, it is essential that the County Council does
not expose itself to inappropriate risks or expenditure, and discussions to reach
a point at which the County Council can be comfortable with the contract and
payment provisions have taken longer than was anticipated. Some of the issues
causing the delay are extremely commercially sensitive. The potential impact of
those and the means of resolution was discussed in Part II by Policy & Resources
Committee on 4 March 2010 with SESSC Members invited to attend.
The negotiations have proceeded well since that Policy & Resources meeting and
are now in their final stages with only a very small number of issues yet to be
resolved. Although the County Council will enter into just one Project Agreement
with a Special Purpose Vehicle (SPV) (a limited company called Biffa West
Sussex Ltd created specifically to deliver the contract), there are a significant
number of other contracts underpinning the agreement, the key one being with
the contractor who will build the MBT, MW High Tech Projects UK Ltd (formerly
MW Zander).
With the delays in the progress to contract signature, it has been agreed that
the County Council will enter into a 3 month Preliminary Works Agreement
(PWA) with MW. From the contractor’s viewpoint this allows preparatory work to
start and enables its suppliers to prepare for and be ready to deliver their
products and services on time when the full contract is let. The County Council
has secured a number of conditions to this PWA, the most important being that
the price and timetable that has been agreed will be fully protected as long as
Materials Resource Management Contract (MRMC) Briefing Note for
SESSC
March 2010
negotiations are complete and commercial and financial agreements are
formalised (Financial Close) is achieved by 20th May which has been agreed by
both sides as being achievable.
Way ahead
The Project Team will continue to finalise all negotiations, calling on the Wastes
Contract Board (a body chaired by the Executive Director for Communities
whose responsibilities include the overall management of the procurement)
when appropriate for approvals. Design work under the PWA will commence on
1st April at a cost of £900,000 per month. The Council retains the right to
terminate the PWA without penalty at any time and has the added comfort of
retaining the intellectual property rights over the designs produced at the time of
termination, which can then be used by the Council to develop any future
facility.
Phase 2
After the Project Agreement has been signed and Financial Close reached on or
before 20th May, the Council will need to consider its approach to the second
phase of work. There are several stages to this second phase, including a
funding competition to determine which option provides the best value for
money for the Council and a review to determine whether there is a market for
the output of the MBT. An initial market review has already been carried out by
consultants and their report will be finalised shortly.
Target dates have been set for this Phase and both the Council and the SPV are
contracted to meet those dates. The Council will need to determine whether it
wishes to commission the ATT facility by December 2010 and, if it does, is
currently anticipated that Financial Close for Phase 2 will be in the Autumn of
2011.
Summary
A protracted and challenging procurement is reaching its conclusion with the
anticipated signing of a 25 year contract with an SPV to build and operate a MBT
on a site at Horsham. Final negotiations are well advanced and it is anticipated
that the contract will be signed on or before 20th May 2010. Consideration of
Phase 2 will need to conclude by December. It is still anticipated that the price
will prove affordable within the limits of the existing provision in the Waste
budget and the commitments in the County Council’s Finance Strategy.
Contact Officer: Andy Forsyth x 56614
MRM – Site Location Map
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