1

REPORT TO CABINET

TO BE HELD ON 13 December 2011

Key Decision YES

Forward Plan Ref No 911/0710

Strategic Theme: All

Portfolio

Environment and Communities

Relevant Overview and Scrutiny Committee(s)

Corporate Performance

REPORT OF: CORPORATE DIRECTOR COMMUNITIES WARDS AFFECTED: ALL

1. SUBJECT: DELIVERY OF THE MUNICIPAL WASTE MANAGEMENT STRATEGY

2. PURPOSE OF REPORT

2.1 To update Cabinet on the progress of the final negotiations reached with the preferred bidder consortium now comprising Shanks Group plc (“Shanks”), Babcock Southern Holdings Ltd (”Babcock”), Estech Europe Ltd (“Estech”) and the funding club (“the Consortium”) on the waste PFI project

2.2 To seek Cabinet’s approval to delegate the authority to award the Contract to Shanks (Wakefield) Limited to the Chief Executive in consultation with the Leader of the Council.

3. RECOMMENDATIONS

3.1 That Cabinet notes the progress of the final negotiations with the Consortium as set out in this report.

3.2 That, subject to the: (i) approval of the Final Business Case (“FBC”) by Defra; (ii) receipt by the Council of the Promissory Note for the Waste

Infrastructure Credits (formerly PFI Credits) from Defra; and (iii) confirmation that the Consortium’s proposal represents the most

economically advantageous tender (“MEAT”) for the Council

Cabinet delegates to the Chief Executive in consultation with the Leader of the Council the authority to award the waste PFI contract (“the Contract”) to Shanks (Wakefield) Ltd.

3.3 That Cabinet approves the appropriation of land from the Street Scene Department to the Highways Department for the purposes of the adoption of the access road leading into the Glasshoughton site from the Glasshoughton Coalfields Link Road.

3.4 That Cabinet approves the lease of the sites identified in paragraph 9.23 (Asset Management) to Shanks (Wakefield) Ltd for the term of the Contract, or until such earlier time as the sites are returned to the Council.

3.5 That Cabinet approves the appropriation of land at Denby Dale Road, Glasshoughton, South Kirkby and Welbeck as identified on the plans attached to this report at Appendix 2 for planning purposes pursuant to Section 122 of the Local Government Act 1972 and to implement those planning permissions listed below; Denby Dale Road Site (Planning Permission No.08/01834/FUL) Glasshoughton Site (Planning Permission No.09/00115/FUL) South Kirkby Main Site (Planning Permission No.08/01633/FUL) Welbeck Site (Planning Permission No.08/02712/FUL).

3.6 That Cabinet notes that the contracts of employment of the existing Council employees assigned to the services that will transfer under the Contract will transfer from the Council to Shanks Waste Management Ltd as operating sub-contractor under the Transfer of Undertakings (Protection of Employment) (“TUPE”) Regulations 2006

3.7 That Cabinet approves the use of the Council logo by Shanks (Wakefield) Ltd for joint advertising of the services provided pursuant to the Contract.

3.8 That Cabinet approves the proposal for the Shanks (Wakefield) Ltd website to be linked to the Council website for joint advertising of the services provided pursuant to the Contract.

3.9 That Cabinet approves the signing of the certificates to be issued under the Local Government (Contracts) Act 1997 by the Director of Finance and Property in her capacity as Section 151 Officer.

3.10 That Cabinet notes that the Director of Finance and Property in her capacity as Section 151 Officer has the benefit of an indemnity from the Council in respect of her signing the certificates to be issued under the Local Government (Contracts) Act 1997 by virtue of the decision of the Council on 15 November 2006.

3.11 That Cabinet recommend to Council that a £5m contribution towards the capital works costs of the waste PFI project is added to the Capital Programme.

3.12 That Cabinet notes that a formal notice will be issued to the unsuccessful bidders to the Contract namely WRG, Veolia and Global Renewables UK Ltd prior to the award of the Contract.

4. WHAT DOES THIS MEAN FOR THE DISTRICT’S PEOPLE?

4.1 The award of the Contract to Shanks (Wakefield) Ltd will enable the Council to fulfil its obligations for the delivery of the Municipal Waste Management Strategy (“MWMS”) as approved by Cabinet in 2003. The Contract will also enable the Council to meet its obligations for diversion of waste from landfill in accordance with the EU Landfill Directive and UK legislation and to comply with Government recycling targets to achieve a minimum of 50% recycling and composting of household waste by 2020.

4.2 The Contract will transfer significant risks to the private sector partner for the treatment and disposal of waste and for achieving the following targets set out in the Contract (“the Contract Targets”):

* Household Waste Recycling Target – 52% by 2015; * HWRC Recycling Target – 50% per site once the new facilities at Denby Dale Road, Glasshoughton and South Kirkby have been constructed; and * Meeting the Council’s statutory biodegradable municipal waste diversion targets.

The Council will continue as Waste Collection Authority (“WCA”) and will deliver all municipal waste it collects within the District to the PFI contractor.

4.3 The Council will as WCA implement changes to the current collection arrangements when the new waste treatment facilities are completed. This will mean that the existing four stream collection will reduce to three streams by requiring the public to combine the paper and card and the dry recyclables into one bin to enable the existing dry recyclables box to be withdrawn. This will take place within an agreed time period prior to the commissioning and acceptance testing of the new waste management facilities at South Kirkby during late 2013 / early 2014.

5. BACKGROUND INFORMATION

5.1 Cabinet will be aware from previous reports that the procurement of the waste PFI project has had a number of obstacles to overcome over the past few years not least of which has been the severe downturn in the economic climate but also a number of changes to the make up of the Council’s chosen preferred bidder consortium.

5.2 Cabinet approved a number of recommendations as a result of the report submitted on 10 March 2009. A number of these recommendations now need to be updated as a result of the delay in the procurement process. The recommendations in paragraphs 3.2, 3.4 and 3.5 approved on 10 March 2009 remain valid1. The recommendation in paragraph 3.10 approved on 10 March 2009 is no longer required because there are no vehicles to be transferred to the PFI contractor. The recommendations in paragraphs 3.1, 3.3, 3.6, 3.7, 3.8 and 3.9 approved on 10 March 2009 all relate to VT Environmental Engineering (VTEE) and are superseded by the equivalent recommendations contained in this report which refer to the relevant subsidiary of Shanks. The recommendation in paragraph 3.11 approved on 10 March 2009 relates to the execution of Local Government (Contracts) Act 1997 certificates by the Chief Executive which has been superseded by the recommendation contained in paragraph 3.9 of this report which relates to the execution of Local Government (Contracts) Act 1997 certificates by the Director of Finance and Property. The recommendations approved on 10 March 2009 which are superseded by the equivalent recommendations in this report together with some new recommendations now require Cabinet approval.

5.3 Cabinet will recall that the VT consortium was appointed Preferred Bidder during November 2007. A number of changes took place to the VT consortium between November 2007 and the summer of 2010 including changes to the funding club supporting the waste PFI project.

5.4 The Council continually reviewed the changes in the risk profile throughout the procurement process and following a meeting with the Leader of the Council, the Cabinet Member for Environment, the Chief Executive, and other senior Council Officers on 4 May 2010 a delegated decision was taken by the Chief Executive to move forward with the VT consortium to complete the PFI negotiations. It was also agreed at that meeting that a final report would be submitted to Cabinet for approval to the award of the Contract (as approved by Cabinet on 15 February 2005).

1 These recommendations relate to submission of the FBC to Defra, acquisition of the Glasshoughton site and the advanced purchase of landfill allowances for 2010/11.

5.5 Shortly after this Babcock International Group plc (“Babcock Group”) acquired VT Group plc (“VT”) outright and renamed it Babcock Southern Holdings Ltd and the new preferred bidder consortium became Babcock Southern Holdings Ltd, Estech and the funding club formed by NordLB, Barclays and BOI (“Babcock Consortium”).

5.6 Following the acquisition of VT by the Babcock Group it became apparent that there was a shift by the Babcock Consortium on a number of commercial positions. Subsequently in October 2010 the Babcock Group advised the Council that following a review of its acquisition of the VT business portfolio it no longer wanted to pursue the waste PFI project as it had decided to ‘exit’ the waste management market. This decision had serious implications for the Council and the waste PFI project.

5.7 Following further detailed discussions between the Council and the Babcock Group, the Babcock Group agreed to undertake a market testing exercise to identify a partner to strengthen the Babcock Consortium to enable the waste PFI project to be taken forward.

5.8 The Babcock Group engaged KPMG to undertake a market test of its waste management business and undertook a number of presentations to interested companies. Following a series of discussions the Babcock Group selected Shanks as its preferred partner and following a period of due diligence the Babcock Group and Shanks signed a Teaming Agreement on 10 February 2011. Shanks joined the Babcock Consortium pursuant to the terms of the Teaming Agreement and Shanks subsequently took the lead role in the Consortium. The Teaming Agreement is a commercial arrangement between the Babcock Group and Shanks which ensures that the waste PFI project can still be delivered.

5.9 As a result of the changes identified above, the Contract will now be awarded to Shanks (Wakefield) Ltd who will provide those services originally proposed by VT/Babcock. Following financial close of the Contract, Shanks has the option to acquire the waste management business from Babcock.

5.10 Cabinet is advised that where changes to the preferred bidder consortium have occurred, the Council has ensured that its pre-qualification test has been satisfied.

5.11 In order to address the affordability and risk transfer position of the waste PFI project, Shanks proposed a modification to the residual waste treatment process (still using autoclave combined with anaerobic digestion) but which now produces a Refuse Derived Fuel (“RDF”).. In addition the revised process will produce a digestate from the anaerobic digestion process. The digestate will be used as a soil improver which will increase the household waste recycling level to over 60%. Shanks and the Council are currently finalising the details of the long term off-take contracts for the RDF and digestate. This revised proposal is one that Shanks can, and will, manage itself and therefore reduces risk to the Council from that proposed under the VT/Babcock solution.

5.12 Shanks will provide a number of parent company guarantees for the obligations of Shanks Waste Management Ltd as both construction sub-contractor (“EPC”) and operating sub-contractor. Shanks’ Organisation Structure is included in Appendix 1 which outlines the respective roles of the various companies within Shanks which will deliver the waste PFI project.

5.13 Funding to the Contract will be provided by the funding club. The total funding required will be approximately £110m split between the funding club.

5.14 The Council and the preferred bidder consortium are currently finalising negotiations.

6. OPTIONS APPRAISAL

6.1 To award the waste PFI contract (“the Contract”) to Shanks (Wakefield) Ltd. The decision to award will be delegated to the Chief Executive in consultation with the Leader of the Council. The Contract will enable the Council to deliver its approved MWMS, to meet its obligations for diversion of waste from landfill in accordance with the EU Landfill Directive and UK legislation, and to comply with Government recycling targets to achieve a minimum of 50% recycling and composting of household waste by 2020.

6.2 If the Council does not award the Contract as set out in paragraph 6.1 above the alternative for the Council is to continue to provide and manage the disposal service through existing contract arrangements together with the procurement of alternative disposal contracts. Under this option the risk of failure to meet the landfill diversion and recycling targets would continue to rest with the Council and the cost of delivery over 25 years would exceed the costs of delivery through the Contract.

6.3 Cabinet Members have been briefed fully on the financial, legal and procurement issues in order for them to consider the options set out in this report.

7. STRATEGIC IMPLICATIONS

7.1 The fundamental strategic implication of the Contract is that it will allow the Council to deliver its approved Municipal Waste Management Strategy.

7.2 The strategy is a key contributor to the Council’s Community Strategy objective of “Improving our Places” by “creating and maintaining quality environments that are clean, safe, healthy, accessible and pleasant”.

7.3 It is Officer’s recommendation that the Contract has been assessed as the best delivery vehicle for achieving the Council’s diversion from landfill and increased household waste recycling targets.

8. ENGAGEMENT

8.1 Throughout the extended procurement phase there has been continued dialogue with VT (and subsequently Babcock and Shanks), Defra and Local

Partnerships which is a joint venture between the Local Government Association, Partnerships UK and HM Treasury, which assists local authorities to develop key procurement projects. The input from Defra’s Waste Infrastructure Delivery Programme (“WIDP”) at various levels has been extremely beneficial to the procurement process. As part of this engagement with Defra through WIDP the FBC will be submitted shortly for approval and is expected to be approved within the next few weeks. The Contract cannot be signed without FBC approval and the receipt of the ‘Promissory Note’ from Defra confirming the Waste Infrastructure Credit support. The approved Waste Infrastructure Credit support from Defra is £33m.

8.2 Regular meetings with Internal Audit and the Audit Commission have been undertaken throughout the procurement phase. A further meeting will be held prior to completion of the negotiation process. At the last meeting there were no outstanding issues which would cause a delay in signing the Contract.

8.3 Throughout the procurement phase elected Members have been kept up to date with progress through regular Members Seminars and specific briefing notes. In addition specific briefings have been held with South Kirkby and Moorthorpe Town Council (“the Town Council”) regarding proposals for the South Kirkby site.

8.4 In addition to elected Members Seminars, the Project Director Waste PFI has attended a number of Scrutiny Committee meetings to advise on progress. The last attendance at Corporate Performance Overview and Scrutiny Committee was on 8 November 2011. The Scrutiny Committee was fully supportive of the proposals as advised.

8.5 As part of the planning approvals process a number of communication meetings have been held which have been open to the public. There were several communication meetings held in South Kirkby and the surrounding areas during the lead up to the submission of the planning application for the South Kirkby site. In addition public meetings have been held in Wakefield, Castleford and Ossett.

8.6 Throughout the procurement process the Waste PFI Project Board has overseen the procurement process and has been provided with progress reports on a monthly basis and reports on specific items to ensure appropriate governance arrangements were in place to manage the procurement process. The Board includes Cllr Maureen Cummings, Cabinet Member (Environment and Communities), Cllr Dick Taylor, Cabinet Assistant (Carbon Reduction and Waste PFI) and Senior Officers.

8.7 The Council and VT (at that time) established a community liaison group at South Kirkby in 2008 and a number of meetings have subsequently been held to advise on progress. The last meeting was on 16 November 2011 chaired by Councillor Dick Taylor. Membership of the community liaison group includes Local Members, representatives from the Town Council, the Environment Agency and the general public. Meetings are attended by Council Officers and representatives of the PFI contractor.

9. CORPORATE IMPLICATIONS

Financial Implications

9.1 The key financial tests around which Cabinet has to consider its decision are whether the proposed Contract demonstrates Value for Money (VfM) against other options which the Council could pursue to meet its MWMS and whether the Consortium’s proposal represents the most economically advantageous tender for the Council.

9.2 In addition to the key financial tests set out in paragraph 9.1, Cabinet also need to consider the impact of contract award on the Council’s Revenue Budget and Capital Programme and how provision has been made for this impact.

9.3 Subject to agreement with Shanks on outstanding key commercial Issues to be finalised, submission of Shanks’ final contract financial model, approval by DEFRA of the Final Business Case and award of Waste Infrastructure (PFI) Credits then the financial impact on the Council of the award of the Contract can be summarised as follows: Revenue Budget

• The additional annual cost to the Council of the PFI solution to the MWMS above current levels of budget provision is approximately £4m per annum from 2012/13 increasing to £11.5m per annum by 2015/16. These costs are at 2012/13 prices and include:

o The Unitary Charge payable to the PFI contractor o Estimated costs of Specific Waste items which are payable in

additional to the Unitary Charge, o Costs of the Council’s Contract Management function o Prudential Borrowing costs for the Council’s proposed £5m

capital contribution o Estimated costs of the Government’s Carbon Reduction

Commitment which may become payable by the PFI contractor and which under the Contract would be a “pass through” cost to the Council.

• The Council’s approved Medium Term Financial Plan and headline Budget Gaps include provision for additional costs at this level and take into account the initial services and full services commencement profiles within the contract and the consequent stepped increases in costs to the full additional cost of £11.5m per annum.

• The Council is also reviewing with Shanks the profiling of the financial model for the contract in order to assess scope for realigning the Unitary Charge payments during the initial services contract period. This is expected to reduce payments during the first two years of the contract period which will help the Council’s budget position whilst maintaining the overall contract cost constant in net present value terms. The outcome of this review will be incorporated within the Council’s budget setting process for 2012/13.

• The increases in cost detailed above include some costs which the Council would incur irrespective of implementing the MWMS. These include :

o Increases in landfill tax rates announced by the Government o Increased volumes of waste resulting from housing growth o Estimated increases in the future rates of landfill gate fees

• It is important therefore that Cabinet consider the outcomes of the Value for Money assessment alongside this Cabinet Report, which demonstrates that the PFI Option to the MWMS and the Consortium’s solution represents the best Value for Money option for the Council.

Capital Programme.

• The Council’s current approved Capital Programme includes £3.2m for the costs of vehicles and waste receptacles required to convert the Council’s current interim four-stream collection service to the three-stream collection service which integrates with the PFI solution.

• The approved Capital Programme also includes provision for £3.7m infrastructure costs which the Council will incur in delivering the MWMS.

• This report recommends agreement to a £5m capital contribution from the Council is in line with HM Treasury guidance and provides a saving of £12m on the contract cost and a net benefit to the Council of £4.5m once prudential borrowing costs are taken into account.

9.4 The overall cost implications of the Contract on the Council’s Budget and Medium Term Financial Plans, together with an assessment of VfM of the proposed Contract against other options which the Council could pursue to deliver its MWMS, has been considered by the Council’s Director of Finance and Property. The Director of Finance and Property has, as the Council’s Section 151 Officer, given her assurance that based on this assessment of options, the Consortium’s PFI Option represents a VfM solution for the delivery of the Council’s MWMS. The Council’s existing budget plans take into account all of the cost implications of delivering the Council’s MWMS and provide for the costs of the PFI contract at the levels outlined in this report. The benefits to the budget arising from the review of the profiling of the contract financial model which is to be undertaken, as indicated in Paragraph 9.3, will be incorporated within the Budget Report 2012/13 to be submitted to Council in March 2012.

Legal Implications

9.5 Appropriation Section 122 of the Local Government Act 1972 empowers the Council to appropriate land for any purpose including for planning purposes. Cabinet should note that all the land to be appropriated for planning purposes is owned by the Council and such appropriation will secure the implementation of those planning permissions set out in recommendation 3.5.

9.6 Land appropriated for planning purposes under Section 122, allows the Council to take the benefit of Section 237 of the Town and Country Planning Act 1990. Section 237 authorises the carrying out of works on the land and subsequent use of the land in accordance with the relevant planning permission. The practical effect of this is to extinguish any third party rights such as easements and covenants which may prevent development taking place and converts such rights into claims for compensation which the Council would be liable for if successful. Appropriation of the land for planning purposes will also prevent a third party from seeking to register a town or village green under the Commons Act 2006 after the appropriation has taken place.

9.7 Appropriation of the land for planning purposes will enable the relevant planning permissions to be implemented which will contribute towards the economic, social and environmental well being of the area by creating jobs, increasing recycling and diverting waste from landfill.

9.8 Human Rights Implications The Human Rights Act 1998 (“HRA”) established that a “public authority” is defined as “any person certain of whose functions are functions of a public nature” which most certainly includes the Council. The importance of this is that under Section 6(1) of the HRA, “it is unlawful for a public authority to act in a way which is incompatible with a Convention right.” In the HRA, Parliament set out and in fact listed which convention rights were to take effect in the UK. Article 1 of the First Protocol has two parts and states that:

• “Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.

• The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties.”

and this has been a fertile area for cases to be brought before the European Court of Human Rights.

Article 8 sets out the Right to Respect for Private and Family Life which is a “limited right”, as the second paragraph allows a limitation to paragraph 1 if circumstances permit, and the issue is addressed proportionately: “1. Everyone has the right to respect for his private and family life, his home and his correspondence. 2. There shall be no interference by a public authority with the exercise of this right except such as is in accordance with the law and is necessary in a democratic society in the interests of national security, public safety or the economic well-being of the country, for the prevention of disorder or crime, for the protection of health or morals, or for the protection of the rights and freedoms of others.” To be justified under Article 8(2) a limitation or interference must be (a) prescribed by law and (b) necessary in a democratic society for a permissible purpose, that is, it must be directed to a legitimate purpose and must be proportionate in scope and effect. In considering this issue, the Council does so in the current financial climate, and particularly the need to provide waste services (as required by legislation) and considers the rights and freedoms of people who may be affected by the decision. The Council must perform a balancing act when considering these rights and duties. The need for the Council to provide waste facilities for the good of the people of the District is a very important issue, and the remainder of this

report sets out how complex the issues are and have been in getting to this stage. The Government has set out the criteria and processes for PFI projects and has clearly decided that the Private Finance Initiative is important for the economic well being of the country, in protecting the health and well being of the people of the District by providing waste facilities. The appropriation of land, as outlined in this report, is a vital part of the proposal, and where the Article 8 rights are interfered with, the legitimate purpose of progressing the MWMS for the District, is being decided upon by the Council, thereby taking a democratic decision, directed to a legitimate purpose, which is proportionate to the scale of the problem, i.e. how to dispose of 170,000 tonnes of municipal waste a year. The right of a third party seeking to exercise their rights, enforce a covenant or register a town or village green is limited by the will of Parliament which has created the ability to extinguish these rights if circumstances deem it appropriate. The importance of dealing with municipal waste is important in a society and accordingly it is felt that the needs of the many in this case override any right in this regard. The land being appropriated is owned by the Council already, and has been designated under legislation in existence since 1972. The effect in extinguishing third party rights (such as easements and covenants) converts these rights into claims for compensation which the Council would be liable for if successful. This is wholly in accordance with Article 1 of the First Protocol where Parliament has created laws it has deemed necessary to control the use of property in accordance with the general interest. The availability of compensation for any successful claim is also in accordance with the conditions provided for by law and by the general principles of international law.

9.9 Staffing The legal implications of staffing issues are as set out in paragraphs 9.18 and 9.19 below.

9.10 Procurement Process The procurement process has experienced a number of delays and changes since the appointment of VT as preferred bidder in November 2007 as set out in section 5 of this report. As a consequence of these delays and changes the Council has on a number of occasions reviewed the procurement related issues.

9.11 The Council is required, in accordance with European and UK procurement regulations, to serve notice on all unsuccessful bidders to the Contract prior to the award of the Contract. This notice provides an opportunity for unsuccessful bidders to challenge the award of the Contract to Shanks (Wakefield) Ltd. Any challenge must be brought within a minimum of 10 days of the notice being served.

9.12 The Service Director Legal and Governance as the Council’s Monitoring Officer has reviewed all the external legal advice received by the Council and has given her assurance that in her opinion the Contract can lawfully be awarded to Shanks (Wakefield) Ltd.

9.13 In relation to PFI contracts local authorities are required to provide a certificate under the Local Government (Contracts) Act 1997 in order to provide confirmation that the PFI contract has been entered into lawfully. For the purposes of the waste PFI project, a certificate will be required in relation to the Contract to be entered into between the Council and Shanks (Wakefield) Ltd and the direct agreement to be entered into between the Council, Shanks (Wakefield) Ltd and the funders.

9.14 The Local Government (Contracts) Act and the Local Authorities (Contracts) Regulations 1997 allow a limited number of Senior Officers to sign the certificates. It is recommended that the appropriate person to sign the certificates on behalf of the Council is the Director of Finance and Property in her capacity as Section 151 Officer.

9.15 Certificates provided by Officers under the Local Government (Contracts) Act 1997 are considered as a personal assurance by that Officer that the PFI contract is within the local authority’s powers and has been entered into properly. In these circumstances, personal liability may attach to the Council’s Section 151 Officer notwithstanding that the certification process is undertaken by that Officer on behalf of the Council. Cabinet is advised that the Director of Finance and Property in her capacity as Section 151 Officer has the benefit of an indemnity from the Council in respect of her signing the certificates by virtue of the decision of the Council on 15 November 2006.

9.16 Equality By virtue of the Equality Act 2010 the Council must not discriminate against any person because of the following characteristics: (“the Protected Characteristics”)

• age;

• disability;

• gender reassignment;

• marriage and civil partnership;

• pregnancy and maternity;

• race;

• religion or belief;

• sex; or

• sexual orientation.

This also applies to the PFI contractor and provisions have been included in the Contract to address this.

9.17 The Equality Act 2010 also imposes a Public Sector Equality Duty (“PSED”) on public bodies and others carrying out public functions. The PSED requires public bodies to have due regard to the need to: ● eliminate unlawful discrimination, harassment, victimisation and any other conduct prohibited by the Equality Act 2010; ● advance equality of opportunity between people who share a Protected Characteristic and people who do not share it; and ● foster good relations between people who share a Protected Characteristic and people who do not share it. The PFI contractor is carrying out public services on behalf of the Council and is therefore obliged to comply with the PSED. Provisions have been included in the Contract to address this.

Staffing Implications

9.18 As part of the transfer of the services to the PFI contractor there are currently approximately 30 Council employees who are assigned to the services that will transfer under the Contract, whose contracts of employment will transfer from the Council to Shanks Waste Management Ltd under the TUPE Regulations. In accordance with the TUPE Regulations, continuity of employment will continue to apply to transferring employees, whose terms and conditions of employment following the transfer will remain those in place immediately prior to the transfer. The terms of the legal agreement(s) which govern the transfer of the business from the Council to Shanks (Wakefield) Ltd will deal with this transfer of employees and the associated transfer of any staffing liabilities and, if applicable, indemnities. In terms of pension protection, Fair Deal to Pensions and Best Value Direction would not apply to the permanent sale / transfer of a business. Pension protection would therefore be provided under the Pensions Act 2004, which requires that Shanks offer employees access to a money purchase scheme or a defined benefit scheme that meets either the reference test or a prescribed alternative standard. However, as part of the final negotiations an admission agreement has been finalised for Shanks Waste Management Ltd to become an admitted body to the West Yorkshire Pension Fund. This will ensure that the transferred employees’ existing pension provisions are protected.

9.19 During the procurement process the employees assigned to the services

that will transfer under the Contract have been kept informed of progress through regular meetings and briefing letters. Briefings have also been held with the Trade Unions and respective HR support staff. The last full briefing was given in August 2011 and Shanks has subsequently completed 1-2-1 interviews with all employees on the TUPE list. The Council’s formal processes for employee transfers have been followed throughout and will continue to be followed up to the transfer date.

9.20 To manage and monitor the Contract the Council has established a contract management team under the Service Director (Cleaner and Greener) and led by the Strategic Waste Policy Manager. The contract management team, consisting of the Strategic Waste Policy Manager and three other full time employees, will work closely with Shanks’ operations team to ensure compliance with the Contract requirements and other related matters. It is proposed that following the completion of the new waste treatment facilities at South Kirkby the contract management team will co-locate to new offices at the South Kirkby site alongside the Shanks operational staff.

9.21 In addition to the contract management team, set up specifically to monitor the contract, there will be a need to utilise support from the Council’s internal legal and finance team who have been involved during the procurement phase. Cabinet should also note that during the first two years when the final detailed designs for new waste treatment facilities are being completed and the treatment facilities are being constructed, the Council will also need support from its external financial and technical advisers, PwC and Amec.

9.22 Members are asked to note that WIDP is very keen to ensure that local authorities do not underestimate the contract management arrangements post financial close. WIDP has produced guidance on how authorities should prepare for this key part of the process going forward. The contract management team is taking note of the guidance and is developing a project specific contract management manual for the project.

Asset Management

9.23 To enable the PFI contractor to perform the services required by the Contract the following sites together with the existing facilities and assets (as appropriate) will be leased to Shanks (Wakefield) Ltd for 25 years: Ossett Household Waste Recycling Centre (“HWRC”)* Welbeck (HWRC) * Cinder Lane Castleford (HWRC)* Old Great North Road Ferrybridge (HWRC)* Fitzwilliam (HWRC)* South Kirkby Manface (HWRC)* Denby Dale Road (Transfer Loading Station (“TLS”)/HWRC) Carrwood Road (TLS) Glasshoughton South Kirkby

9.24 Following completion of the new facilities at Denby Dale Road, Glasshoughton and South Kirkby the sites identified with an asterisk above will be closed and returned to the Council in the same physical condition (fair wear and tear excepted). Before the sites are returned to the Council the PFI contractor is required to rectify any contamination it has caused during its occupation of the sites. The exception to this is the Welbeck site which will be leased to the PFI contractor until November 2017 for the reasons set out in paragraph 9.30.

9.25 Those sites not identified with an asterisk will remain with the PFI contractor until the end of the Contract following which they will be handed back to the Council. There is a contractual requirement that the new facilities at Denby Dale Road, Glasshoughton and South Kirkby will have a minimum of 2 years residual life following termination of the Contract.

9.26 The existing Carrwood Road site is currently used by the Council as a collection depot, TLS and a commercial recycling facility. That part of the site which is used as a TLS and commercial recycling facility will be leased to the PFI contractor for the same use. The Council will retain the remainder of the site for use as the collection depot.

9.27 To enable Shanks to rebuild the TLS and HWRC at Denby Dale Road to provide modern state of the art facilities, Shanks will need to close the site completely for the duration of the works. During the period of this closure (approximately 15 months) Shanks will provide temporary TLS and HWRC facilities from a site at Calder Vale Road in Wakefield. This will enable continuity for Wakefield residents to have access to an HWRC, and for the Council’s collection service to have access for household and commercial waste deliveries, in central Wakefield.

9.28 The site at Calder Vale Road is owned by a third party and will be leased to Shanks until January 2016. The Council has agreed to underwrite Shanks’ costs in securing the lease for the site at Calder Vale Road until financial close of the Contract or until the lease is assigned to the Council. This agreement was the subject of a delegated decision taken by the Service Manager for Property and Asset Management dated 21 November 2011.

9.29 The principal waste treatment facilities will be constructed at South Kirkby. The key facilities are a Materials Recycling Facility (MRF), an enclosed composting facility and a mechanical biological treatment (MBT) facility. The MBT facility comprises both pre and post autoclave sorting facilities, an autoclave and an anaerobic digestion plant together with CHP and digestate drying facilities. In addition office facilities for both Shanks and Council staff, an education centre and a refuse collection vehicle (RCV) facility will be provided at South Kirkby. The RCV facility is a replacement collection depot for the Council’s waste collection service which currently operates from the Clock Row Depot at South Kirkby. From a waste collection perspective the Clock Row Depot will no longer be required.

9.30 The Welbeck site is governed by the overall Welbeck planning permission that requires restoration of the overall Welbeck site by May 2018. To enable the Council to comply with its restoration obligations in the planning permission, the lease of the site to the PFI contractor will terminate in

November 2017. This will give the Council 6 months to undertake the necessary restoration works.

9.31 The South Kirkby Manface site is leased by the Council from the Town Council. The lease has been extended until January 2015 to allow time for construction of the new HWRC on the South Kirkby site. Once the new HWRC at South Kirkby is constructed, the PFI contractor will handback the South Kirkby Manface site to the Council. Following handback, the Council is responsible for restoring the South Kirkby Manface site before handing it back to the Town Council. Such restoration works are expected to take 6 months.

9.32 The Ossett site has a planning permission for use as a HWRC until 31 October 2014 following which there are restoration requirements which must be completed by 31 October 2015. The Council will be required to submit a restoration scheme to the Local Planning Authority for approval prior to restoration works commencing which will take approximately 18 months to complete. The lease to the PFI contractor will be terminated to allow the restoration works.

9.33 Cabinet is also advised that the existing Environmental Permits relating to those sites identified with an asterisk in paragraph 9.23 and Carrwood Road will be transferred to the PFI contractor. Prior to handback of these sites to the Council, the PFI contractor will surrender the Environmental Permits to the Environment Agency. The PFI contractor will be responsible for obtaining Environmental Permits for those sites not identified with an asterisk (with the exception of Carrwood Road).

9.34 Cabinet is advised that throughout the procurement process a number of specific property risks have been negotiated with the PFI contractor to provide an equitable position for both parties to manage. Mitigation measures have been taken to minimise the impact of those risks to the Council.

PLANNING

9.35 A key requirement of all waste management projects is that planning permission is obtained for the treatment facilities required to deliver the project. To this end the PFI contractor has been successful in obtaining planning permission for all the sites as set out below and for which development must commence within 3 years of the original planning permission being granted: South Kirkby Main Site – permission granted on 27 November 2008 Welbeck – permission granted on 16 March 2009 Denby Dale Road – permission granted on 27 March 2009 Glasshoughton – permission granted on 26 June 2009 Ossett – permission granted on 28 August 2009 Calder Vale Road – permission granted on 8 November 2010

9.36 It is clear that development will not have commenced on all the sites within the 3 year development time period set out above. Shanks has applied for extensions to the planning permissions for Denby Dale Road, Ossett and Calder Vale Road. In addition there is a planning permission for a temporary car park at South Kirkby for use by construction workers during the construction phase. Shanks has applied to extend this permission to tie in with the revised construction programme. All these planning extensions have now been successfully determined and as such there are no planning issues which would impact on the construction programme.

9.37 To ensure that the planning permission at South Kirkby for the main waste treatment facilities is enacted Shanks has implemented an early works contract to locate and re-cap as necessary three existing mineshafts on the site. The works were undertaken during October and November 2011 and the LPA agreed that these works would constitute commencement of development. The Council has agreed to underwrite Shanks’ costs of these works up to £50k to ensure deliverability prior to financial close and to implement this, a delegated decision was taken by the Corporate Director (Communities) on 3 October 2011. Following financial close this agreement to underwrite costs will fall away.

9.38 The Glasshoughton site requires a new highway access from the A6359 (Glasshoughton Coalfields Link Road), which is currently being constructed. This access road also provides access to adjacent residential land owned by Waystone. Accordingly development has commenced to satisfy the planning conditions. The Council is funding the cost of this access road and on completion, currently programmed for the end of 2011, Waystone will pay the Council an agreed proportion of the construction costs. To implement this arrangement a delegated decision was taken by Cabinet Members (Environment and Communities) and (Corporate Performance) on 9 June 2011.

Equality Implications

9.39 The Contract contains provisions for the PFI contractor to comply with and maintain an equal opportunity policy to ensure that it and its sub-contractors

comply with their and the Council’s statutory obligations under the Equality Act 2010. The PFI contractor and its sub-contractors are required to use best endeavours to secure that a person is not discriminated against because of a Protected Characteristic. The PFI contractor is also required to take all necessary measures to comply with the Council’s equality and diversity policy. The Contract also requires the PFI contractor to have due regard to its equality duties when performing its obligations under the Contract. The PFI contractor must also provide all such information as the Council may reasonably require for the purposes of assessing the PFI contractor’s compliance with the above and to enable the Council to comply with its equality duties.

10. RECOMMENDATIONS

10.1 That Cabinet notes the progress of the final negotiations with the Consortium as set out in this report.

10.2 That, subject to the: (i) approval of the Final Business Case (“FBC”) by Defra; (ii) receipt by the Council of the Promissory Note for the Waste

Infrastructure Credits (formerly PFI Credits) from Defra; and (iii) confirmation that the Consortium’s proposal represents the most

economically advantageous tender (“MEAT”) for the Council Cabinet delegates to the Chief Executive in consultation with the Leader of the Council the authority to award the waste PFI contract (“the Contract”) to Shanks (Wakefield) Ltd.

10.3 That Cabinet approves the appropriation of land from the Street Scene Department to the Highways Department for the purposes of the adoption of the access road leading into the Glasshoughton site from the Glasshoughton Coalfields Link Road.

10.4 That Cabinet approves the lease of the sites identified in paragraph 9.23 (Asset Management) to Shanks (Wakefield) Ltd for the term of the Contract, or until such earlier time as the sites are returned to the Council.

10.5 That Cabinet approves the appropriation of land at Denby Dale Road, Glasshoughton, South Kirkby and Welbeck as identified on the plans attached to this report at Appendix 2 for planning purposes pursuant to Section 122 of the Local Government Act 1972 and to implement those planning permissions listed below; Denby Dale Road Site (Planning Permission No.08/01834/FUL) Glasshoughton Site (Planning Permission No.09/00115/FUL) South Kirkby Main Site (Planning Permission No.08/01633/FUL) Welbeck Site (Planning Permission No.08/02712/FUL).

10.6 That Cabinet notes that the contracts of employment of the existing Council employees assigned to the services that will transfer under the Contract will transfer from the Council to Shanks Waste Management Ltd as operating sub-contractor under the Transfer of Undertakings (Protection of Employment) (“TUPE”) Regulations 2006

10.7 That Cabinet approves the use of the Council logo by Shanks (Wakefield) Ltd for joint advertising of the services provided pursuant to the Contract.

10.8 That Cabinet approves the proposal for the Shanks (Wakefield) Ltd website to be linked to the Council website for joint advertising of the services provided pursuant to the Contract.

10.9 That Cabinet approves the signing of the certificates to be issued under the Local Government (Contracts) Act 1997 by the Director of Finance and Property in her capacity as Section 151 Officer.

10.10 That Cabinet notes that the Director of Finance and Property in her capacity as Section 151 Officer has the benefit of an indemnity from the Council in respect of her signing the certificates to be issued under the Local Government (Contracts) Act 1997 by virtue of the decision of the Council on 15 November 2006.

10.11 That Cabinet recommend to Council that a £5m contribution towards the capital works costs of the waste PFI project is added to the Capital Programme.

10.12 That Cabinet notes that a formal notice will be issued to the unsuccessful bidders to the Contract namely WRG, Veolia and Global Renewables UK Ltd prior to the award of the Contract.

11. REASON FOR RECOMMENDATIONS

11.1 To ensure Cabinet is aware of the progress of the final negotiations with the Consortium and that this contract represents the best solution for implementing the Council’s approved waste strategy.

11.2 When the final contract documentation has been agreed by the Council and Shanks (Wakefield) Ltd the award of the Contract needs to be dealt with urgently to avoid further delays and consequential cost increases.

11.3 To enable the access road to be adopted by the Council in its capacity as Highway Authority.

11.4 The leases of the sites set out in paragraph 9.23 enable the PFI contractor to deliver the services required by the Contract.

11.5 Appropriation of the relevant sites for planning purposes will extinguish the easements and covenants and convert them into a claim for compensation thereby ensuring that development can take place contributing to the area by creating jobs, increasing recycling and diverting waste from landfill.

11.6 To confirm that the contracts of employment of the employees assigned to the services that will be transferred under the Contract will be transferred from the Council to Shanks Waste Management Ltd in accordance with the TUPE Regulations.

11.7 Approval of the use of the Council logo will help to raise the profile of the Council in the waste PFI project and is at the Council’s discretion.

11.8 Approval of linking the Shanks (Wakefield) Ltd website to the Council website will enable a ‘one stop shop’ approach to dealing with the public and is at the Council’s discretion.

11.9 To comply with the requirements of the Local Government (Contracts) Act 1997.

11.10 To protect the Director of Finance and Property in her capacity as Section 151 Officer from any personal liability arising from signing the certificates to be issued under the Local Government (Contracts) Act 1997.

11.11 The proposed capital contribution of £5m reduces the contract costs by £12m and is in line with HM Treasury guidance.

11.12 The issue of the formal notice is a requirement of EU and UK procurement regulations which provides the unsuccessful bidders an opportunity to challenge the award of the Contract to Shanks (Wakefield) Ltd.

Project Director: John Nortcliffe – Waste PFI Contact Officer: John S Nortcliffe Project Director Waste PFI Normanton Town Hall High Street Normanton Wakefield WF6 2DZ Telephone No: 01924 307819 E-mail address: Jnortcliffe@wakefield.gov.uk Background Papers: Cabinet Report – Municipal Waste Management Strategy – 25 November 2003. Cabinet Report – Waste Services Procurement Options – 25 November 2003. Delegated Decision by Cabinet Members (Environment and Communities) and (Corporate Performance) – Provision of Access Road to proposed Glasshoughton HWRC – 9 June 2011. Delegated Decision by Corporate Director (Communities) – Waste Management PFI Project (South Kirkby Early Works) – 3 October 2011 Delegated Decision by Service Manager (Property and Asset) – Waste Management PFI Project (Calder Vale Road) – 21 November 2011. Public Private Partnerships - http://www.hm-treasury.gov.uk/ppp_index.htm

23

APPENDIX 1

WASTE PFI ORGANISATIONAL STRUCTURE

SPV – Shanks (Wakefield)

Ltd

Wakefield MDC

Council’s Construction Direct Agreement

Parent Company Guarantee Parent Company Guarantee

Shanks Group plc

EPC

Shanks Waste

Management Ltd

Shanks Group plc 100% 100%

Collateral Warranties

:

Hold Co

Shanks PFI Investments

Ltd 100%

EQUITY [15%]

Funding Club

SENIOR DEBT [85%]

Interface

Agreement OPERATING SUB-CONTRACTOR Shanks Waste Management Ltd

Council’s Operator

Direct Agreement

24

Appendix 2

Site Plans

South Kirkby

Glasshoughton

Denby Dale Road

Welbeck