OFT fires out warning over landfill

31 May 2006

Local authorities should guard against possible collusion between waste treatment firms as they struggle to commission new plants to comply with ever-stricter limits on landfill, a Government watchdog has warned.
The Office of Fair Trading says it has heard no evidence or complaints of collusion from councils or other waste industry players. But it warns that the small number of firms in the treatment sector, including only eight major operators, raises the risk of regional monopolies. Almost 30% of treatment contracts attract just one or two bidders at the invitation to tender stage.
Waste authorities are urged to do what they can to draw bids from a range of suppliers, both within and outside their region, and to avoid bundling treatment and landfill contracts that could strengthen the position of dominant landfill owners.
Where possible councils should secure sites and planning permissions before putting contracts out to tender.
Both local authorities and the Department for Environment, Food and Rural Affairs should be alert to the risk of anti-competitive market sharing by regionally dominant firms, and should consider independent monitoring of tendering results. ‘As the treatment sector grows it is vital that LAs avoid the pitfalls associated with over-dependency on a limited number of suppliers,’ it adds.
It points out that some councils have already taken precautions. Northumberland County Council, for example, requires prospective bidders to submit an anti-collusion certificate. But the Environmental Services Association said the OFT’s comments about collusion were ‘unhelpful’. Competition was limited because bidders were deterred by large, complicated contracts and difficulties in getting planning permission, said policy director Mike Walker.
‘That makes it a highly unattractive market,’ he added. ‘We want waste sites to be earmarked with outline planning permission before contracts are tendered. That would incentivise more bidders.’
The Government wants to sharpen competition as up to 2,300 new treatment facilities could be required by 2020. It expects authorities to find £300M of efficiency gains in waste services.
The OFT’s study More competition, less waste reinforces a companion report by the Office of Government Commerce that found lack of competition and inefficiencies in the municipal waste market. But the OFT also warns local authorities to ensure a level playing field for all bidders where there is an in-house tenderer. Some private firms said they would rarely bid against a local authority waste disposal company.
The OFT says collection contracts should be no longer than five years and all suppliers should be able to tender, even those with no previous collection experience.

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