ADELAIDE HILLS COUNCIL ORDINARY COUNCIL ......Adelaide Hills Council – Ordinary Council Meeting 23 April 2019 CONFIDENTIAL ITEM – Kerbside Recycling Contract Page 3 Objective 7.7.1.2

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ADELAIDE HILLS COUNCIL ORDINARY COUNCIL MEETING

Tuesday 23 April 2019 CONFIDENTIAL AGENDA BUSINESS ITEM

Item: 19.1 Originating Officer: John McArthur, Manager Waste and Emergency Management Responsible Director: Peter Bice, Director Infrastructure and Operations Subject: East Waste Kerbside Recycling Contract For: Decision

1. Title of Confidential Item – East Waste Kerbside Recycling Contract

Pursuant to section 90(2) of the Local Government Act 1999 the Council orders that all members of the public, except:

CEO, Andrew Aitken

Director Infrastructure & Operations, Peter Bice

Director Development & Regulatory Services, Marc Salver

Director Corporate Services, Terry Crackett

Director Community Capacity, David Waters

Executive Manager Governance & Performance, Lachlan Miller

Manager Waste and Emergency Management, John McArthur

Minute Secretary, Pam Williams be excluded from attendance at the meeting for Agenda Item 19.1: East Waste Kerbside Recycling Contract in confidence. The Council is satisfied that it is necessary that the public, with the exception of Council staff in attendance as specified above, be excluded to enable Council to consider the report at the meeting on the following grounds: Section 90(3)(d) of the Local Government Act 1999, the information to be received, discussed or considered in relation to this Agenda Item is commercial information of a confidential nature (not being a trade secret) the disclosure of which could reasonably be expected to prejudice the commercial position of the person who supplied the information. Accordingly, on this basis the principle that meetings of the Council should be conducted in a place open to the public has been outweighed by the need to keep the information and discussion confidential.

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RELEASED 07 APRIL 2020

Adelaide Hills Council – Ordinary Council Meeting 23 April 2019 CONFIDENTIAL ITEM – Kerbside Recycling Contract

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2. East Waste Kerbside Recycling Contract – Confidential Item SUMMARY

Instability in the recycling market has seen major changes to the waste and recycling sector over the past 15 months. These changes have been a direct result of China Sword. One such change was failure of the recycling receipt and processing contract through East Waste that was in place to manage kerbside recycling material collected from member councils, including Adelaide Hills Council. This contract failure necessitated a need to source alternative avenues for the receipt and processing of kerbside recycling material. East Waste, on behalf of member councils, undertook an open procurement process seeking a new contractor to receive and process kerbside recycling material. Submissions received have been evaluated by East Waste and the Northern Adelaide Waste Management Authority (NAWMA) has been identified as the preferred contractor. East Waste has negotiated a contract with NAWMA on a three, plus three, plus three year basis. A proposal has been received from East Waste to enter into an initial three year agreement (refer Appendix 1) for Council to commit the community’s kerbside recyclable material to East Waste for inclusion in the contract with NAWMA. RECOMMENDATION Council resolves: 1. That the report be received and noted. 2. Council approves East Waste entering into a contract with the Northern Adelaide Waste

Management Authority for the receipt and processing of kerbside recyclable material. 3. The Mayor and Chief Executive Officer be authorised to execute all documents necessary,

including applying the Council seal (as required), to enter into an agreement with the Eastern Waste Management Authority to commit its kerbside recycling material to East Waste until 30 June 2022.

1. GOVERNANCE

Strategic Management Plan/Council Policy Goal 3 Places for people and nature Strategy 3.7 We will drive further reduction in waste consigned to landfill Partaking in the agreement to commit kerbside recyclable material to East Waste will assist Council in providing a cost effective kerbside recycling service, minimise waste to landfill and maximise recycling. Council’s Waste and Resources Management Strategy 2016-2021 contains the following actions relevant to this report: Objective 5.6.1.1 To provide a cost effective and efficient waste and recycling kerbside

collection service that focuses on reducing waste to landfill and maximises recycling.

Objective 5.7.1.1 To provide a kerbside bin service that meets the community’s expectation.


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Objective 7.7.1.2 Provide kerbside bin services that focus on reducing waste to landfill and increasing recycling.

Legal Implications Under the Environment Protection (Waste to Resources) Policy 2010 Council is obligated to provide a kerbside waste collection service to its residents. Section 7 of the Local Government Act 1999, ‘Functions of a Council’ requires Council to provide services and facilities that benefit the area including waste collection, control or disposal services or facilities. Risk Management Implications

Entering into an agreement with East Waste for the supply of the community’s kerbside recycling material will assist in mitigating the risk of:

Not capitalising on the benefits provided by the proposed East Waste agreement leading to poor (or potentially, non-existent) recycling service outcomes for Council and the community.

Inherent Risk Residual Risk Target Risk

Extreme (4B) Medium (4D) Low

The recommendation of this report, subject to Council adoption, will result in the new mitigating action of entering into an agreement with East Waste for the supply of the community’s recycled kerbside material processing for an initial three year period. Financial and Resource Implications The draft 2019/20 budget provided by East Waste and incorporated in Council budget deliberations thus far includes the fees applicable under the proposed kerbside recycling agreement. Accordingly, and subject to Council resolving to enter into the agreement with East Waste no adjustments are required to the draft 2019/20 waste and recycling budget. The contract to be entered into between East Waste and NAWMA is based on a nominal per tonne gate fee. The gate fee is to be adjusted quarterly based on the commodity sales of an agreed ‘basket of goods’ (paper, mixed cardboard, plastic streams, glass etc.). The quarterly adjustment is based on a shared 50/50 risk for parties with a ‘rise and fall’ fee provision. This rise and fall provision sees the parties realising the benefits when markets are positive and sharing of the costs during depressed times. An example of the rise and fall model is as follows: A $10 gate rate is based on a basket of goods price of $100. In the last quarter the basket of goods price increased to $105 (increase of $5). East Waste’s risk-share of 50% is applied to the $5, resulting in a $2.50 benefit. The gate fee for the subsequent quarter becomes $7.50. Conversely if the basket of goods price dropped to $95, the gate fee would be $12.50.


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In addition to the gate fee there is also a glass fines disposal cost, a contamination cost and a cartage cost to transfer the recycled material from Wingfield to the NAWMA site at Edinburgh North. Taking the above costs into account East Waste forecast that the total recycling processing fee will be in the order of $55 to $65 per tonne on average for the first three years of the contract with NAWMA. East Waste advise that even at the upper limit, this processing cost is less than the other fixed gate fee offers received through the procurement process undertaken. As outlined above, these processing costs have been included in Council’s draft 2019/20 budget. Customer Service and Community/Cultural Implications Entering into the proposed kerbside recycling agreement will not result in any changes to kerbside services. Residents will continue to have access to the services that they are accustomed to as the three bin kerbside service will remain as currently provided. Having the material processed locally through a Local Government subsidiary will result in a strengthened confidence and messaging to the public that the material is being appropriately recycled.

Environmental Implications Council committing its kerbside recycling material to the contract between East Waste and NAWMA will ensure this material is continued to be recycled with flow on environmental benefits. Further, NAWMA has identified a market for glass fines which currently have no commercial value. NAWMA is planning to introduce a glass fines recovery plant into their operations within the next 6 – 8 months which will reduce this waste stream with both environmental and cost benefits. Engagement/Consultation conducted with Council Committee, Regional Subsidiary,

Advisory Group, the Administration and Community

Consultation on the development of this report was as follows:

Council: An information report was provided to Council in September 2018 advising of the intention of East Waste to undertake a kerbside recycling procurement process and that Council’s recycling tonnes would be utilised as part of the scope of works.

Council Committees: Not Applicable

Council Workshops: Not Applicable

Advisory Groups: Not Applicable

Administration: Director Infrastructure and Operations Director Corporate Services Manager Financial Services

Waste Coordinator

Community: Not Applicable


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2. BACKGROUND

At the beginning of 2018 the international recycling market was impacted by the effects of China Sword. Products that had traditionally been sent to China for processing and recycling were no longer accepted in the large quantities that the market was accustomed to. Smaller quantities were still being processed however there were stringent contamination rates, not achievable with current Australian processing methods, associated with the acceptance by China. This resulted in Australia and in turn South Australia having to source alternative means for processing these valuable resources. During this period kerbside recycling material from the Adelaide Hills Council, and other East Waste member councils, was being processed under a contract that had been in place for several years. In the initial years of this contract East Waste member councils received a rebate for their recycling material (the highest commercial rate in South Australia). At the time of China Sword the contractor was unable to fulfil contractual obligations in paying the ongoing rebate to member councils. As a result, and after unsuccessful negotiations, the contract ultimately failed. An alternative recycling arrangement was required as an interim measure whilst an open market procurement process was undertaken for a new recycling contractor. East Waste successfully negotiated a short term arrangement with the Northern Adelaide Waste Management Authority (NAWMA) for the receipt and processing of kerbside recycling material. NAWMA is a regional subsidiary of the Town of Gawler, City of Playford and the City of Salisbury located in the northern suburbs of Adelaide. This interim arrangement secured the ongoing receipt and processing of kerbside recycling material from East Waste member councils.

Commencing September 2018 East Waste developed and released a tender for the receipt and processing of kerbside recycling material for a longer term contract than the interim arrangement in place with NAWMA. The Tender documents sought alternative options to traditional contracts where East Waste (and member councils) could share the risk and reward of the industry (rise and fall contacts). The procurement process undertaken (refer Appendix 2) resulted in submissions from three recycling processors including NAWMA. Tender submissions were received and evaluated by a tender evaluation panel with the preferred tenderer being NAWMA, The procurement process has resulted in a fixed term multi-year (initial 3 year + 3 year option + 3 year option) contract for the receipt and processing of community kerbside recycling material. In response to the contract negotiated by East Waste with NAMWA Adelaide Hills Council, and other East Waste member councils, are being asked to commit their kerbside recycling material for the initial three year period of the contract between East Waste and NAWMA.


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3. ANALYSIS

Collectively, East Waste member councils account for approximately 20% of the total tonnes of kerbside recycling material processed annually in South Australia. This volume is a significant market share and as a result East Waste has been able to secure a competitive rate for the receipt and processing of kerbside recycling material. As outlined in the financial implications section of this report under the contract with NAWMA the processing fee will be between $55/tonne and $65/tonne. This fee is similar to the fee applied of $60 per tonne when the rebate was no longer paid following China Sword and the $55/tonne processing fee payable under the interim arrangement put in place following failure of the recycling contract. NAWMA currently has a number of local (intrastate and national) contracts in place for the processing of their material. NAWMA has also committed to a target of 100% on shore processing by 2020. These outcomes contribute heavily to a circular economy which has been identified as a key requirement to improve the longevity and sustainability of the Australian waste and recycling sector. Further, these outcomes were highlighted to East Waste as an area where many Councils desired for improved performance in any new contract. In addition to the circular economy advantages, utilising NAWMA, a Regional Subsidiary owned by three Councils, provides a higher degree of transparency in relation to its finances and business model well above what the other private sector tenderers could provide. East Waste has undertaken extensive industry knowledge and analysis and are confident that the contract negotiated with NAWMA is the best commercial recycling contract on offer. An alternative to signing the proposed kerbside recycling material agreement with East Waste is for Council to explore, assess and implement its own arrangement for the receipt and processing of Council’s kerbside recycling material. This option is not recommended as Council’s average annual kerbside recycling tonnes of approximately 3500 is of insufficient scale to attract a competitive rate as compared to the fee obtained through the contract with NAWMA, particularly given the ongoing volatility of the local recycling market. East Waste requires commitment or otherwise to the initial three year agreement prior to 30 April 2019. Council undertaking its own procurement process at this point for the receipt and processing of kerbside recycling material would be a minimum 4 – 5 month process. This outcome could result in a period of inability to provide a kerbside recycling service (which we are legislatively obligated to do) or pay excessive fees to put in place an interim arrangement.

Accordingly, it is recommended that Council endorse the recommendations of this report committing the community’s kerbside recycling material to East Waste for an initial three year period. Subject to Council adopting the recommendation of this report a further report will be provided to Council prior to expiry of the initial three year period to consider future options for the receipt and processing of kerbside recycling material.


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4. OPTIONS

Council has the following options:

I. Council enters into the agreement with the Eastern Waste Management Authority

for the receipt and processing of kerb recyclable materials for a three year period. This option is recommended as it will facilitate ongoing kerbside recycling at market tested competitive rates. (Recommended)

II. Council does not enter into the agreement with the Eastern Waste Management Authority for the receipt and processing of recyclable materials for a three year period. This option is not recommended as it will require Council to implement its own arrangement for receipt and processing of kerbside recycling material and as a result forego cost and other benefits achievable through the proposed East Waste agreement.

5. APPENDICES

(1) Adelaide Hills Council Recycling Tonnes Agreement (2) Recycling Procurement Process

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Appendix 1 Adelaide Hills Council Recycling Tonnes Agreement

AGREEMENT TO COMMIT KERBSIDE RECYCLABLE MATERIAL TO EAST WASTE FOR INCLUSION IN THE NAWMA CONTRACT 2018-01 FOR THE RECEIPT AND PROCESSING OF THAT MATERIAL DATE: BETWEEN: EASTERN WASTE MANAGEMENT AUTHORITY of 1 Temple Court, Ottoway SA 5013 (“the Authority”) AND ADELAIDE HILLS COUNCIL of 63 Mt Barker Road, Stirling, SA 5152 (“Council”)

_____________________________ 1 Council is a member of East Waste.

2 East Waste is currently delivering kerbside recyclable material (KRM) to Northern Adelaide Waste

Management Authority (NAWMA) for processing under an interim arrangement and Council is paying East Waste for that service.

3 East Waste through an open procurement process has secured a fixed term multi - year contract for the receipt and processing KRM on the basis that Council would commit its tonnes to East Waste for inclusion in that contract.

4 East Waste has determined that NAWMA is the preferred tenderer and East Waste proposes to enter into a contract with NAWMA for the receipt and processing of KRM from all Member Councils (and non-member Councils if applicable), including City of Prospect.

5 The contract is a 3 plus 3 plus 3 year term with NAWMA with KRM delivered by East Waste to NAWMA via a nominated Transfer Facility. The fees charged by NAWMA are as follows:

5.1 Gate Fee [$10/tonnes]. There is a quarterly rise and fall mechanism applicable to the gate fee

which will apply equally to all councils covered by the agreement.

5.2 Contamination. This fee varies from Council to Council based on the contamination rates in the KRM streams. An audit is to be carried out within first 3 months of the contract and applied for the first 2 years.

5.3 Glass Fines Contamination. This Fee is based on the disposal costs associated with remnant

glass after processing. NAWMA are implementing technology to reduce this fraction and create a resource, which is scheduled to be operational within the first year of contract.

6 Council is responsible to pay the Gate Fee, and contamination charges that are relevant to

Council's KRM stream.

7 Council hereby commits its KRM to East Waste through until 30 June 2022 to enable East Waste to enter into a contract with NAWMA to receive and process Council's KRM stream.

8 On the basis of this commitment from Council, East Waste will enter into a contract with NAWMA

based on the tender terms. In due course a summary of the key contract terms will be provided to Council.

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EXECUTED AS AN AGREEMENT EXECUTED by EASTERN WASTE ) ……………………………………….. MANAGEMENT AUTHORITY ) Signature under delegated authority )

) in the presence of: ) ……………………………………….. ……………………………………….. Signature of Witness Name ……………………………………….. ……………………………………….. Name of Witness Position EXECUTED by ADELAIDE HILLS COUNCIL ) ………………………………………… under delegated authority ) Signature ) in the presence of: ) ……………………………………….. ..……………………………………….. Signature of Witness Name ……………………………………….. ……………………………………….. Name of Witness Position

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Appendix 2 Recycling Procurement Process

Adelaide Hills Council – Ordinary Council Meeting 23 April 2019 CONFIDENTIAL ITEM – East Waste Recycling Contract

Early 2018 - East Waste established a formal sub-committee of the Board to review recycling options. Sub-committee known as the “Recycling Review Technical Working Committee”

The Recycling Review Technical Working Committee included an Independent Member

Recycling Review Technical Working Committee met regularly to review and analyse data, consider legal advice and technical briefings to assist East Waste to provide relevant information to the Board

Tender Evaluation Panel formed comprising two Council Member CEO’s, an Independent Member, East Waste General Manager and East Waste Manager Corporate Services

Evaluation Panel supported by external expertise in relation to probity, financial and technical elements

Sept 2018 - East Waste release tender documents for recycling contract

Analysis of tenders received was undertaken by the Evaluation Panel

The Evaluation Panel identified the proposal submitted by NAWMA as the preferred tender

Recommendation made to the East Waste Board

March 2019 - East Waste Board endorsed NAWMA as the preferred tenderer

March 2019 - East Waste informed member councils of preferred tender and requested member councils enter into an agreement to commit the community’s kerbside recyclable materials to East Waste for inclusion in the contract with NAWMA

Adelaide Hills Council – Ordinary Council Meeting 23 April 2019 CONFIDENTIAL ITEM – East Waste Recycling Contract

3. Recycling Contract – Period of Confidentiality

Subject to the CEO, or his delegate, disclosing information or any document (in whole or in part) for the purpose of implementing Council’s decision(s) in this matter in the performance of the duties and responsibilities of office, Council, having considered Agenda Item 19.1 in confidence under sections 90(2) and 90(3)(d) of the Local Government Act 1999, resolves that an order be made under the provisions of sections 91(7) and (9) of the Local Government Act 1999 that the report, related attachments and the minutes of Council and the discussion and considerations of the subject matter be retained in confidence until East Waste advise it is appropriate to release the information, but not longer than 28 April 2020 Pursuant to section 91(9)(c) of the Local Government Act 1999, Council delegates the power to revoke the confidentiality order either partially or in full to the Chief Executive Officer.

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ADELAIDE HILLS COUNCIL ORDINARY COUNCIL ......Adelaide Hills Council – Ordinary Council Meeting 23 April 2019 CONFIDENTIAL ITEM – Kerbside Recycling Contract Page 3 Objective 7.7.1.2