by Björn Appelqvist
Copenhagen and its waste management system
The City of Copenhagen has just over 500,000 inhabitants distributed over an area of 90 km². Of the approximate 280,000 households in the city, about 92% (or 259,000 households) are situated in apartment buildings. The remaining 8% are in the 21,000 single-family houses. There are on average 1.83 inhabitants per household in the City of Copenhagen.
Copenhagen has declared a set of ambitious environmental goals for the future. Under the declaration of the ‘Eco-metropole of the world’ (City of Copenhagen, 2007), the City is aiming towards showing global leadership in the environmental field and demonstrating to other capitals how a greener urban environment can enhance the quality of life in practical terms.
The Copenhagen waste system has three focal points: waste prevention, source separation, and environmentally correct treatment. The collection system consists of schemes for collecting residual waste, paper, cardboard, and garden waste, and a bring-scheme for glass and beverage containers made of metal and plastic. In addition, special schemes exist for bulky waste, hazardous waste, WEEE, PVC and impregnated wood.
In 2006, a total of around 264,000 tonnes of household waste was collected. Of this, around 82% was sent for incineration with energy recovery, 17.5% was subjected to recycling or special treatment, while 0.5% was landfilled.
Other times, other manners...
R98, a non-profit private company, has for more than 100 years collected household waste in Copenhagen. Until 2006, a concessionary agreement with the City of Copenhagen committed R98 to collect the household waste from the city at least until 2020. However, following a decision made by the Danish Competition Authority, claiming that the concessionary agreement was incompatible with the Danish Competition Act, the two parts voluntarily agreed to terminate the concession prematurely.
Further to this, R98 will gradually be closed down up until 2011. On 1 January 2007, some administrative staff and their various responsibilities (for example customer service and billing), were transferred from R98 to the City. From May 2009 until May 2011 the responsibility for collection and transport of household waste will be gradually transferred from R98 to the City.
 Figure 1. Timeline showing the process of termination of the R98 concession and the tendering process for Copenhagen’s future waste management |
Concurrent with the takeover of responsibilities for collection, transport and recycling, the City will put up contracts for these services for tender. The selection of contractors will be carried out according to the European Union Public Procurement Directive. The following strategy has been established for the process: ‘The process of termination of the concessionary agreement and the tendering process of waste collection services shall be conducted with the purpose of keeping the best from the concession and combining it with the best of market competition.’ Figure 1 illustrates this strategy.
Challenges of the transition
It is evident that transition from the concessionary agreement with R98 to market competition presents the City of Copenhagen with a major challenge. The City has an ambition to continue providing the city and its citizens with a waste management system that delivers high-quality and environmentally friendly waste collection services, without compromising the working environment. How is it possible to ‘pick and choose’ the best parts of both the old and the new system without losing valuable know-how and resources? Some key challenges can be solved through the steps and measures taken in the tendering process, but others result in a conflict between the preservation of the values and strengths of the concessionary agreement and the conditions of market competition.
Ensuring developments in a market-based system
Continuous and long-term development is one of the strengths of a concessionary agreement. A non-profit company such as R98, with a concessionary agreement running for decades, readily invests money and resources in long-term development programmes. The timeline is long and the demanded profit margins on invested capital are, by definition, minimal.
In a market-based system, contractors have to deliver here-and-now profits and, in principle, the pay-back time on investments should at least be shorter than the contract period of approximately five years. These are by no means conditions that make it attractive for contractors to invest in, and commit to, long-term development plans and projects. Furthermore, the results of development in co-operation with a public body (in most cases) will lead to development results becoming public. This is especially the case for results from method and process development, which the local authority will naturally want to use and specify in the next round of tenders.
 Figure 2. The strategy for the process of termination of the concession, and of the tendering process |
So how can such a development-friendly environment last through the transition into the era of market competition? The major challenge seems to be to find incentives to encourage contractors to pro-actively take part in joint development projects. Could laws of immaterial rights be used to construct contract conditions for co-ownership of patented solutions developed through the private-public co-operation between the local authority and a contractor, or could bonus systems or other types of monetary remuneration for active development actions be incorporated in the tenders and contracts? On the other hand, one might have to accept the fact that the contractors cannot allow themselves to take part in insecure and resource-demanding development projects – if they are to be able to deliver economically efficient waste collection services. If this is one of the advantages that is deemed important to harvest from market competition, the local authority may have to accept the fact that investments in development projects will be an entirely municipal matter and responsibility.
How to incorporate flexibility in a rigid contract
Another advantage of a concessionary agreement is the flexible execution of the waste management services, which can be seen to stand in conflict with the well-defined division of roles and responsibilities, generally seen as one of the strengths of market competition and tendering.
A flexible execution of waste management services provides the means for high-quality services and thereby satisfied stakeholders. On the other hand, if the co-operation between the local authority and the contractors is not frictionless, precise specifications and descriptions of the requested services are needed to ensure a satisfactory delivery of the waste management services.
Here, the core dilemma of tendering versus flexibility is clearly seen. In one case, there is a need for stringent specifications and clear contract conditions, in the other, flexibility in the execution and delivery of the services is needed in order to create greater value for all the stakeholders of the process.
Since the Public Procurement Directive demands objectivity and transparency throughout the tendering processes, flexibility as an evaluation criterion is a paradox. If to be used in the awarding procedure, flexibility has to be specified in the tenders, and flexibility cannot, by definition, be specified. Therefore, the tendering process itself cannot produce the conditions for the wanted degree of flexibility, and other ways forward have to be found.
There seem to be two parallel ways that can be used. To start with, it is important that the local authority does not specify methods of execution, but degrees and levels of delivery. Thereby, the local authority secures the quality and other values of the service delivery without compromising the contractors’ freedom of choosing the method of execution. In this perspective, systems for penalties and bonuses can be of great use, since they can provide the incentives and rewards needed to encourage the wanted level of delivery, without restricting the means of execution.
Furthermore, by drawing up contracts that are open enough to allow stringent contract control when needed – in conjunction with possibilities for flexibility and good co-operation when the circumstances are present – conditions for true flexibility are present. However, competent contract managers in the local authority as well as with the contractors, are essential to achieve a fruitful balance between flexibility and control.
Know-how and manpower
The final challenge described here is organizational character. In order to secure a good co-operation between the municipal organization for operations and procurement on the one hand, and the contractors on the other, a competent municipal organization has to be established. Throughout the period of concession, extensive competence regarding waste management operations and waste management systems was accumulated within the concessionary organization.
How can these competences best be used in the new situation, and what has to be done to transfer the gained knowledge and competences into useful skills and resources for the new municipal organization? To which extent should the new organization rely on ‘old’ experience from the concessionary organization, and to what extent should the new organization find its own way and rely on external recruitment to meet the need for experienced staff?
Ignoring the experience and the competence capital of the concessionary organization is to waste valuable human resources, but on the other hand a new organization also needs a fresh start and new inspirational injections. Naturally, there is no easy answer or simple solution to this kind of challenge, but one can argue that a sound mix of old and new probably is the right way forward.
Finally, one has to acknowledge the challenge of keeping up with current operational knowledge and know-how in a non-operational knowledge environment. In the concessionary organization, this kind of knowledge came naturally, since it was an organization with its own operations.
The new municipal organization will not have the benefits of in-house operations and cannot expect an automatic update on the newest developments within waste management operations. Therefore, building up and maintaining such knowledge in the new organization has to be a very conscious action with adequate, earmarked resources.
Conclusion
It is a well-known fact that humans – and consequently society, organizations and enterprises – who are content with the present state of affairs do not go out of their way to seek new paths. Thus, changes in the framework conditions may not be directly welcome, but they may pave the way for new thinking and search for new solutions. Therefore, it is important to embrace change as an opportunity for improvement and not to see it as a threat to the good that once was.
The City of Copenhagen is facing major challenges in keeping up with best practice in its transition from a concessionary agreement to market competition. In order to secure the City and its citizens a future a waste management system that delivers high-quality and environmentally friendly waste collection services without compromising the working environment, the challenges have to be faced with an open mind. In Copenhagen, the City is deliberately seeking to pick and choose the best from the efficient old system and combine it, whenever possible, with the advantages presented by the new system.
Some challenges can be solved through the steps taken in the tendering process, but others result in a conflict between the preservation of the strengths of the concessionary agreement and the conditions of market competition.
Market competition and the tools for tendering and contract control provide the conditions for economically efficient operations, continuous re-evaluations and a well-defined division of responsibilities between contractors and the municipality.
A market-based system has many limitations that hamper, for example, new developments and flexibility. By being aware of the limitations of the transition, one may attack them as a challenge and seek possible openings turning them into advantages. In order to succeed, it is important to have a well pronounced strategy and a competent organization to execute that strategy.
In this context, it is important to remember that Copenhagen is at the very beginning of that process, since the first phase of tenders was published in May 2008. In the process ahead there are a large number of hurdles to overcome and uncertainties to face. Since healthy market competition is one of the prerequisites for a successful tendering process, one of the major uncertainties at the moment is whether the market will comply with the demands and standards set in the tenders. Only the future can bring the answers.
Björn Appelqvist is development engineer, Solid Waste Management, for the Technical and Environmental Administration City of Copenhagen
e-mail: bjoapp@tmf.kk.dk
