Decision
URL: https://democracy.darlington.gov.uk/ieDecisionDetails.aspx?ID=1907
Decision Maker: Executive Director - Environment, Highways and Community Services
Outcome: Recommendations Approved
Is Key Decision?: No
Is Callable In?: No
Purpose: Seven Local Authorities (Darlington Borough Council, Durham County Council, Hartlepool Borough Council, Middlesbrough Council, Newcastle City Council, Redcar and Cleveland Borough Council and Stockton-on-Tees Borough Council (the Authorities) have come together to jointly procure a new waste treatment solution to ensure that their statutory duties to provide waste management services to their collective 1.5m residents continue to be met. Prior to the commencement of the procurement, the Authorities entered into an Inter-Authority Agreement dated 24 July 2020 relating to the joint procurement of long-term Residual Waste Treatment Contract (the IAA). The IAA includes the concept of "Reserved Matters". These are activities which represent quite a significant change in the nature of the procurement. If one of these occurs, the Councils must make a unanimous agreement to continue with the procurement process. One of the Reserved Matters provides for a gate fee under the Project Agreement which was set at a certain amount per tonne. The figures are not contained within this note as they remain commercially sensitive. This Reserved Matter offered cost protection to the Councils in the sense that if the winning tenderer’s price was more expensive than the original affordability threshold envisaged, the Councils would not be bound into achieving contract award / financial close. If unanimous agreement cannot be reached in respect of a Reserved Matter, Councils are entitled to withdraw from the Agreement without liability for Withdrawal Costs (although liability for Project Costs incurred continues to apply). Should one or more Council elect to withdraw the remaining Councils could elect to continue the project. Hartlepool Borough Council (as the Lead Authority on behalf of the seven partner authorities, including Darlington Borough Council), have undertaken a procurement process, in accordance with the Public Contract Regulations 2015 (amended) to identify and appoint a contractor to Design, Build, Finance and Operate an energy recovery facility (Tees Valley Energy Recovery Facility or TV ERF). The gate fee threshold set at the time is now not considered to be set at an appropriate level for the following reasons: (a) Passage of time: there was a significant hiatus in development of the project due to a number of factors including Covid-19 and a grid connection issue. The figure assumed a financial close date of June 2021 whereas the Invitation to submit optimised final tender (ISofT) envisages a financial close date of December 2025 – the preferred bidder's gate fee is therefore being provided approximately four years later than was anticipated when the figure was set. (b) Application of indexation: analysis carried out by the Project Advisory team demonstrates that indexation was not correctly predicted. If the original value is taken back to its 2020 value and then indexed forward in accordance with actual CPI Indexation values, the value would be higher. (c) Contraction of the private sector developer and EPC market removing some competitive tension (d) Sector specific issues: such as the changes (i.e. increases) to grid connection costs and significant steel price inflation above CPI; and (e) other macro-economic factors: including changes to materials costs, labour costs (including as a result of the changes to National Insurance), insurance, interest rates affecting financing costs and energy costs. The Gate Fee Prices provided for within the Optimised Final Tender are within the Price Threshold range previously agreed by the Finance Directors from the seven councils. The definition of Reserved Matter allows the Councils to unanimously agree to change the figure. It is proposed that the figure be changed and the TVERF board at its meeting 22nd May 2025 unanimously agreed to accept the recommendation of the project advisory team to increase the reference price in the IAA and take steps to execute the necessary authorities within each authority to confirm this revision to the IAA.
Content:
Date of Decision: July 22, 2025