Environmental waste: what's the damage?

Introduction

Local authorities wishing to award contracts for the long term disposal of municipal waste are likely to find themselves embroiled in the complexities of public procurement law. They may also face criticism from environmental groups who are concerned that the procurement process discriminates against environmentally sustainable technologies. In turn, they may be looking for ways to 'green' their procurement strategy.

This article looks at the obligations on local authorities under the public procurement regime and the extent to which environmental considerations can be included in tenders for waste disposal contracts. It considers the scope for the development of the law to ensure the environmental costs of any proposed contract are considered in evaluating the tender and how this could potentially transform the determination from one based primarily on monetary and financial considerations to one that better reflects the environmental cost of a particular service.

Legal framework

The legal framework and the flexibility allowed to local authorities with respect to the procurement of waste services will depend on the size of the contract, its complexity and the tender procedure adopted.

Any contract for services awarded by a local authority which exceeds set financial thresholds (£139,893 as of 1 January 2008) will be subject to Directive 2004/18/EC (as amended) on the co-ordination of procedures for the award of public works, contracts, public supply contracts and public service contracts which coordinates public procurement procedures in the EU, if the contract affects intra state trade and the domestic Public Contracts Regulations (SI 2006/5). For contracts below this threshold, the local authority will still be subject to a domestic legal requirement to achieve value for money (s 3(1) of the Local Government Act 1999). The duty is not however intended to provide a basis for legal challenge to those who consider that there could be a better way to provide a service.

Local authorities may also have produced so called 'standing orders' relating to their procurement processes (s 135 Local Government Act 1972). They are generally used for competition at lower threshold values than the directive/regulations (which are quite high) and tend to deal with many of the issues covered by the regulations.

All contracts below the thresholds for the directive/regulations which have the potential to affect trade between member states are subject to general EC Treaty principles including the freedom to provide services and non-discrimination.

Public Contracts Regulations 2006

The Public Contracts Regulations 2006 apply when a local authority, whether by itself or through a third party, seeks offers in relation to proposed public 'works', 'supply' or 'service' contract. Waste disposal contracts fall within the category of public services contracts ('sewage and refuse disposal services') and are classed as a 'Part A services contract' with the effect that the regulations apply in full.

The regulations (in line with the directive) aim to open up public procurement to competition. To this end the award of contracts must comply with the principles of equal treatment, non-discrimination and transparency. The aim is to ensure equality of opportunity to all economic operators who tender and to preclude any risk of favouritism or arbitrariness on the part of the contracting authority.

There are various contract award procedures available which offer varying degrees of flexibility, including the open or restricted procedure, which are to be used except where a contracting authority is able to use the negotiated procedure or the competitive dialogue procedure (for use in so called 'particularly complex contracts').

The authority must set out clearly and precisely its requirements and the characteristics of the services it requires so that those tendering will be aware of what they will be required to do under the contract and can provide contracting authorities with the technical parameters to assess the various offers presented (regulation 9).

Contracts can only be awarded on one of two grounds '“ 'the lowest price' and 'the most economically advantageous tender from the point of view of the local authority' (regulation 30).

Where local authorities decide to award a contract on the basis of the 'most economically advantageous tender' they must use criteria linked to the subject matter of the contract to determine that an offer is the most economically advantageous. These criteria include quality, price, technical merit, aesthetic and functional characteristics, environmental characteristics, running costs, cost effectiveness, after sales service, technical assistance, delivery date and delivery period and period of completion.

Freedom to procure

Contracting authorities are, in general terms, free to decide what they buy or contract for, providing they treat those that tender equally and do not discriminate against or favour particular undertakings. While green groups may, for example, criticise local authorities for adopting technology neutral procurement processes which are seen to favour incineration, local authorities are free do so on the basis that, on its face, a technology neutral tender process seems to be the most appropriate way to uphold the general principle of equal treatment.

Environmental considerations

The regulations make provision for environmental matters as follows:

• A contracting authority can specify 'environmental performance levels' if it wishes to do so, providing they afford 'equal access to economic operators and do not have the effect of creating unjustified obstacles to the opening up of public procurement to competition' (Reg 9(4)).
• Regulation 9(7) goes on to state that 'A contracting authority may choose to define technical specifications in terms of performance or functional requirements which may include environmental characteristics provided that the requirements are sufficiently precise to allow an economic operator to determine the subject of the contract and a contracting authority to award the contract'.
• Regulation 9(12) allows contracting authorities to use the specifications of European, national or multi-national eco labels.
• Where a local authority awards a contract to the 'most economically advantageous' tender it shall use 'criteria linked to the subject matter of the contract to determine that an offer is the most economically advantageous including. . . environmental characteristics' (regulation 30(2)). Regulation 30(3) '“ (5) set out requirements for the local authority to indicate the weight or priority it attaches to each of the relevant criteria.

In Case C519/99, Concordia Bus Finland Oy AB v City of Helsinki (2002 ECR I-7213) the city of Helsinki had expressly stated that its criteria for awarding a bus contract would include the environmental programme of the operation and various characteristics of its bus fleet including low nitrous oxide emissions and low noise levels. The court held that where a contract is to be awarded on the basis of most economically advantageous tender 'it may take into account ecological criteria . . . provided that they are linked to the subject matter of the contract, do not confer an unrestricted freedom of choice on the authority, are expressly mentioned in the contract documents or the tender notice and comply with the fundamental principles of Community law in particular the principle of non-discrimination'.

European guidance suggest that environmentally sustainable basic or primary materials may be specified (for example, recycled materials) as may an environmentally sound production process provided it does not reserve the contract to certain undertakings (Interpretative communication of the Commission on the Community law applicable to public procurement and the possibilities for integrating environmental considerations into public procurement COM (2001) 274 final)

Should they choose to, local authorities could include carbon emissions as part of the technical specifications of the contract (See regulation 9 and Case C519/99) Concordia Bus Finland Oy AB v City of Helsinki (see above). It is however hard to see how local authorities can be compelled to make such provision.

Incorporating environmental costs into tenders

Regulation 30(2) ('A contracting authority shall use criteria linked to the subject matter of the contract to determine that an offer is the most economically advantageous including . . . environmental characteristics . . .'.) would seem to provide scope for the environmental costs of any proposed contract to be considered within the context of determining the 'most economically advantageous bid'. This could potentially transform the determination from one based primarily on monetary and financial considerations to one that better reflects the environmental cost.

An attempt to value environmental costs is apparent in the competition field, in the Commission Decision about the competitive effects of an agreement between dishwasher manufacturers to improve the energy efficiency of dishwashers (Commission decision of 24 January 1999 relating to a proceeding under Article 81 of the EC Treaty (2000/475/EC). Although the agreement impeded competition, the Commission allowed it because of its environmental benefits and sought to put a value on the reduction in emissions.

The Commission reasonably estimates the saving in marginal damage from (avoided) carbon dioxide emissions (the so-called 'external costs') at EUR 41 to 61 per ton of carbon dioxide. On a European scale, avoided damage from sulphur dioxide amounts to EUR4,000 to 7,000 per ton and EUR3,000 to 5,000 per ton of nitrous oxide. On the basis of reasonable assumptions, the benefits to society brought about by the European Committee of Domestic Equipment Manufacturers agreement appear to be more than seven times greater than the increased purchase costs of more energy-efficient washing machines. Such environmental results for society would adequately allow consumers a fair share of the benefits even if no benefits accrued to individual purchasers of machines.

It remains to be seen whether public procurement law develops in this way. One way in which this might happen is if a disappointed bidder with an environmentally sustainable proposal loses a bid and challenges the decision by applying to the High Court under Part 9 of the Public Contracts Regulations.