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.

Decision

To agree that the gate fee threshold value
referred to in limb (a) of the definition of “Reserved
Matter” at clause 1.1 (Definitions) of the IAA shall be
amended.

To progress to the next stages of the project.

Alternative options considered

Not applicable to this decision.