Discover why strategic commercial arrangements are critical for efficient waste management project delivery. Explore cost-effective decision points including ownership, collaborative procurement, contract duration, and managing market uncertainty for optimal outcomes.
The introduction of export regulation across a range of material streams (by members of the former Council of Australian Government) has increased the focus on developing local waste infrastructure across Australia. Successfully delivered, this will generate jobs, reduce transport distances, and help drive circular economy outcomes. However, these outcomes are dependent on effective procurement of new or upgraded infrastructure.
Projects are often centred around engineering and logistics solutions. Determining the facility capacity, appropriate technology, and location are fundamental to successful outcomes. However, the commercial solution is equally instrumental to the project being realised though often neglected. There is significant interest from private sector capital in the sector, but investment will only be realised through appropriate risk allocation. Threshold decisions include:
- Whether a council owns the infrastructure or provides waste under a supply agreement which should be informed by the level of control (and risk) local government wants to retain.
- Whether economies of scale and risk sharing can be achieved through collaborative procurement with other councils. This requires allocation of responsibility between councils with a range of models currently used across the country.
- The contract duration which should be informed by the period for which the service need can be defined. Shorter term contracts preserve flexibility, but longer contracts are better able to facilitate market investment.
- The extent to which feedstock volumes are committed which is another key enabler of private sector investment. Any such commitments should be supported by robust waste composition and generation data and formulated without passing undue risk back to councils.
- How to address uncertainty in offtake markets – ideally through developing reprocessing infrastructure and local end markets, or, alternatively, councils sharing the risk and reward of commodity price fluctuations.
These decisions are not static in a rapidly changing sector with a range of material streams, variable policy landscape, emerging technologies, and demographic movements. This requires decisions to be considered on a project-by-project basis. Properly framing the commercial arrangements of a project at the outset, alongside the technical aspects, can save significant time and cost when procuring waste assets.
BDO’s waste and circular economy team can assist your organisation to identify and evaluate opportunities to reduce costs and improve efficiency through strategy planning, market analysis and financial modelling. Contact our team or learn more about our waste and environmental infrastructure services to optimise your waste operations and increase profitability.