Due Diligence In Waste Service Procurement Greg Freeman

This Presentation Look at what Due Diligence means Focus on its importance in Procurement Process for Waste Services Talk on the benefits of DD for new technologies in the industry Show some Case Study examples

What is Due Diligence? Common usage: “Being cautious” “Doing your homework” Formal / legal usage: “…whereby both (or all) parties undertake a process to test and verify their understanding of the contract and commitments to be entered into” Concept originally developed in US share trading and common usage came later i.e. being diligent Basically, “Making sure you get what you think you are paying for” or “buyer beware” Most formal due diligence developed around acquisition of property; more recent work in environmental due diligence of mining; new area looking at waste contracts NB other stakeholders may be doing their own due diligence e.g. Bank financing project

Why Do Due Diligence? Waste contracts larger, longer-term Complexity of contracts increasing Technical aspects increasing Some previous history of shoddy operators in waste industry Like project insurance Larger e.g. $30mil. over 20 years Complexity e.g. Across Councils, integrated services Innovative and alternative waste technologies e.g. Energy from Waste ICAC Investigation and guidelines

Types of Due Diligence Market Environmental Technical / design Technological Financial Organisational Market e.g. are market assumptions re demand, prices etc valid? Environmental e.g. is baseline data sufficient to estimate impacts? Technical e.g. are recovery rates really achievable? Technological e.g. are claims re recoveries etc from AWTs valid in this context? Financial e.g. is organisation really soluble etc? Organisational e.g. are employee and other resources really as claimed?

Methods Checklist of information required Review of documentation (e.g. environmental policies, permits, certifications; environmental sign-offs or audits; other contracts) Reference checks, inspections Expert opinions Checklist – sample on next slide Due diligence is more than a checklist – it’s a parallel process Expert opinions esp. in technical aspects Important to check reference facilities This is an area Local Government has been neglectful on

PROCUREMENT PROCESS FOR NEW SERVICE DUE DILIGENCE REQUIRED 1 STAKEHOLDER ENGAGEMENT 2 STRATEGIC OBJECTIVES 3 MARKET & TECHNOLOGY RESEARCH 4 PROCUREMENT STRATEGY 5 RISK ASSESSMENT 6 TENDER PROCESS 7 EVALUATION PROCESS 8 APPOINT PREFERRED TENDERER 9 COMMENCE CONTRACT Include objective re due diligence Plan for due diligence Get appropriate information in RFT Score points for due diligence Final investigation (outsource)

Considerations Start early in procurement process Document all dealings with tenderers and pursue specific information Outsource final investigation # independent # multi-disciplinary # expert opinions # 6 to 8 months timeframe

Why not in Tender Process? Tender process has multiple parties and is time bound DD usually conducted on the preferred tenderer as very detailed confidential investigations need to take place DD may be needed on certain but not all elements in the Tender DD may be carried out by combination of internal and external personnel

Benefits of Due Diligence Helps identify and mitigate risk (financial, legal, technical, financial etc) Critical to validate claims esp. in alternative, innovative technologies Demonstrates transparent process May identify opportunities Identifies deficiencies in tender process A good due diligence process will enable parties to conclude a contract with a good understanding of the basis on which the contract is to be let and full awareness of resource implications and commitments. When entering into a major contract negotiation, the process will be greatly eased if the Council has everything in place for the due diligence process, including inventories and full financial information. Conversely, failure to undertake due diligence may result in a failure to conclude a contract, or failure during the life of the contract. Important to look harder at locally untested technologies to ensure claims are valid Opportunities e.g. due diligence investigation may unearth more potential technologies

Benefits of Due Diligence Good DD process enable parties to conclude a contract with a good understanding of the basis on which the contract is to be let and full awareness of resource implications and commitments

Emerging Technologies DD becomes critical as more AWT Facilities are proposed Claims made in Tenders need to be validated Thorough technical evaluations are needed, including overseas verification As an industry we can’t afford more failures Important to look harder at locally untested technologies to ensure claims are valid Opportunities e.g. due diligence investigation may unearth more potential technologies

DD for Waste Collection Contract You want best value for money, quality service, no unwanted claims and a long term player! Human Resources Company Experience Company Financial Capacity Quality of Equipment Education and Complaints Management Insurances The Bid Price Future Contract Management (CMP) Human Resources – Check the management Company Experience – How much do they have, what referees say? Financial Capacity – Important to check viability Equipment – Will equipment last distance? Education more important these days Insurances – how do you assess self insured?? Is the price around market average and sustainable? How will the future contract be managed?

Case Study Examples A council commenced MRF Processing Contract and 6 months later the Contractor came back to Council for increased rates A Contractor stated in Tender they had an approved depot to house their vehicles but in fact approval was not gained and a new site had to be found A Contractor stated they had no previous industrial claims but that was not the case

Status in Waste Industry Very little happening in Australia; more in Europe, US Not formalised process – some informal due diligence in tender evaluations etc Some bad experiences already Must become routine for larger tenders

Getting Help Some may be done internally Best co-ordinated internally Use specialists for tasks (eg financial, technical etc) There are variety of consultants in marketplace Will add to Project costs so budget for it

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