UK government's 'lax and poorly-drafted' waste contracts led to millions spent with no assets built

Will Green is news editor of Supply Management
16 September 2014

“Lax, poorly-drafted PFI funding agreements” by the UK government have led to millions of pounds of grants being awarded to local authorities to process waste without any assets such as incinerators being built, say MPs.

In a report the Public Accounts Select Committee (PAC) said the Department for Environment, Food and Rural Affairs’ (Defra) predecessor signed funding agreements concerning three projects that meant £213.5 million was paid over the past 15 years with no assets to show for it.

The PAC said Defra only altered the agreements in 2013, leading to a reduction in payments to Herefordshire and Worcestershire councils of £30 million and a change in the timing of payments to Surrey County Council.

But taxpayers in Norfolk have been left with a bill of around £33.7 million because Defra withdrew funding for a waste plant, contributing to Norfolk County Council’s decision to cancel the contract, which left it liable for compensation to the supplier.

The report said that under a complex arrangement Defra, and its predecessor the Department for Environment, Transport and the Regions, are responsible for meeting EU landfill reduction targets, and they provided private finance initiative (PFI) funding to certain local authorities to build new waste management infrastructure.

“However, the department does not accept responsibility for projects delivered by local authorities to meet the national targets for which the department is responsible,” said the report.

Under agreements with Surrey and Herefordshire and Worcestershire councils central government started paying grants to the local authorities as soon as the contractors started to deliver waste management services rather than assets such as energy-from-waste facilities.

The report said PFI contracts lasted for 25 to 30 years “and this does not offer the necessary flexibility to respond to rapidly changing technology and changing policy requirements” while Defra “has been unacceptably slow to intervene in projects that are struggling to deliver the required waste management infrastructure, leading to delays and incurring extra costs”.

“The department’s handling of the Norfolk PFI waste project has been particularly poor, with the department failing to exercise good judgement by agreeing to give funding to the project and then failing to give sufficient consideration to the local impact of its decision to withdraw funding,” said the report.

PAC chairwoman and Labour MP Margaret Hodge said: “It is appalling that lax, poorly-drafted PFI funding agreements to support the building of local authority waste processing plants have led to hundreds of millions of pounds worth of grants being made to three councils even though the main waste assets – such as incinerators – have not yet been built.”

The PAC said Defra should “make better use of its position and expertise to support local authorities in negotiating PFI contracts” and it has “more work to do to improve local authorities’ contracting capability”.

A Defra spokesperson said: “Defra’s responsibility is to ensure public money is used appropriately and we were very clear in the timely advice we provided to these PFI projects as the National Audit Office has previously recognised. 

“Due to factors at local level these projects could not proceed as planned.”


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