The National:

IT was the private finance initiative (PFI) contract aiming to make Dumfries and Galloway council “cleaner and greener”, but which ended in disaster and remained shrouded in secrecy.

But now, according to “exempt” council papers obtained by The Ferret, it has emerged that the local authority was faced with a £700,000 bill every month for a private waste contract even if the provider carried through with a threat to completely stop providing the services.

Last year it was revealed that councillors were finally forced to agree a £6.9 million payout to end the local authority’s failing waste management private finance initiative (PFI) contract with Renewi.

The BBC obtained information on the exact sum after appealing an unsuccessful Freedom of Information (FOI), but then agreed to drop its request for more detail into the deal.

Now the secret papers show the council paid up after being advised alternative routes would see it effectively paying twice for waste services, or even lead to spiralling defaulting payments, costing the council anywhere from £9.5m to £18.63m.

The 25-year waste deal was signed in 2004 with the construction of a Dumfries “Ecodeco” plant – which reduces landfill by processing waste so much of it can be used as fuel – as its centrepiece.

But the contract soon turned sour, with its restrictive nature hindering the roll out of kerbside recycling services, and the company itself facing multi-million pound losses every year.

Dumfries and Galloway remains the only local authority in Scotland that does not provide kerbside recycling collections to most residents, more than six years after new rules made them mandatory.

The settlement ending the contract with Renewi – which also landed the council responsibility for rectifying landfill sites at an estimated cost of up to £2.8m – was approved by councillors on September 3, 2018, behind closed doors.

But in a confidential paper sent to councillors before the vote – later obtained by The Ferret – officers said if Renewi stopped providing services, not only would immediate contingency arrangements be needed to stop the region’s waste piling up in depots but approximately 90% of “unitary charge” service payments for the private waste scheme “would still be payable”.

In 2017/2018 unitary charge payments amounted to £9.1m out of £12.6m paid through the PFI contract, meaning that the council could have faced paying £8.2m a year, or almost £700,000 a month, without receiving any services. Officials told councillors the sum would still need to paid regardless “due to the limited deductions for no-performance that can be applied in terms of the Project Agreement”.

The council officials added that together with contingency arrangements – estimated at a total of £750k a month – this would “almost double” costs to the council until a resolution could be reached.

Renewi, the main waste service contractor, was at this time keen to get out of the contract, admitting to losing £3m on it over the previous year.

But despite this the papers show the convoluted contract left the council forced to agree payments to negotiate a clean exit.

Council officers told councillors that all the other options looked at – in total six possible ways to deal with the company’s pullout – were analysed by consultants and would have worked out even more expensive due to the contract’s strict terms.

Three of the options examined involved keeping the PFI structure. The first – keeping Renewi on – was ruled out by the waste management company itself. Another involved attempting to find a new “service company” to replace Renewi providing day-to-day services – difficult given the contract was loss-making.

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A third would have seen the council itself take over this role, with services sub-contracted back to the local authority by the main PFI holding company.

But consultants believed these options would prove unwieldy and continue to prevent the council amending arrangements to bring in separated kerbside recycling collections, as mandated by new Scottish regulations.

Three further options were explored to end the PFI.

Instead of negotiating the contract’s end, the council could have initiated the termination itself – likely to have resulted in a higher termination fee as some payments would be compulsory.

Dumfries and Galloway Council could also have allowed Renewi to default on (unilaterally end) the contract, but this was also deemed more expensive – costing the council anywhere from £9.5m to £18.63m.

IT would also have meant disruption, forcing the council to put in place alternative arrangements and without access to infrastructure and staff until the contract’s termination was fully settled.

The council papers also reveal that in 2014 the council committed to paying the company an extra £600k a year. At that time the local authority had been in dispute with the company for two years about the need to adapt the waste services to the 2012 recycling regulations – which would have meant less usage of the Ecodeco processing plant.

The company had refused to discuss recycling changes until it was given help with its financial position.

The council’s then-director of economy, environment and infrastructure, Alistair Speedie, argued without the payment the service company would pull out – as they eventually did five years later – requiring a replacement at greater cost.

Councillors on the committee voted the extra payment through behind closed doors.

But when it came to unravelling the PFI deal in 2018, officials feared if the council stopped the payment unilaterally it could be considered in breach of contract, bringing further penalties.

This gave Renewi a significant bargaining chip, as the annual payment would have been worth more than £6m over the remaining life of the contract, due to run to 2029.

That wasn’t the only way the council worked to boost the beleaguered company’s balance sheet. Officers identified a number of cost savings worth £1.4m, including agreeing to share savings from reducing landfill tax liabilities.

But following this Renewi (previously Shanks) continued to place additional demands and obstacles in the way of varying the contract, officials said. Council documents explain how this held back recycling, as the project agreement only dealt with one stream of waste: “All waste commingled in the wheeled bin”.

But new regulations meant recycling should be separated and would also ban putting biodegradable waste in landfill, necessitating changes to the scheme.

Under the contract the council paid a minimum amount for the disposal of this mixed waste, but would carry on paying the same amount, even if less was delivered due to increased recycling.

By 2016, the council said its attempts at negotiating changes had ground to a halt and it started a formal dispute process to bring the contract in line with regulatory changes.

This process had still not been fully resolved when Renewi, which said it was “incorrect” to blame it for the failure to roll out kerbside recycling, quit the PFI in 2018.

Councillor Malcolm Johnstone said the “long-running saga” had come at a “massive cost” to residents who were “entitled to an explanation”, adding: “The company running the waste recycling walked away from the contract yet the council has paid them nearly £7m for the privilege.

“On top of that, the sites returned to the council have to be brought up to standard and this is adding a further sum as well as hundreds of thousands spent on various fees for professional services and the near £500,000 spent to store unwanted bins and refuse vehicles which now have to be disposed of.” A spokesperson for the company argued the council was responsible “for the collection of waste, including the roll out of kerbside recycling. Renewi was responsible for the treatment/disposal of waste received”.

South of Scotland MSP Colin Smyth called for the Scottish Government to review similar contracts following the fiasco and ensure they are also brought back in-house.

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“The rigidness of PFI contracts made it impossible for the council to amend the contract when the Scottish Government changed the rules around recycling,” he added. “The whole sorry saga of the waste contract here in Dumfries and Galloway shows that waste services are better delivered in-house, rather than by the private sector only interested in making a profit.

“The Scottish Government should now review all such contracts to find a way to bring them back in-house into the public sector where we aren’t being held at the mercy of big business profiteers.”

The council papers shared with The Ferret also detail further disagreements.

THE council formally raised “concerns” about the reporting of landfill tonnages and what landfill tax category had been used for waste – and about “inaccuracies” in reporting of end destinations.

It was initially told it was due £1m in unused landfill tax payments between 2012 and 2016, but after adjudication it was instead awarded £2.8m in repayment.

Renewi claimed it was “bound by contractual confidentiality restrictions” and unable to comment on these allegations.

The company added that it did not take the decision to terminate the contract “lightly”.

James Priestley, managing director of its municipal division, said that after a workable way to amend it was not found, the company “worked closely” with the council, employees and other stakeholders “to ensure a seamless transition”.

He added that PFI contracts are “notoriously inflexible” and claimed the original agreement was based on a government standard including “clauses requiring the public sector to pay compensation to the project company (and not Renewi) if the project is terminated”.

He added: “In exchange for that compensation, the public sector receives the assets which have been developed under the contract.”

The John Laing Environmental Assets Group (JLEN), which bought a majority stake in the project company alongside Renewi, declined to comment.

A Dumfries and Galloway council spokeswoman said the termination of the contract had followed due process and was allowing the council to move forwards with a new waste service that included recycling and was in line with regulations. She said the climate emergency made rolling out the new service a priority, adding that the contract’s termination “offers that opportunity”.

THE Private Finance Initiative (PFI) emerged under John Major’s Conservative Government claiming to bring “private sector efficiency” into government.

The approach was then widely used by New Labour for development of new schools, hospitals and other public infrastructure. Critics say the public pay over the odds, but contracts are notoriously difficult to break.

Edinburgh schools In January 2016 an external wall at Oxgang’s Primary School (above) collapsed during a storm, leading not only to its closure, but that of 16 other schools built under a PFI partnership between City of Edinburgh Council and Edinburgh Schools Partnership Limited (ESP).

A report later revealed a series of other potentially fatal safety defects at PFI schools in the city.

Car parking In 2008 the Scottish Government scrapped parking charges at 14 hospitals where fees had previously applied.

But car parks at Ninewells in Dundee, Glasgow Royal Infirmary and the Royal Infirmary of Edinburgh were not included as they were part of Private Finance Initiative (PFI) contracts which were too costly to buy out.

City hospital Last year NHS Lothian confirmed that it had been paying millions to a private consortium for the Royal Hospital for Sick Children and Young People in Edinburgh’s Little France, though it was lying unused.

It was due to open last July but concerns were raised over its ventilation systems in last minute inspections, meaning it stayed closed until less than a month ago.

Despite the delays, the PFI contract meant that NHS Lothian paid the equivalent of about £1.4m a month when it took over the facility in February 2019.