The overall deduction should take the form of a rate applied to each tonne of Contract Waste not accepted by the Contractor. The Payment Mechanism will need to set out clearly how and when the Non Acceptance Deduction rate is to be determined. The three principal options concerning how the rate of the Non Acceptance Deduction is determined are:
Option A: | agreed in advance at the time the Contract is signed; |
Option B: | based on the actual additional costs incurred by the Authority; or |
Option C: | based on the Authority's 'best estimate' of its costs per tonne at the start of each Contract Year. |
The level of the Non Acceptance Deduction should take account of the impact of the non-acceptance on other aspects of the Payment Mechanism, namely:
• The Base Payment will not be paid on tonnages of Contract Waste not accepted; and
• The Diversion Performance Deduction should be calculated by reference to all Contract Waste regardless of whether it was accepted by the Contractor or not. Where Contract Waste is handled by the Authority the tonnage should be included in the tonnage of Contract Waste landfilled but unprocessed when calculating the Diversion Performance Deduction.
The level of the Non Acceptance Deduction should as a minimum therefore reflect the Authority's costs of waste disposal in excess of the Base Payment, 10 additional haulage costs 11 and an estimate of any LATS implications. The Authority should also consider if the level of deduction acts as a sufficient incentive for the Contractor to maintain the service to the Authority (i.e. to accept the Contract Waste).
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10 If the Authority's costs are less than the base payment withheld, then the Non Acceptance Deduction will only reflect additional Haulage Costs and an estimate of LATS implications (taking into account that the Contract Waste not accepted will not be 100% BMW).
11 As additional Haulage Costs are dealt with here, Mileage Deductions should not apply in relation to Contract Waste subject to a Non Acceptance Deduction.