ACCC bins waste management bid of SA councils

Council Solutions and five Metropolitan Adelaide councils have had their application for authorisation to jointly procure Adelaide waste management services denied by the Australian Competition and Consumer Commission (ACCC).

Why did the councils need authorisation?

Council Solutions, Adelaide City Council, and the Cities of Charles Sturt, Marion, Tea Tree Gully and Port Adelaide Enfield sought authorisation from the ACCC to jointly contract for the supply of waste collection and disposal services, as well as the collection and processing of recyclables and organics in Adelaide, with a potential 17 year application.

The Competition and Consumer Act (‘Act’) prohibits collective agreements, such as this, as being anti-competitive. The ACCC, however, can authorise businesses to engage in collective bargaining arrangements. The ACCC will only grant authorisation where it is satisfied that the public benefit from the proposed anti-competitive conduct will outweigh any public detriment caused by the decreased competition. In other words, a ‘net public benefit test’ must be met.

Why has the ACCC denied authorisation?

The application for authorisation was lodged with the ACCC in November 2015. The submission argued that the proposed arrangements would result in a number of public benefits, including, for example, cost savings by eliminating duplication of work, improved efficiencies through information sharing, and improved environmental outcomes by maximising landfill diversion rates.

In a draft determination in February 2016 (more details here) the ACCC granted interim authorisation for the conduct, but this week revoked that interim authorisation after reviewing submissions from interested parties that the proposed joint arrangements would not meet the net public benefit test.

Whilst the ACCC acknowledged that the proposed arrangements are likely to result in some public benefits, such as small improvements in environmental outcomes, these benefits will not outweigh the potential public detriments. Some of the identified detriments include:

  • preventing some potential suppliers from submitting competitive bids;
  • reducing competition for the supply of waste services to participating councils in the longer term; and
  • reducing competition for the supply of waste services to non-participating councils.

What is the impact?

Public reaction to this application was strong.  The ACCC received a large number of submissions (available here), a majority of which were opposed to the authorisation. For example, the Hon. Christopher Pyne MP submitted that joint operations would irreparably damage SA’s waste and recycling industry. Others pointed to the potential impact on jobs, employment and the ability of small businesses to compete for government business. Such submissions allow the ACCC to gauge any potential public benefits and detriments and, given the withdrawal of the interim authorisation, clearly had a persuasive effect on the ultimate decision made by the ACCC.

For Council Solutions and the five participating councils, this decision calls into question any joint contracting arrangements they may wish to implement in the future.  It would seem that the case for a net public benefit will need to be overwhelming for the success of any collective bargaining authorisation.

For the local government sector more generally, the decision should prompt councils to be conscious of the requirements of the Act when considering joint procurements and shared services.

For more information in relation to the issues raised in this blog, please contact Rebecca Halkett or Mark Henderson.