Last November, the City Council of Madrid tendered a single contract for waste collection. The contract was intended to aggregate and consolidate the prior 13 separate outstanding contracts, which would have given the awardee responsibility for waste collection throughout the municipality, with the only exception of the city centre (for some reason). The contract was worth €542 million and the Council expected to save €11 million in the 8 years it would last.
The tender was a massive failure. Current contractors opposed a contract consolidation strategy that would exclude most of them due to their limited size and waste processing capacity. There was a strike to protest a change of waste management strategy that trade unions anticipated would cut jobs. More generally, the financial structure of the contract was considered nonviable by experts. In fact, only the largest incumbent (FCC) submitted a bid, which was disqualified because it exceeded the maximum bidding price by 34%. The tender was declared deserted and prior contracts were extended.
The situation is very unsatisfactory, as contract extension is not without problems. Contractual conditions designed several years ago are no longer adjusted to reality. Waste collection is now bad business, as the economic crisis has generated a reduction of household waste (at least, that is environmentally encouraging) and that means reduced pay for waste collection companies, since they are paid by collected ton of waste. FCC itself has announced job cuts, which the Madrid City Council opposes on the basis that the number of employees is a contract compliance clause the contractor cannot breach, despite the contract having been extended beyond its original duration and the conditions having changed significantly (an scenario that actually may make judges side with the contractor if this issue got to court). Trade unions are again promoting a new strike to protest the situation, which will result in no waste collection in Madrid for an indefinite period starting on the 15th of April.
Cynically, we could say that Madrid city is facing a waste wave if the situation does not get sorted out soon. And the prospects are gloomy. According to today's press releases, the City Council has decided that, if you cannot solve a problem, better make it bigger.
The Council has stubbornly decided to go deeper and broader in its (failed) contractual consolidation strategy and to tender a single macrocontract to consolidate the 39 outstanding for all public service activities of cleaning and maintenance of public spaces and green areas of the capital. The new service would run for 8 years (with a possible extension for 2 more), and is valued at €2.3 billion. With this new formula, the Council expects savings of 10% of current cleaning and gardening costs (a rough equivalent of €256 million throughout the life of the contract without the extension). Does this sound familiar?
Interestingly enough, the largest players in the cleaning, gardening and maintenance business are the same as in the waste collection side. It do not think it will be anyone's surprise if we hear again that only one or a very limited few of them participate in this second macrocontract, or that they submit financial offers in excess of the (dreamy?) expectations of the Madrid City Council.
Now, the open question is why a city council of one of the largest capitals in the EU insists in a failed strategy for the tendering of local services of such relevance? Are there no better ideas available in their in-house group of experts? Are they so stubborn that they are trying to prove they were right in the prior instance by failing again?
Also, I think that the Madrid experience offers some lessons for other city councils facing similar challenges (ie, the need to find new management strategies for public services that allow them to reduce costs) and that are thinking about contract aggregation and consolidation. I think that the easier one is that you cannot aim to consolidate beyond the size your market structure can reasonably digest. The second one is that you cannot intend to award non-profitable contracts. And, the hardest one, that some creative thinking is needed. Would anyone publish a call for ideas? I would definitely be tempted to contribute.