International Review of Waste Management Policy - Department of ...

The beneficial network effects, or economies of density, should be enhanced in a
competitive tendering environment. The instances of cherry picking of customers
should disappear also.
55
� There is a relatively limited level of sunk investment in the case of waste
collection. There are no long-lived assets in waste collection and there are well
developed second-hand / lease markets for the only assets of any importance
(the vehicles). Probably the major investment in fixed assets relates to depots.
There may be some investment by a firm in good customer relations, but to an
extent this can be contractually verified;
� Waste collection is a sufficiently homogeneous service that potential bidders
could, in principle, gain a good understanding of the costs involved in waste
collection by direct experience in other city markets. The incumbent’s
information advantage is therefore likely to be weak; 86
� In the case of waste collection the basic service quality parameters (frequency
of collection, services provided, levels of customer complaints) can be
sufficiently well specified to allow effective quality regulation.
Other authors have also pointed out that the cost of service disruption is
comparatively low. 87
The OECD provides a survey of studies that attempt to measure the efficiency gains
from competitive tendering. Generally, these studies suggest that tendering leads to
significant efficiency gains without convincing evidence that this leads generally to
lower quality of service. According to the OECD, in the tendering process, attention
should be paid to: 88
1. The geographic region over which collection services are to be provided should
be large enough to allow successful firms to exploit economies of scale and
density;
2. Where the size of the city or district is much larger than the minimum efficient
scale of collection, the OECD suggests breaking up the region into several
smaller pieces and tendering each piece separately. This allows for
performance comparisons between the firms serving the different regions,
reduces the disruption associated with loss of service from a single firm and
enhances the likelihood that several firms will be in a position to compete
when the time comes for re-tendering;
86 It should be stated that this does not necessarily mean that incumbents do not have an advantage
in other strategically important ways (for example, location of depots, or ownership of local sorting
facilities, or local landfill void, etc. However, the procurement process itself can, when sufficient care is
taken, be designed to negate these advantages.
87 M. Walls (2003) How Local Governments Structure Contract with Private Firms: Economic Theory
and Evidence on Solid Waste and Recycling Contracts, Resources for the Future Discussion Paper 03-
62.
88 OECD (2000) Competition in Local Services: Solid Waste Management, DAFFE/CLP(2000)13.
International Review of Waste Policy: Annexes