CONSULTANT'S BRIEF

WASTE SERVICE NSW

STRATEGIC BUSINESS REVIEW

1. BACKGROUND

The Waste Recycling and Processing Service of NSW (trading as Waste Service NSW) is a Government Trading Enterprise (GTE) established under the Waste Recycling and Processing Service Act 1970. Waste Service operates a network of waste management centres in the Sydney Region which include transfer stations, a liquid waste treatment plant, materials recycling facilities and engineered landfills.

In recent years, Waste Service has moved from a position of having a virtual monopoly over waste disposal in metropolitan Sydney to facing increasing competition. A range of private sector operators now compete with Waste Service in all areas except putrescible waste. Since the establishment of Regional Waste Planning and Management Boards (under the Waste Minimisation and Management Act 1995), the potential exists for Waste Service to face competition in the area of putrescible waste.

The Minister for the Environment has requested a Central Agency Review of the corporatisation (under the State Owned Corporations Act 1989) of Waste Service NSW which Treasury will be chairing. The Central Agency Review Committee comprises representatives from The Cabinet Office, Premier's Department, Treasury, the Minister for the Environment, EPA and Waste Service.

A detailed strategic review of all aspects of Waste Service's business and operating environment is required to assist the Review Committee to make a recommendation to Government on the long term future of the business. The Review Committee is seeking the services of a consultant to undertake this review (the Review).

2. SCOPE OF REVIEW

The consultant will be required to undertake a fundamental review of Waste Service to assess the business' long term commercial future and whether it is in the Government's best interests to corporatise the organisation, and if so the best method of corporatisation. The review will require analysis on three broad levels:

analysis of the viability of each of Waste Service's business lines and the business as a whole (strategic business assessment);
analysis of the public policy issues arising from a possible corporatisation of the business having regard to the Government's waste management framework and waste minimisation objectives; and
assuming corporatisation of all or part of the Waste Service is feasible from both a commercial and a public policy perspective, undertake an assessment of the financial and capital structure appropriate for the corporatised business and an appropriate corporate structure.

3. PROJECT BRIEF

Tasks to be undertaken in relation to the three broad areas of analysis are:

Strategic Business Assessment:

The tasks included in this part of the Review have been designed in response to the Review Committee's perception that the Waste Service is operating in a rapidly evolving market place, facing an increasing level of competition. The focus is thus on assessing not only the Waste Service's viability as a whole and by business line in today's market but also whether and to what extent there is a "commercial way forward" for the Service and its individual business lines.

undertake a detailed market assessment and examination of the Waste Service's business environment;
examine possible business strategies to address market and business environment issues and thence provide advice on the long term viability of the business as a whole and individual business lines (putrescible waste, non-putrescible solid waste, recycled materials, green waste, liquid waste, remediation and consultancy services);
develop a financial model to assist in assessing the viability of the business as a whole and individual business lines;
assess the financial implications for the Waste Service of its significant contractual arrangements;
assess the impact of competition policy on both the Waste Service and other operators of waste infrastructure/assets;
advise whether all or part of the business is suitable for corporatisation; and
if only part of the business is suitable for corporatisation, advise on the most appropriate commercial mechanism for addressing the residual parts of the business.

Public Policy Issues:

assess the implications for the Government's waste management framework and waste minimisation objectives if the strategic business assessment indicates that all or part of the Waste Service's operations should be refocussed, changed or restructured, or that the Waste Service should exit from certain business lines; in particular, advise:

whether any change to/refocussing or restructuring of Waste Service's operations and/or withdrawal from individual business lines will result in certain streams of waste being inappropriately handled or will lead to the development of local monopolies or have other negative effects; and
on the most effective means of minimising any negative policy outcomes such as those described above.

If the strategic business assessment and analysis of public policy issues indicate that the corporatisation of all or part of the Waste Service is both feasible and desirable, a financial/capital structure and corporate model analysis will be required. The tasks required are set out below.

Financial/Capital Structure and Corporate Model:

advise on the assets to be transferred to the corporatised business and the appropriate valuation of the assets;
advise on an appropriate corporate structure for the corporatised business;
advise on an appropriate weighted average cost of capital (WACC); and
use the financial model to advise the following for the corporatised business:

cash flow requirements;
appropriate capital structure;
tax payments; and
dividend payments.

Alternatively, should corporatisation of all or part of the Waste Service prove neither feasible nor desirable, the consultant will be required to advise on the most appropriate model to govern the future of the Waste Service, having regard to both commercial and public policy issues.

Factors to be considered in analysing the business include:

the need for Waste Service to operate commercially in accordance with the Government's financial management framework, and in particular the ability of the business to operate commercially and pay dividends and taxes, guarantee fees and earn commercial rates of return all capital assets and investments; ¹
the management of contingent liabilities;
operating risks (such as technology risks and competition risks);
investment risks;
policy and regulatory risks; and
comparisons with similar Australian and international businesses.

Previous reports by various consultants are available to provide an understanding of the business and the competitive challenges the business faces. The following reports are available from Waste Service NSW:

Strategic Review, Waste Service NSW - KPMG, November 1999
Business Analysis, Liquid Waste Plant - KPMG, December 1999
Business Analysis, Materials Recycling - KPMG, December 1999
Business Risk Analysis - Deloittes, November 1999
Draft Pricing Framework for Waste Service NSW, January 2000

4. REVIEW STRUCTURE & DELIVERABLES

The consultant undertaking the Review must provide:

a detailed project plan encompassing the component tasks identified above, including provision for regular progress reports;
regular project progress (verbal) reports at least every two weeks;
a copy of the financial model to Waste Service and Treasury for their own use;
written reports on each of the three project components, with draft reports submitted in a timely fashion to the Review Committee for consideration;
a final report, with the draft submitted to the Review Committee for consideration at least four weeks before the completion date of the assignment; and
presentations to the Review Committee and senior Treasury and Waste Service officers as appropriate.

5. PROJECT MANAGEMENT

The consultant will report to the Review Committee with day to day management of the Review resting with a Project Manager designated by Treasury.

6. TIMEFRAME

The project is to be completed by 31 May 2000.

7. PROPOSAL SPECIFICATION

7.1 Details of Tenderer

The proposal must include the name, address and legal status of the tenderer.

7.2 Key Personnel

The proposal must nominate the key personnel who will be engaged on the assignment. The following information must be provided:

Name
Professional qualifications
General experience and experience which is directly relevant to this assignment.
Proposed role and degree of involvement in the assignment.

7.3 Continuity of Personnel

The proposal should outline the tenderer's commitment to maintaining the continuity of personnel assigned to the project.

7.4 Control and Coordination

The proposal shall describe how the tenderer intends to plan, control and coordinate the assignment. An analysis of hours planned should also be supplied for each level of staff involved together with total hours.

7.5 Assignment Methodology

The proposal should include a general outline of the methodology to be used to undertake the assignment.

7.6 Relevant Experience and Referees

The proposal should outline the tenderer's general experience and particular industry experience relevant to the assignment.

A list of major clients should be provided and the names and telephone numbers of senior personnel in client firms who can be contacted for reference checks.

It is necessary to demonstrate an understanding or experience in providing advice that addresses the requirements of the Project Brief, in particular a strategic assessment of a Government business, relevant public policy advice and the application of relevant Government policy in the areas of asset valuation, capital structures, taxes and financial distributions. A demonstrated knowledge of, and experience in, the waste management industry is desirable.

7.7 Fees and Estimated Hours

Fixed lump sum fees, in Australian currency, should be quoted. Fees are to include all applicable taxes, stamp duties, consultancy fees and out of pocket expenses including travelling expenses.

Charge-out rates and estimated hours consistent with 7.4 for individual consultants should also be supplied.

7.8 Additional Expenses

The tenderer will not be eligible for any remuneration in addition to that set out in the tender except as may be specifically agreed.

7.9 Payment Terms

Payment will be made upon completion of the final report, and in accordance with normal credit terms. Tenderers are required to supply their credit terms.

7.10 Professional Indemnity Insurance

The successful tenderer will be required to provide proof of currency of the tenderer's professional indemnity insurance.

7.11 Declaration of Interests

Proposals should provide details of any pecuniary interests in relation to any matter affecting the tender submission or advice to be provided. This will require a statement clarifying any current or potential conflicts of interest.

7.12 Access to Information

During the tender period, it will be permissible for consultants to contact NSW Treasury (Dr Gul Izmir, Executive Director Tel 9228 5442) or Waste Service (Mr Robin Grimwade, Acting Managing Director, Tel 9934 7001) to access information which is required to formulate responses to this brief.

8. SELECTION PROCESS

8.1 Selection Criteria

The selection of the successful tenderer will be based on:

Conformance with requirements of the brief.
Capacity of tenderer to provide the service.
Relevant experience of the tenderer including suitability in terms of expertise and experience of named personnel proposed to carry out the project.
The methodology proposed to undertake the assignment.
The performance of the tenderer as assessed by means of reference checks.
The mix and balance of skills of the proposed consultancy team.
An absence of any conflicts of interest perceived by Treasury.
Tender fees and charge-out rate.

Equal weighting will not necessarily be given to each of the criteria in the selection process.

A short-list of candidates will be selected for interview on the basis of this evaluation. Short-listed candidates should be prepared to make a presentation to the evaluation panel in late-January 2000. This timing will be finalised as soon as possible. Further information regarding the Review may be supplied to shortlisted candidates prior to their presentations.

8.2 Order of Information to be provided in Tender

To allow the effective evaluation of tenders, tenderers are required to provide the information in the same order as outlined in Section 7.

8.3 Other Matters

Treasury reserves the right to:

accept no tender, or select one or more tenderers to conduct the assignment; and
approve any subcontractors the lead consultant may wish to appoint.

Furthermore, the selected tenderer will be solely responsible for resourcing the assignment.

The contract for the performance will fall solely upon the lead consultant and the lead consultant is responsible for meeting all fees and expenses for sub- contractors.

9. PROVISION OF SUPPLEMENTARY INFORMATION

9.1 Supplementary Information

Treasury makes no warranty that the data within this Consultancy Brief is the sum total of all information that is or may be required by tenderers in order that they might fix their terms.

10. CONFIDENTIALITY AND OWNERSHIP OF ASSIGNMENT MATERIAL

10.1 Confidentiality

The tenderer agrees that any information provided by Government agencies in connection with the Review, either orally or in writing, will be treated as confidential except insofar as such material is published. Similarly all recommendations, working notes and reports generated by the tenderer in connection with the work will be regarded as confidential and become the property of the NSW Treasury and Waste Service. The successful tenderer will be required to sign a confidentiality agreement.

10.2 Copyright

The property and copyright in all assignment material relating to the entities shall vest in the Treasury. Where the Consultant, its employees and agents requires use of the assignment material for other services, it shall not do so without the prior approval in writing of Treasury.

In this Contract "assignment material" means all material produced under the assignment and includes reports, technical information, plans, calculations, tables, schedules, other data and any computer models.

Treasury requires that any assignment material including copies are handed back to Treasury at the conclusion of the assignment.

11. DATE, PLACE AND METHOD OF LODGEMENT OF PROPOSAL

11.1 Proposals

Seven (7) copies of proposals and supporting materials (one set of documents unbound) must be submitted. The submission should be no longer than 20 pages. This document should stand alone in its responses to the requirements of this invitation, although any relevant additional information can be supplied in a separate document.

Proposals must be addressed to as follows, and received by 5.00 pm on Monday, 24 January 2000:

Attention: Ms Natasha Lee
NSW Treasury
Level 27, Governor Macquarie Tower
1 Farrer Place
SYDNEY NSW 2000

Any enquires regarding this review should be directed to Natasha Lee on telephone number (02) 9228 4528

11.2 Supporting Material

Supporting material is material additional to the formal offer which elaborates or clarifies the formal offer but does not alter it in any material respect.

Supporting material may be provided at any time at the request of Treasury.

However, any unsolicited supporting material should be despatched on or before the day set for lodgement of formal offers.

Material presented as supporting material, which effectively alters the formal offer, will not be admitted for evaluation unless it is received before the deadline for lodgement of tenders.

11.3 Extension of Submission Deadline

The deadline set for lodgement of tenders is extended only by written notice from NSW Treasury.

Footnotes:

The consultant should be familiar with the following Government policies, copies of which will be made available on request:

Capital Structure Policy for NSW Government Trading Enterprises (NSW Treasury - August 1994);
Financial Distribution Policy for Government Businesses (NSW Treasury Working Paper - March 1998); and
Guarantee Fees for Commercial Sector Agency Debt (NSW Treasury).