Veireno
The Norwegian household waste collector Veireno was owned by the VT-group (Tømmerås, 2015). Veireno acquired Mathisen Renovasjon in 2014. As part of the acquisition, responsibility for the waste collection services in Skedsmo and
Nittedal, which was one out of four areas managed by ROAF, was transferred to Veireno. The following year, the waste collection company won the competitive tender in Oslo. The collection covered all four contract areas in the municipality, equaling the value of approximately 419 mNOK. Shortly after, the company was awarded a contract for the inter-municipal cooperation VESAR. In total, the relatively young company received contracts to a value of approximately 500 mNOK within a short period. An essential part of their winning strategy,
especially concerning the contract of Oslo, was their suggestion of reducing costs by reformulate the vehicle fleet and implement a two-shift system, reduce the number of collectors, and to reduce wages (Tømmerås, 2015; Deloitte, 2017).
This pricing strategy enabled them to offer contracts prices far below the
competitors price propositions. However, their strategy eventually failed, mainly due to their lack of capacity deficits resulting in redundant trucks, causing illegal working hours and lack of payroll payments. At the end of February 2017, Veireno was stated bankrupt (Kirkebøen, 2017).
8
RenoNorden
RenoNorden was established in 2000 and started operating in the Norwegian market during the fall of 2001 (RenoNorden, 2018). The following years were characterized by great success business-wise, as the company won several tenders and became the most prominent contractor in the market of household refuse collection services. Their progress was also significant in Sweden, Denmark, and Finland. In 2017, RenoNorden handled the household waste for approximately one-third of the Norwegian population, equaling a market share of 46 percent.
Reno Norden was stated bankrupt in September 2017 and had at the time 30 contracts in Norway, which comprise about 1.2 million people (renonorden.no).
The main reason behind the bankruptcy of RenoNorden AS was them enter of 11 loss contracts in a relatively short period, by the end of 2015 and the beginning of 2016, which caused the estimated loss of more than 300 mNOK (RenoNorden, 2017; Hovland, 2017). As each of the loss contracts had a maturity for about eight to ten years, the total loss was making it impossible to change the decreasing results (Framstad, 2016). Another factor affecting their financial situation was their extensive investment of new vehicles and long-term leasing agreements during the pre-phase of the contract, partly influenced by the recent environmental regulations and required vehicle standards (Hovland, 2017).
An overview published by Dagbladet shows that 133 Norwegian municipalities suffered from the bankruptcy of RenoNorden (Breivik, 2017) (Attachment 1). The municipal decision makers handled the situation differently. Data shows that 53 municipalities have permanently insourced the activity because of the bankruptcy (Rønning, 2018). Further, 39 municipalities insourced the service temporarily, while the remaining six entered into temporary emergency contracts with private suppliers.
The Waste Crisis in Oslo
During the autumn of 2016, the waste collection service provider Veireno was awarded the contract and further assigned the responsibility for waste collection services in the municipality of Oslo (Tømmerås, 2015). However, shortly after the contract commencement, Veireno went bankrupt, which was the beginning of what later on became recognized as the “waste crisis” in Oslo (Kirkebøen, 2017).
9
Furthermore, opinions have been shared, and criticisms have been expressed for reasons that potentially caused the failure of the contract and the newly launched project.
The consultancy agency Deloitte was commissioned to conduct a review of the recent procurement process conducted by Oslo Renovasjonsetat (REN), and their awarding of the contract to Veireno (Deloitte, 2017). The report identifies
inadequate procedures on several critical points in the tender evaluation process and formulation of contract. Deficiencies were noted concerning the preparation phase, insufficient specified requirements, qualification requirements and award criteria. The consultants further objectify REN’s lack of competence related to their knowledge concerning pricing of the contract and the perception of the supplier´s understanding of the mission and overall operating model. Furthermore, the consultants emphasize that better utilization of the municipality´s internal competence should be able to identify the lack of necessary resources required to meet Veireno´s proposal.
The REN’s evaluation was considered by “economically most advantageous tender” (MEAT), and the award criteria were formulated based on this consideration. The award criteria of price, environment, and mission
understanding was equaling 75%, 10%, and 15% respectively. REN´s description of the non-economic award criteria of quality and environmental aspects mainly included specifications regarding waste sorting bags, and ecological factors concerning fuel, use of climate-friendly automotive technology, and measures of noise reduction.
REN initially estimated the contract value to 1.25 billion NOK (Deloitte, 2017).
However, the suggested offer from Veireno was significantly lower, equaling 420 mNOK, which besides was 20% less than the second lowest bid. Required
conditions for Veireno´s low contract price, was suggestions of a two-shift system and a reduced number of collectors needed during the contract period. Deloitte points critics to REN’s approval of the proposal, even though their strict formulated contract requirements and furthermore to their possession of knowledge regarding the growing amounts of waste in the municipality. The contract included requirements regarding the vehicle fleet, biogas vehicles (Euro VI), technology requirements of a future software system implementation for
10
route optimization, and RFID. Furthermore, the contract included requirements regarding a solid quality plan for mission performance, health-society and
Environmental (HSE) conditions, and adequate preparedness (of both workers and vehicles). However, some of the criteria and contract agreements were criticized in the report for not being adequately defined and fulfilled.
The consultants finalize their investigation of REN’s procurement process and quality of performance by stating various suggestions for improvements such as increased documentation of required competence, and better involvement of relevant capability during the procurement process, and knowledge regarding legal- and waste management aspects. Consequently, Deloitte suggests better communication both within the agency and between other agencies.
Consequences
Following the bankruptcies and the waste crisis in Oslo, experts have recognized an unhealthy price spiral in the supplier market, where the increased competition led to symptoms of predatory pricing. (Rønning, 2018). Regarding the tender in Oslo, Veireno offered a contract price that was approximately 82 mNOK beneath than the second lowest tender (Deloitte, 2017). Additionally, data shows that RenoNorden provided contract prices equaling 90 percent lower than the other competitors (Johannessen, 2017). Afterward, the tender authorities (municipalities and IMC) has received massive criticism due to their exclusive focus on price (e.g., Tømmerås,2017; Eggesvik, 2017; Hovland, 2017, Johannessen, 2017). To avoid a recurring situation characterized by the selection of an underpriced and subordinated contract, decision-makers in the municipalities have directed an increased focus on sustainability through the use of non-economic criteria (Avfall Norge, 2017).
11