Deposit return scheme - gateway review: final report

6.0 Review Team Findings and Recommendations

6.1 Policy and Business Context

6.1.1 The DRS Programme was purposefully established, and is ubiquitously characterised, with alignment to 'polluter pays' policy principles. True to this alignment, the delivery strategy to establish a DRS is that government provides appropriate regulation, and retains an assurance function, whilst industry is required to establish, design and operate a DRS capability aligned to fulfilling the regulations. This approach was debated during the Programme consultation phase and, it is understood, welcomed by the majority of parties, including industry. This delivery strategy is unusual for government, possibly novel in pursuit of societal change, and brings unique challenges including an unfamiliar approach for government to driving change. [redacted].

6.1.2 There is significant learning to be gained, for SG, and much wider government, from the experience of promoting delivery of this ambitious strategy. Having experienced the challenges of this innovation, SG should ensure that it extracts maximum learning value through appropriate analysis and assessment of lessons learned to inform future policy and strategy.

6.1.3 These Review findings discuss many current and forthcoming challenges that will require resolution before an effective DRS will be in place and the desired societal change is effected. Achieving the innovative approach to leadership is foremost amongst these challenges. However, the Review Team found a solid verbal commitment from all parties that a DRS is the 'the right thing to do'; therefore, the Review suggests that SG should remain resolute, keeping its eye on the longer- term and central benefits identified for the Programme – these are still achievable.

R1 The SRO should ensure that sufficient mechanisms and resources are put in-place to capture the value of theProgramme learning for the benefit of wider government.Essential

6.2 Roles, Responsibilities and Management of Intended Outcomes

6.2.1 As discussed in section 6.1, driven by the polluter pays principle the DRS Programme has an innovative approach to the responsibilities for delivery of the Scheme and societal change. It is evident that this novelty still promotes a lack of clarity of delivery leadership [redacted].

6.2.2 In the early Programme phases of consultation and regulation development, the leadership role of SG was obvious and recognised by all parties. However, the Programme is now in the implementation phase and there was a commonly accepted opinion that SG should "step-back" from leadership and that industry, in the guise of CSL, should be leading implementation. However, SG retains an important assurance role on behalf of Ministers and the public. Further, other actors, such as SEPA in terms of compliance, have responsibility for important components of implementation.

6.2.3 This is a complex and novel field of governance, leadership and management. The necessary and significant transition from development phases into implementation is still ongoing, and it is not yet clear what the new arrangements for governance, management and leadership should be.

6.2.4 Of significant impact to the transition and complexity of roles, is the maturity of CSL as Scheme Administrator. [redacted]

6.2.5 As a consequence of this maturity, CSL is not yet able to make "meaningful decisions" that are required for other parties to take forward their responsibilities for implementation (e.g. Producer agreement). [redacted]

6.2.6 In its vital role of assuring the success of DRS, SG needs to find a method to support the leadership of CSL; SG, or other public agents, stepping-in to provide the leadership will negate the founding strategy of industry leadership and will open SG to responsibility and the consequences of key operational decisions.

[redacted]

6.3 Strategic Oversight and Decision Making

6.3.1 In endeavouring to bring some clarity to the Programme governance and leadership, and in-line with previous Gateway Review recommendations, SG had, in recent months, introduced a governance structure for the Programme with a System Wide Assurance Group (SWAG), an Executive Oversight Group (EOG) and a Communication and Engagement Working Group (CE Working Group). The CE Working Group is discussed in Section 6.5 below.

6.3.2 During the Review it became apparent that in addition there is also a monthly meeting between the CSL CEO and the responsible Minister, and that there is a fortnightly meeting between CSL and SG executives. These two additional executive meetings were not described in the published governance structure made available to the Review. Many interviewees described the SWAG as a welcome and valued forum for the coordination of their respective activities in support of DRS;

though there was some lack of clarity as to SWAG's responsibility and role. The role of the EOG, and its ability to effect governance was less clear, particularly in-light of the other executive forums in-use.

6.3.3 SEPA are the regulator on behalf of Scottish Ministers and have a regulatory and reporting role for DRS. ZWS has had a policy and advisory role to Scottish Ministers and no apparent executive role within DRS; given this, the Review Team did not understand the purpose of ZWS in the EOG [redacted]. Some interviewees felt that SEPA's position in the EOG was not necessary and may compromise its position, other interviewees expressed some value in its involvement. In the Review Team's opinion governance of the whole programme, indeed the expectations and understanding of what governance is required, is not yet clear. [redacted]

6.3.4 A review of the needs and then design of the overall governance of Programme, including the role of SG as sponsor and that of CSL as industry lead, is most urgently required. A clear delineation between SG and CSL needs to be made along with clear accountability lines and oversight roles defined.

R2 The SRO should urgently review the needs and structure for Programme governance and leadership, to ensure accountability lines and oversight roles are clearly defined and understood.Critical

6.4 Schedule and Delivery Plan (Review of Current Outcomes)

6.4.1 The DRS is currently scheduled for 'go-live' on the 16 Aug 2023, just 15 months henceforth. It is important to recognise that the schedule has already been extended, most recently from a 2022 'go-live' in the amending regulations and that this amendment had required significant investment of effort and support.

6.4.2 In previous Reviews, and repeated in this, industry representatives from retail and production made clear that their individual implementation plans would require 12-24 months from receiving 'meaningful decisions'. Some of the more significant industry players, believed that 12 months may be possible with much contingency and risk, but that 18 months was the necessary time required to implement DRS for their companies. Other industry interviewees maintained that they required 24 months for implementation. The industry interviewees presented, in the opinion and experience of the Review Team, justified, reasonable and suitably ambitious explanations of their schedule needs. Currently, industry does not have the 'meaningful decisions' that it requires to initiate their implementation plans; again, the Review Team, from their own experience, recognised that it would be extremely difficult and unlikely for industry to make implementation investments without knowing, and (importantly) accepting these key decisions (e.g. producer agreement, labelling, retail handling fee) (also refer to paragraph 6.2.5). It was understood that the producer agreement is not expected from CSL until August 2022. [redacted].

6.4.3 As discussed in section 6.2; 'meaningful decisions' are not yet available from CSL. Amongst these, a very sizeable contract has yet to be placed for the system operator (collection and processing of recyclate). A preferred bidder has been selected but security for the large infrastructure investment remains an issue. [redacted].

6.4.4 Many interviewees also expressed concern about the risk to the DRS schedule from the global economic climate. Most believed that obtaining RVM's, recycling equipment, construction material, ICT technology and, most importantly, sufficient and capable staff, was a significant schedule risk to the Programme. [redacted].

6.4.5 The Review Team investigated the preparedness of SEPA to fulfil its regulatory role. The Review Team heard good confidence expressed in SEPA's preparedness and were most satisfied that the SEPA DRS project was being well managed and would be ready as required. Nonetheless, from interviewees the Review Team also recognised that the DRS Programme leads SEPA into new ways of working, regulating whole systems rather than environment outputs. Without an understanding of the detail of how DRS will operate and function (currently not available) SEPA cannot fully understand and design an optimal regulatory function. Many issues are not understood, (e.g. recyclate flows), and these present some risk to the regulatory role that may require adaptation and evolution.

6.4.6 A Programme implementation plan had been shared at SWAG (and a summary plan on a page at EOG) and this was recognised by stakeholders as a very useful communication and awareness tool. However, the plan lacked the detail of significant actions and risks that were discussed during the Review interviews (e.g. implementation of the collection and processing operation), indicating that that further analysis of schedule implications was required. The Review Team also noted that the programme implementation plan did not present an assessed critical path to successful delivery.

6.4.7 The issue of "cut-over" was regularly raised during Review interviews. Some interviewees and the Review Team interpreted this phrase as describing all issues and functionalities that need describing for 'go-live'. Other interviewees saw the phrase "cut-over" as predominantly referring to the labelling and stock control of Scheme Articles at the time of 'go-live'. This Report will refer to 'go-live scope' to describe all issues of functionality and operation scope that need to be assessed and understood for go-live to be in control, and understood. It was apparent from discussions that a comprehensive list of these go-live scope issues have yet to be compiled, or assessed to enable agreement. Some individual issues such as stock control of Scheme Articles are being evaluated.

6.4.8 The Review Team believe that the formal recording, assessment and agreement of all go-live scope issues is essential to ensure that 'what go-live looks like' is understood. Further, the Review Team believe that an understanding of this picture offers an opportunity to more effectively manage risks to 'go-live' and offers the opportunity to relieve significant pressure on the schedule risk by allowing focus on the most important deliverables. [redacted] However, the Review believes that a 'softer' approach to DRS implementation should be pursued and that urgent action is required to consider, assess and agree this possibility.

6.4.9 Given the issues discussed in paragraphs 6.3.1 to 6.3.6, the Review Team conclude that a fully functioning, compliant DRS cannot be achieved for the 16 Aug 2023 go-live target. Some DRS functionality could be available and a minimum viable product or phased/soft approach to go-live seems the only possibility to maintain momentum and support expectations.

R3 The SRO should urgently re-evaluate the 'go-live' schedule and the Scheme 'go-live scope' [redacted].Critical

6.5 Communications

6.5.1 The co-ordinating CE Working Group has been formed with members of CSL, ZWS, SEPA and SG. As stated in the Terms of Reference the Group "is chaired by ZWS on behalf of Scottish Government and accountable to Scottish Ministers". ZWS also performs the secretariat role for the Group. There is little reference to the role of CSL in the ToR apart from CSL's Head of Marketing and Communications being part of the CE Working Group.

6.5.2 The Review Team were shown a communications pack. Whilst recognising that the CE Working Group is new, the Review Team were nonetheless very disappointed that the title slide of this pack was branded with ZWS and SG logos. Further, slide 2 of that pack described how the Scheme would work yet made no reference to CSL whose role it is (yet to be fulfilled), to design how the Scheme will work. CSL and industry received little mention, appearing only on page 16/20 and 18/20 of that pack. It is policy that DRS should be industry led and the Regulations place the responsibility for DRS design and operation on industry; industry has elected CSL to be the lead organisation. Given this, it was the opinion of most interviewees and the Review Team, that CSL should take the lead on Programme communications.

6.5.3 It is the belief of the Review Team, supported by interviewee opinion, that in other nations that operate a DRS, central to an effective Scheme there is a very publicly recognisable and ubiquitous brand for the recycling operator. One presumes that in Scotland this can only be CSL ? The Review Team understand that CSL have designed a brand and logo, but this is not yet publicly available or visible. It was not evident that this brand had been agreed for consistent use by all stakeholders in DRS communications and engagement. A consistent brand is a necessary and significant PR opportunity for the future of DRS to be explained to key stakeholders, including the public. Signing of contracts with partners, especially the infrastructure supplier, would be another major PR opportunity.

6.5.4 The significant majority of those interviewed expressed concern about the quality and quantity of the limited communication so far received. They believe that there is insufficient information being circulated. Such communication and brand should also define and reinforce the leadership role of CSL and how it is working with partners to advance the story of DRS. The Orkney Initiative has a number of positive selling points that support DRS and ethical ecology. This needs to be publicised. In the opinion of the Review Team this would be better if seen to be led by CSL, not ZWS. It is not clear what progress is being made on these aspects of communication.

6.5.5 The Review Team have seen a Communications Tracker, recently updated to show some forward plans. We have not seen a stakeholder analysis (with agendas), preferred communication channel analysis (pros and cons), proposed communication stages (critical path milestones) or responsibilities defined. Opportunities are being missed.

6.5.6 Those persons interviewed were almost all totally supportive of the concept of DRS, talking about the ethical and ecological responsibilities of circularity and recognising the necessary business value to meet customer expectations. However, there remained wide variance in the confidence of how well DRS is progressing. [redacted] Better communication is necessary to get all stakeholders on-side. Explaining the work being done; [redacted] engaging with stakeholders, listening and responding, are all necessary to demonstrate a united front on DRS. The Q&A process needs to be much more comprehensive, with logging of all questions, seeking the official answer and posting it.

6.5.7 [redacted] Regardless of opinion, collaboration is essential for DRS to succeed, and collaboration requires empathy from all parties to enable effective communication and understanding toward progress.

R4 The SRO should re-examine the roles and coordination of communications across the Programme and ensure a significant improvement in communications flows. Critical

6.6. Readiness for Next Phase

6.6.1 Amending Regulations have been passed by the Scottish Parliament, with the DRS implementation date (go-live) being moved to 16 August 2023. This date has significant implications for everyone working on the foundation of the processes and protocols necessary to make DRS an effective and efficient operation. Almost all interviewees expressed very serious concern about the timescales, even with the date having been moved back more than one year. There are substantive issues still to be resolved that are dependent on other work. A blueprint and 'go-live' critical path have still to be established to define all the work required that assures the work will be done in time. There is a significant array of issues related to cut-over, which need to be formally identified, evaluated, and costed.

6.6.2 In addition to the major issues raised in this Report there are other significant issues such as exemptions, producer fee, distance take-back, future integration (or otherwise) with England Wales and Northern Ireland, global supply chain and systems integration and digital networking that need to be addressed through working groups, preferably commissioned by CSL.

6.6.3 This Review Team met with a large number of stakeholders and are confident that this Report represents a realistic and comprehensive status of DRS, as responsibility transitions from SG to Industry, represented by CSL. [redacted] The recommendations in this Report are intended to assist SG and CSL in managing the transition of responsibility and accountability in a measured way.

R5 [redacted]