Public-Private Partnerships in the U.S. Water & Wastewater Market
Paradoxically, lower cost with no compromise in quality is a direct result of the private partner’s need to generate a profit. That need motivates the private partner to operate more efficiently with respect to power consumption, chemical usage, maintenance, and technical support.
Private partners take advantage of economies of scale through bulk-purchasing discounts. As specialists, private partners also bring new technologies, tools, techniques, and proven processes for lowering costs while maintaining or improving service quality. Water Partnershp Council
Members companies include: American Water, Severn Trent services, Southwest Water Company, OMI, United Water and Veolia Water.
Environmental StewardshipA private firm's reputation and ability to secure new contracts rests significantly on its ability to maintain safe, clean water in compliance with federal and state standards. The firm will work closely with environmental stakeholders and regulators to keep the systems in compliance with stringent regulations at all times.
Many communities enter into partnerships to remedy chronic non-compliance with environmental regulations. They also face public pressure for pricing, water quality and upgrading aging infrastructure. They face effluent discharge violations and unpleasant odors.
The needs of the 21st century call for greater private involvement. Water and wastewater facilities are aging. Regulatory requirements and public demands for services are increasing. Public-private partnerships offer practical and cost-effective means to assist in meeting the need to repair, replace, and upgrade facilities and services. Their corporate depth can add expertise and world-class R&D technologies to small cities and water districts.
Over 30 years ago, the City of Burlingame, California, became the first U.S. municipality to transfer the operation of a publicly owned wastewater facility from a municipal government to a private company. By 1980, approximately 100 publicly owned water and wastewater facilities were being operated by private partners.
Public-Private Partnerships Facilitate Changes Needed for More Efficient OperationsChange in any organization is difficult to achieve, and so it is with changes to improve the efficiency of water or wastewater treatment. Some staff will resist change, and this is true whether the changes are introduced by a private partner or by a public agency. Private partners have expertise and years of experience in change management that elected officials or volunteer boards might not have available to them in-house.
The form of private involvement has varied over the years. It has included investment, equipment supply, technology, engineering design, construction, operations, repair, and maintenance – alone and in combination.
Technology and Know-How to Achieve Cost SavingsThe three largest cost elements in operating water or wastewater facilities are labor, energy, and chemicals. Both private and public operators achieve cost savings by implementing such measures as:
Some public agencies are constrained by entrenched work practices and lack of in-house expertise. Automation, energy efficiency, optimization of chemical usage, and predictive maintenance require a level of technical expertise that few public water or wastewater utilities can afford to maintain in-house.
Objectives of public-private partnerships for multi-city agencies facing water challenges include:
Objectives for Small CitiesPartnerships provide the technical and expert work that a small city cannot do for itself. They don't have engineers and planners on staff, so outside vendors supply those operations.
Volunteer board members don't have expertise in water, they manage the financial transactions. Boards have foresight to provide for reevaluation of agreements periodically. Provide a dependable, safe water supply, have good management and provide service at a good rate.
Good reporting is important for volunteer oversight boards because of their lack of technical-expertise. Internal managers and private management firms are options considered to provide that expertise. These outside vendor firms give a cadre of expertise in all areas needed. The city can realize cost savings in a number of ways: anticipate problems and provide preventative maintenance, install billing programs for multiple departments for extra revenue, facilitate hiring employees and help certify them.
According to one mayor in a recent panel discussion about public-private partnerships, the biggest benefit can be cost savings. Even with a 250,000 customer base, compliance requirements are a challenge, and the private vendor can support community efforts holistically, and provide expertise on how to support failing infrastructure.
Benchmarks for the Public-Private ContractMunicipal Benchmarks is a book that provides cities with "Performance Benchmarks" for putting x feet of pipe into the ground, and all the typical services to be performed. Tasks are provided with metrics at "x" levels in "y" amount of time -- or there is a penalty. The city can then settle up every month with the independent contractor with incremental penalties for non-performance.
Advice from experienced public officials include:
Major Types of Public-Private Partnerships
Contract Operation and Maintenance (O&M)The public entity contracts the day-to-day management, operation and maintenance responsibility to a private partner—in whole or part— for its water or wastewater utility. Contract terms typically range from three to five years. Since the change in the tax law in 1997, long-term contracts, up to 20 years, have become more common. Close to 1,000 local governments use this type of arrangement for wastewater treatment.
Design-Build-Operate (DBO) or Contract O&M with Design-BuildThe public agency contracts with a single firm or a consortium of firms for the design, construction, and long-term operation of facilities. The public partner provides a set of performance specifications, and the private partner has considerable latitude in meeting them. DBO typically applies to development of new facilities, whereas contract O&M with design-build for capital improvements is a popular option for upgrading existing facilities. Contract terms average 15 to 25 years. DBO arrangements yield the greatest cost savings.
Design-Build-Finance-OperateThe public entity contracts with a private partner for the finance, design, construction, and long-term O&M of new facilities. The contract term typically is 20 years or more.
Concession/LeaseThe public entity contracts with a private partner through a concession or lease arrangement. This contract type usually includes a payment by the private firm to the public owner for the right to manage the facilities. The private partner can be responsible for capital upgrades, expansion and a broader range of functions.
Build-Own-Operate-TransferThe public entity contracts with a private partner for the finance, design, construction, and long-term operation of facilities. In this case, the private partner owns the facilities and transfers ownership rights after a given period, typically 25 years.
PROBLEM: Aging water and sewer infrastructure and compliance changes.
SOLUTION: Planning comprehensively and partnering provides ability to meet population growth needs vs. just operate in reaction mode.
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