Talks Advance Understanding of Private-sector Model

On April 15, in Houston, Texas, 17 senior executives from firms advising municipal water utilities met to discuss the evolving private-sector role in helping municipal water and wastewater utilities face the challenges of the 21st century.

Sponsored by the Water Partnership Council, an organization of the providers of operational services for municipal water and wastewater treatment systems, the workshop was organized to advance private-sector efforts to provide municipalities with more effective management consulting, engineering, legal, and operational services.

Executives in attendance called for a new paradigm between private and public sectors in which private firms not only address problems identified by their municipal clients but also facilitate solutions. Private support may entail assistance in managing programs or performing functions previously done in-house, as firms move increasingly from a project orientation to a relationship orientation. Expanded services included asset management, program management, operations improvement consulting, design-build (DB), design-build-operate (DBO), and public-private partnerships.

Workshop participants expressed the hope that private financing can help meet public water infrastructure needs. In addition, most believed that DB, DBO, and public-private partnerships can yield cost savings to provide some help in narrowing the funding gap. It was noted, however, that these private-sector capabilities have not fully kept pace with the challenges faced by the public sector.

Participants discussed the use of public-private partnerships. Workshop participants were nearly unanimous in concluding that partnerships have demonstrated value. Both public and private partners have learned from the experiences of the last two decades. Contracts are not enough. Successful partnerships are based on relationships of trust, which must be continually nurtured. While private partners have come to understand the importance of tailoring services to individual client needs, public partners have developed a better appreciation of how they can benefit by leveraging the capabilities of their private partners.

Most workshop participants expect the partnership market to achieve stronger annual growth over the next decade, although some believe this growth will be based on providing more than just treatment system services. Likely drivers of future growth include a reorientation of the core competencies of public water utilities from an emphasis on engineering and operational excellence to one of managing project and service delivery. Human resource challenges were also examined in light of fundamental demographic trends and the technical/training demands of operating advanced systems. This reorientation has implications for the future role of private-sector partners.

Workshop participants made a strong case for the use of performance-based contracts with quantitative metrics geared to public partner objectives. Many saw incentives as the best way to demonstrate value and counter public opposition.

Participants also weighed in on new private-sector services that raise issues of allocating risks between public utilities and private firms. Generally, public water utilities are willing to absorb cost escalations, particularly during long periods between cost estimating and the beginning of construction. Public agencies have also demonstrated a greater willingness to assume as-built risks and risks associated with subsurface assets. In addition, the strong records of most partnerships have convinced many utilities that duplicative guarantees, such as surety bonds and letters of credit, are unnecessary. Workshop participants were in general agreement that risk allocation between private and public entities is rarely a stumbling block to the provision of private services.

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