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Public/Private Partnerships for Water & Wastewater Systems 2006 ACMA Summer Conference Loews Ventana Canyon Resort Tucson, Arizona
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2 Overview Background & Introduction Joseph Graziose, Vice President Business Development, Severn Trent Services Understanding Public/Private Partnerships Benefits/Challenges of a Public/Private Partnership Procurement Approaches Key to a Successful Partnership Public/Private Partnership Structures/Models Case Studies Questions & Answers
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3 Options for Public/Private Partnerships Public ownership Private operations Private design construction –Improvements –New facilities Public or private funding Private ownership & provision of services by private company or utility Lease/sale facilities & provision of services by private company or utility
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4 Why Consider a Public/Private Partnership? Potential cost savings Design/construction of capital improvements Operations Risk reduction Improved performance Need for alternative financing
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5 Benefits of a Public/Private Partnership Single point of contact/accountability Improved levels of customer service Regulatory compliance Availability of technical resources Access to the latest technology Cost control Volume purchase discounts Availability of capital Maintenance management systems Streamlined procurement
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6 Challenges Loss of control Loss of public accountability Personnel impacts/employee concerns Complexity of the transaction
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7 Procurement Approaches & Strategy Request for Qualifications (RFQ) Request for Proposals (RFP) RFQ/RFP (Two Step) Hybrid approaches Request for Qualifications & Expressions of Interest (RFQEI) Draft RFP (for Comment)/Final RFP Expanded RFP – Menu Approach
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8 Procurement Process Setting objectives Selecting a procurement strategy Defining service & key terms & conditions for business arrangements Preparing the request for proposals Interacting with prospective proposers Evaluation of proposals Selection & contract negotiations
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9 Service Agreement $$$ Fee Effluent River Existing Clean Water Wastewater Collection & Pumping Distribution & Transmission Equity $$$ Loan Agreement $$ Billing Service Well Description of the Municipal Water & Wastewater Services Market Engineering Firms Financial Advisors Law Firms OperateStart UpConstructDesign Performance Guarantees Customers Water System Tax-Exempt and/or Taxable Bonds Debt and Equity Financing Bonds Existing Wastewater Plant With Capital Improvements & Sludge Disposal Municipality State & Federal Regulations Public/Private Partnership
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10 Public/Private Partnership Structures OwnershipOperationAgreementModel IPublicPrivate5 to 20 yearsO&M of system constructed through traditional design/ bid/build delivery method IIPublicPrivate10 to 25 yearsDesign/Build/Operate (DBO) IIIPrivate 25+ yearsDesign, Build, Own, Operate and Maintain (DBOOM) There are three basic structuring approaches based on project ownership, construction and operation:
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11 Service Agreement $$$ Fee $$ Service Customers Engineering Potential Scope of Services Legal Financial Private Contractor Regulatory Compliance QA/QC O&M of Plants Distribution & Collection Customer Service Capital Improvements Pretreatment Programs Municipality
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12 Advantages Maintain Control Over Process Change-Orders Easily Accommodated Well-Tested/Universally Accepted Competitive Bidding at All Levels Disadvantages Generally More Costly Can Take Longer Poor Incentive Structure/Risk Allocation Limited Recourse if Things Go Wrong Traditional Project Delivery Approach (Design/Bid/Build) Government Grants Operations Design Engineer EquipmentConstruction Financing General Contractor Municipality
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13 Advantages Single Point of Accountability Risk Assumption by Developer Shorter Project Schedule Reduced Costs Disadvantages Project scope defined by Performance rather than by Design Specs Legal and Procurement Barriers Financing Alternative Delivery Structures: DB/DBO/DBOOM EquipmentConstruction Project Developer Municipality OperationDesign Performance Guarantee
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14 Key to a Successful Partnership Equitable risk allocation Reasonable financial security Attainable & objective performance standards Well defined work scope & division of responsibilities Mechanism to monitor performance Communications & reporting
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15 Public/Private Partnership Case Study: Pasadena, Texas 3 WWTPs – 10 MGD, 4 MGD, 7 MGD Background: History of non-compliance Costs continued to rise, year after year Non-existent maintenance programs Overstaffed Lack of leadership & management
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16 Pasadena, Texas City’s Approach Procurement through an RFP Standard O&M contract Maintenance cap fixed by City O&M of the City’s 3 wastewater treatment plants Guaranteed compliance No layoffs
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17 Pasadena, Texas Selection & Negotiation Process City selected Severn Trent Severn Trent hired all existing personnel Better salaries & benefits Recognized seniority Severn Trent began detailed transition process Severn Trent began immediate process changes & achieved compliance
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18 Pasadena, Texas Summary The City achieved immediate savings of over $800,000 per year. Within 3 months, 2 consent orders were lifted. Flow restrictions were lifted at 2 of the plants, allowing for an increase in capacity. The partnership between Severn Trent and the City has continued from the initial 5-year term in 1994 through today.
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19 Public/Private Partnership Case Study: Boyertown, Pennsylvania Water & Wastewater Systems Background: Retirement of key operations personnel Challenge of finding qualified staff Compliance & operational issues at WWTP
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20 Boyertown, Pennsylvania Borough’s Approach Procurement through an RFP Standard O&M contract Maintenance cap fixed by Borough O&M of the Borough’s: 0.75-MGD wastewater treatment plant 1.6-MGD water treatment plant 5 pump stations Guaranteed compliance No layoffs
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21 Boyertown, Pennsylvania Selection & Negotiation Process Borough selected Severn Trent Severn Trent hired all existing personnel Leased Water Superintendent for four months until his retirement Recognized seniority Better salaries & benefits Severn Trent began detailed transition process Severn Trent began immediate process changes & achieved compliance
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22 Boyertown, Pennsylvania Summary The Borough saved nearly $500,000 by eliminating unnecessary capital improvements; additional savings of $60,000 per year due to process changes. Severn Trent operations in Boyertown have been recognized: Safety awards from Eastern Pennsylvania WPCOA and Pennsylvania WEA Commendation from the Department of Environmental Protection Scope expanded to include collection and distribution systems and meter reading in 1999. The partnership between Severn Trent and the Borough has continued – and grown – from the initial 5 year term in 1994 through today.
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