PUBLIC PRIVATE
PARTNERSHIPS
WATER and WASTEWATER TRENDS IN
THE UNITED STATES
Presented by:
Williams S. Howard, P.E., FACEC
May 6, 2004
Applicability
 Applicability
in Water and Wastewater
can apply to other Public and Private
Partnerships as well
Major Market Drivers
 Cost
of Regulatory Compliance
 Infrastructure
Investment needs
($1.6 Trillion)
 Risk
 Cost
Transfer
effective and streamlined
solutions
Market Size
 A $2B
industry in the United States
 Average U.S. City “privatizes” about
one-third of municipal services
Public Private Partnerships
Are Not New
 While
emphasis on cost vs. quality,
multiple parties, and complex disputes
have all led to exploring new ways of
executing projects and transferring risk to
one party, the mechanisms used to
address these issues are returning us to
the “Master Builder” approach of the late
1800s
The Impact Of Environmental
Regulations Of The 70s And 80s
 Many
communities chose Public Private
Partnerships to operate increasingly
complex facilities via Contract Operations
 Currently,
forty communities in the United
States have long term Contract Operations
services
Alternative Delivery Systems
 Design/Build,
Design/Build/Operate, and
Design/Build/Operate/Finance

Becoming accepted throughout the U.S.
 Design/Contract/Build

Evolving
Partnerships vs. Risk Transfer
 Most
of the current Public Private
Partnerships currently in place are
primarily risk transfer mechanisms
 Some
clients are looking for more true
partnering
 Companies
are becoming more “business
like” in their approach
Global Market Drivers
 Over
1.1B people lack safe drinking
water
 Over 2.4B people lack basic sanitation
 Millennium Challenge – U.S. initiative to
halve that by 2015
 International funding agencies focusing
more on infrastructure.
Two Successful Case Histories
In The United States
Community A
 A 450 ML/D conventional water treatment
plant design/build/operate project


Saved 40% from “Benchmark”
Experienced team and a competitive
procurement

Expensive for all parties to pursue

All parties satisfied
Successful Case Histories (cont.)
Community A (cont.)

One significant issue:
• Cost vs. Redundancy – plant runs very well but
limited “backup” facilities
• “You get what you pay for”
Successful Case Histories (cont.)
Community B
 A 250 ML/D conventional water treatment plant
design/build/operate project

Savings of 20% from Benchmark

Experienced team and competitive procurement

Delivered on time and on budget

Expensive for all parties to pursue

All parties satisfied
Big Does Not Guaranty Success
 The
costs to win are very high
 Understanding of legal, regulatory, and
technical elements required to succeed
 Market
 Let’s
Share does not guarantee Profits
look at some unsuccessful projects.
Unsuccessful Projects
Community B – once again
 A 100 ML/D water treatment plant with new
technology – design/build/operate project

Bidding frenzy

Many rounds of bidding


Selected team not familiar with the process
technology
Project still not operating at 100% and project
was started before the “successful”/250 ML/D
project
Unsuccessful Projects (cont.)
Community B (cont.)

Terminations, legal disputes, bad publicity

Inexperienced team

New technology

Over-emphasis on cost and risk transfer

Wrong project - unproven technology and
inadequate budget
Unsuccessful Projects (cont.)
Community C
 Operation of a water utility


Bidding frenzy (win at any cost)
“Winner” contracted to operate and maintain the utility
for half the cost

Maintenance cost much higher than anticipated

Contract terminated after four years

Operations company made a business decision to
absorb no more losses.
Unsuccessful Projects (cont.)
 Puerto

Another termination likely due to cost dispute
 New

Rico
England Community
Plant not meeting discharge requirements and
does not have “acceptable” appearance
Current Trends
 Companies
are making hard decisions
focused on adequate return on investment
even if at the expense of client
relationships or capturing market share
many successes –The renewal rate
for contract operations agreements
remains very high at over 90%
 Still
Current Trends (cont.)
 Companies
are looking for Win/Win
opportunities
 More
clients are realizing that you usually
do “get what you pay for”
 Clients
are looking for truer partnerships
 Advisory
 CDM
services market is growing
– Competitive Utility Operations
Current Trends (cont.)
 Public
Private partnership agreements
involve legal, finance, and political
elements – not just engineers
 Education
 Mutual
required
understanding required
 Reasonable
to be found
risk transfer approaches need
Current Trends (cont.)
 Incentives,
as well as penalties,
increase probability of success
 No
more total transfer of risk and
unrealistic savings
 Security
concerns are making company
ownership an emerging issue
The Future
 The
drivers still exist and Private Public
Partnerships will thrive in the future but:


They will be truer partnerships with more
realistic risk sharing
They will include Win/Win scenarios that focus
on cost effectiveness and award sharing as
much, if not more, than penalties for poor
performance
The Future (cont.)
 Firms
that take a business approach by
offering responsive, cost effective, and
high quality service for an adequate profit
will succeed
The Future (cont.)
 Successful



firms will:
Take a business approach
Offer responsive, cost effective, and high
quality service
Negotiate adequate returns on their
investments.
The Future (cont.)
 Successful



clients will:
Seek quality and long term relationships
Have realistic risk transfer approaches, and
Appreciate the private sector need for
adequate returns on investment
Thank you for your gracious attention.
Are there any questions?