Urban Water Council Holds Seminar on Public/Private Partnerships

By Paulo Heyman and Rich Anderson
April 17, 2000

The United States Conference of Mayors’ Urban Water Council held a Regional Water and Wastewater Municipal Services Partnership Seminar in Waltham, Massachusetts on March 29. The Seminar provided information to Mayors and their staff on how to take advantage of public/private partnerships as a cost-effective way to provide water and wastewater services. Lynn (MA) Mayor Patrick J. McManus, Co-Chair of the Urban Water Council, served as a moderator and welcomed attending mayors. Forty mayors and other public sector administrators attended the Seminar, and participated in spirited discussions about public/private partnerships.

Mayor McManus alerted participants that they should reach out to review a variety of options available to local government to provide a clean and plentiful water supply. Mayor McManus indicated that it is often prudent to look beyond your first circle of advisors and look for different ways to get the same results. In his own experience, Mayor McManus stated that, by thinking outside the box, he and his staff are positioned to remedy one major water infrastructure need at less than half the cost of an original proposal. Many attending mayors were surprised to learn that “less than half the original price” amounted to a savings of over $400 million.

The Seminar included a mix of public and private sector participants who brought a wealth of knowledge and experience to the table. Participants agreed that public/private partnerships are not a viable option for all cities. Many of the private sector participants stated that there are many municipally-managed water systems that perform well, while service and cost-savings improvements might be marginal. Gary Miller of OMI, Inc. indicated that there are approximately 15,000 wastewater treatment systems, and more than 55,000 water treatment systems in the United States. He suggested that partnerships might be a valuable alternative for a number of these systems. Participants agreed that if local government does turn to a partnership approach as the answer to some of their infrastructure needs, then they need to be careful about how they structure both the bid process and the service agreement negotiation process. This will determine the level of productivity improvements and their associated cost savings. The service agreement should be used to ensure that water service provision is environmentally friendly.

Eric Peterson, an attorney who has represented over a dozen cities in developing partnerships, spoke on reviewing options and stated that “…the last three years have brought about the real prospect of substantial change in the way water and wastewater assets are developed, managed and even financed in this country.” Peterson noted a growing interest in exploring “faster, better, cheaper” means of water and wastewater service delivery. He advised that on requests for proposals (RFP’s), often the first step in generating choices, they should be well thought out to attract viable proposals from the private sector. He also noted the recent trend to aggregate water and wastewater services to realize greater levels of cost-efficiency. Peterson indicated that long-term, 20-year contracts may sometimes have greater potential for savings.

James Campolong of American Water Works Corporation, Inc. provided first hand information on the importance of treating labor fairly in a public/private partnership. He related some of his experiences in negotiating labor contracts for a public/private partnership adopted by Buffalo, New York. More than 125 workers were involved in a change from public to private supervision, although the workers remained members of the public sector unions. Campolong indicated that the negotiation of Buffalo’s labor contracts involved not only negotiations between the city and company but also a three-way negotiation between the city, company and a number of different unions. The unions were not only concerned about changes imposed by a new private plant operator, but also worried about other unions that could infringe on their member’s job duties and responsibilities.

The afternoon sessions addressed the practical elements of risk sharing from the public, private and professional consultant perspectives. New Bedford Mayor Frederick M. Kalisz discussed why the city benefited from the partnership approach. New Bedford was experiencing economic distress due to a declining population and loss of business employment. Mayor Kalisz wanted to turn the situation around by attracting jobs and providing sufficient infrastructure to support an economic renaissance. New Bedford has already realized significant gains in this mission, and the partnership approach provided a vital part of the overall program.

Private sector representatives from United Water, Thames Water International, U.S. Water, and US Filter discussed their approach to partnerships. They emphasized that private sector providers analyze many factors when considering whether or not to submit a proposal for a partnership project. A variety of risks are taken on by the private sector, including responsibility for operations and maintenance and their associated costs, environmental compliance, and guaranteeing a given amount of water at a given level of quality.

Company representatives suggested that allocation of certain elements of risk is becoming more standardized in large and small communities. This is a result of experience with a greater number of partnerships and the aggregation of water and wastewater services. Rather than reinventing this wheel in each partnership case, cities and their partners should seek out these standard options to significantly reduce transaction time and costs.

Lehman Brothers, Piper & Marbury, and Alternative Resources Inc. also provided insight on risk sharing. Discussion focused on how partnerships should divide risk elements. For example, items such as change-in-law and uncontrollable circumstances (acts of God) are typically not assumed by the private sector. On the other hand, the speakers pointed out that operations and maintenance of infrastructure, as well as meeting water quantity and environmental quality goals, are often shifted to the private sector. Certain benefits can be available to a city by lowering capital and operating costs, which reflects well on the municipality’s bottom line. While a partnership agreement template may be emerging, it is imperative that each partnership negotiation involves discussions over the provisions of service in order to capture the unique circumstances of each community.

Mayor McManus closed the seminar by leading a Q&A session with all speakers and attendees. He announced that there would be another Regional Municipal Services Seminar held later this year for mayors on the West Coast. Plans to select a city and meeting time are currently underway. 

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