Public-private partnerships (PPPs) have been at the heart of water infrastructure facilities and services for more than 100 years in the United States. The water supply and sanitation service delivery model has been historically a public undertaking. While the private sector may have designed and constructed infrastructure projects, public entities have controlled financing, owning, operating and maintaining those assets and delivering the services to communities.
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What is a Public-Private Partnership?
A public-private partnership is a service delivery arrangement between a public and private entity that transfers service delivery rights and obligations to the private sector. In return for providing the services, the private sector is compensated. This is accomplished through a negotiated agreement with significant risks and responsibilities being transferred to the private partner. The agreement allows both parties to bring expertise and resources into the agreement, share in the risks and rewards of the arrangement and most importantly, it allows the public partner to retain significant control and oversight of the services being delivered.
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In most PPPs, the public entity can maintain ownership of those assets. A PPP can include planning, design, construction, operation, maintenance, finance and possibly ownership. There are many forms of PPP arrangements and contract structures ? there is no ?one size fits all? approach.
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There exists a body of work among the pioneering water and wastewater PPPs seen to-date in the United States. Through the use of applicable public information laws, the PPP procurement and contract documents can be obtained and utilized as the model forms and templates. A PPP must be done right in order to achieve: the benefits that each partner seeks; the optimum risk/reward balance; and the protection of the public?s health, safety and interest.
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This model has been highly successful in the past, but today?s aging infrastructure coupled with population growth and financial shortfalls are creating critical challenges for the water and wastewater industry. According to the American Society of Civil Engineers? 2013 Report Card, the condition and performance of the nation?s drinking water and wastewater infrastructure have both received a D ? or poor rating ? based on capacity, condition, funding, future need, operation and maintenance, public safety and resilience. There is tremendous pressure to not only repair and replace the nation?s water infrastructure, but to also meet continued growth demands and maintain a high quality of life, health and safety.
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This massive infrastructure need is converging with other trends and challenges to create the ?perfect storm? for a significant yet positive shift in the way public assets and services are delivered in the water and wastewater area. Other factors include:
- Public health and safety risk from the failing and insufficient infrastructure;
- Increased degradation of water resources;
- Increased pressure to decrease government funding while regulatory requirements increase;
- Stressed municipal budgets needing to meet competing public service demands;
- Retirement of 30 to 50 percent of public water and wastewater workforce over the next decade; and
- The need for future public workforce to operate and maintain more advanced technology, and to attract and retain talented professionals.
These factors will allow for an increase in the use of PPPs to meet the nation?s water and wastewater infrastructure public service needs.
PPPs as a Solution for Growing Infrastructure Needs
Public decision makers will now have to look to new ways to deliver those essential water-related services, namely increased involvement by the private sector. More than designing, building and delivering the infrastructure projects and related assets, private companies and organizations will increasingly be called upon to become involved in the financing of assets, actual service delivery and/or operation and maintenance of assets. With the crossing of this threshold, enters the realm of public-private partnerships as an option that can have significant and beneficial impacts.
In general, a PPP procured, structured and implemented correctly can provide the following benefits:
- Quicker delivery of public service assets
- Increased efficiency through innovation and expertise
- Life-cycle cost savings, capital and/or operations and maintenance
- Service improvements
- Performance guarantees
- Enhanced risk management
- Better cost certainty ? short and long term
Continuing Growth of Partnerships in CMAR and Design-Build Delivery Methods
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The last 20 years has demonstrated that the public sector can embrace the type of change that?s needed to pursue and implement a successful PPP. For example, there?s been broad and increased acceptance of alternative project delivery models, such as construction management-at-risk (CMAR) and design-build (DB). Public sector leaders have also recognized ways to deliver assets quicker, in a more cost-effective manner and of higher quality.
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The growth in the use of CMAR and DB has shown success breeds success. When there was a critical mass of successful CMAR and DB projects, public owners achieved a level of comfort and trust with these new methods and began implementing them. PPPs now need to demonstrate that high quality services can be delivered reliably while also being cost effective and timely. In addition to water and wastewater service projects, PPPs could ? and should ? be looked to for projects to address water scarcity issues, sustainable water infrastructure projects and bio-solids or energy projects.
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PPP pioneering projects are being implemented across the country from California to New Jersey. The PPP critical mass is beginning to grow. In fact, specific legislation either authorizing or enhancing the use of PPPs has been enacted in more than 30 states. These states have recognized that legislation is supportive of and conducive to PPPs, and they are needed to allow public decision makers additional options in meeting the public service needs and demands.
Best Practices when Entering a PPP
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To help achieve PPP success, the public partner can focus on these seven industry best practices:
1) Understand the legal framework to ensure the authority to procure and enter into a PPP clearly exists. First and foremost is the confirmation that the authority to procure and enter into a PPP exists for that particular owner and for that particular public service sector. For example, Florida recently enhanced its PPP law to include, among other things, water projects and permit other governmental entities like counties and municipalities to use a PPP. Just as important as understanding the legal requirements, is understanding the limitations and flexibilities that can sometimes be used to add benefits or allow public owners to meet objectives. In this case, some owners use the legal requirement that a best value selection be made ? selection based on price and non-price factors ? and use the flexibility provided to set the weighted evaluation criteria and allow for more or less weight to be given to non-price items.? Develop a procurement process that is clear, fair, transparent and defensible, and structure PPP procurement and implementation to best meet the project/service objectives.
2) Establish clear goals and objectives. After a thoughtful assessment of the current needs and challenges of the public service being considered for a PPP, ask tough questions, such as:
- Can we properly maintain, repair and replace the assets over the long term?
- Does this have to be a core competency or can we purchase services?
- What is the public?s perception of the quality of services and value for money?
- Is that perception a reality?
- Do we have the personnel and can we retain them over the long term?
- What are the public financing circumstances both good and bad?
3) Take the time to understand PPPs and how they function and deliver value ? they are much more than just private financing. Consider and select the right PPP arrangement and procurement approach, and get help if needed from an independent party or consultant.
4) Determine internal and external communication needs. Identify and educate decision makers and other stakeholders, answer questions and dispel any misinformation. Build momentum by getting people on board with the financial and service-related benefits of PPPs.
5) Evaluate and consider if the PPP provides value for money and it is affordable for the users. Focus on the life-cycle costs with emphasis on long-term maintenance, repair and replacement. Carefully evaluate the risk and monetize the risk transfer and risk retained when the value for money analysis is considered.
6) Define project assets to be improved or built upon and the services sought. A clear and detailed scope of work, including roles and responsibilities, risk allocation, performance indicators and guarantees, and control and oversight requirements to protect the public interest, should all be developed and incorporated into the PPP documents.
7) Don?t ignore existing employees if the PPP will impact them. There are proven methods that can be considered to address job security, salary and benefits. For example, all employees can be offered jobs at a total salary and benefit package equal to or better than currently enjoyed and attrition can then allow the private partner to achieve its optimum staffing over time. Public owners can also allow employees to fill any vacant positions to accommodate those employees who may choose not to make the transition to the private service provider.
Because of the need to address the nation?s aging infrastructure and the relentless cost and time pressures of delivering sustainable, reliable and cost effective water services, public owners can turn to PPPs to provide an untapped source of capital that addresses the current infrastructure funding gap.
Doug Herbst is vice president of alternative project delivery at MWH Global and a Board member of the National Council for Public Private Partnerships, serving as its Water Institute Chairman.
The National Council for Public-Private Partnerships (NCPPP) is a non-profit, non-partisan organization founded in 1985. The mission of the council is to advocate and facilitate the formation of public-private partnerships at the federal, state and local levels, where appropriate, and to raise the awareness of governments and businesses of the means by which their cooperation can cost effectively provide the public with quality goods, services and facilities.
?????? Across the country, governments are being challenged to operate more efficiently and cost-effectively and are turning to an accepted tool for serving public needs. The NCPPP?s growing list of public and private sector members, with experience in a wide variety of public-private partnership arrangements, and its diverse training and public education programs represent a vital core of resources for partnering nationwide.
