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Privatization of Water Services in the United States: An Assessment of Issues and Experience
C
Seattle Public Utilities Treatment Plant, Design-Build-Operate Project, Risk-Sharing Matrix
Risk
Allocation
Remarks
Design
Technology Selection
Contractor
City reviews designs through an established review procedure in Service Agreement.
Technology Obsolescence
Contractor/ City
Contractor is responsible for selecting technology that is proven, will be permitted by agencies, and will meet performance guarantees. Contractor is responsible for technology obsolescence, except for change in law, unforeseen circumstances, and unspecified conditions for raw water and water demand.
Unforeseen Preexisting Site Conditions
City
Risks for change in law, unforeseen circumstances, and preexisting site conditions are the city’s risks.
Construction/Commissioning
Construction Period
Contractor
City monitors construction and tests to determine compliance with service agreement.
Acceptance Test
Contractor
Service agreement specifies guaranteed construction period after fulfillment of conditions precedent. Notice to proceed given after conditions precedent satisfied.
Payment
City/ Contractor
Facility not deemed suitable for commercial operation until test is passed. Retest principles outlined in service agreement.
Construction payment based on drawdown and milestone schedule in service agreement. City is responsible for payment when milestones are met by contractor.
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OCR for page 131
Privatization of Water Services in the United States: An Assessment of Issues and Experience
C
Seattle Public Utilities Treatment Plant, Design-Build-Operate Project, Risk-Sharing Matrix
Risk
Allocation
Remarks
Design
Technology Selection
Contractor
City reviews designs through an established review procedure in Service Agreement.
Technology Obsolescence
Contractor/ City
Contractor is responsible for selecting technology that is proven, will be permitted by agencies, and will meet performance guarantees. Contractor is responsible for technology obsolescence, except for change in law, unforeseen circumstances, and unspecified conditions for raw water and water demand.
Unforeseen Preexisting Site Conditions
City
Risks for change in law, unforeseen circumstances, and preexisting site conditions are the city’s risks.
Construction/Commissioning
Construction Period
Contractor
City monitors construction and tests to determine compliance with service agreement.
Acceptance Test
Contractor
Service agreement specifies guaranteed construction period after fulfillment of conditions precedent. Notice to proceed given after conditions precedent satisfied.
Payment
City/ Contractor
Facility not deemed suitable for commercial operation until test is passed. Retest principles outlined in service agreement.
Construction payment based on drawdown and milestone schedule in service agreement. City is responsible for payment when milestones are met by contractor.
OCR for page 132
Privatization of Water Services in the United States: An Assessment of Issues and Experience
Risk
Allocation
Remarks
Operations and Maintenance
Payment
City
City monitors performance via review of records and reports. City may conduct periodic inspections.
Preventive Maintenance
Contractor
Monthly service fee paid with a fixed and variable component consistent with tax laws and forms of financing (i.e., pass-through costs, the only variable component). Monthly reports typically accompany invoices.
Repairs and Replacements
Contractor/ City
Standard-of-care provisions and contractual obligations requiring proactive preventative maintenance program.
Capital Improvements
Contractor/ City
Contractor is responsible for all repairs and replacements to meet performance requirements, except for certain major improvements where the city may be responsible for costs. Contractor is responsible for all capital improvements required to meet performance requirements, except for certain major improvements where the city may be responsible for costs. City is responsible for capital improvements as a result of changes to performance standards. Renegotiation principles are included in the service agreement.
Supply of Raw Water
Infrastructure (e.g., pipelines, reservoirs, etc.)
City
City is responsible for supplying water to facility site at interface point. Contractor assumes responsibility at the interface point.
Quantity
City/ Contractor
Specified range of flows based on historical data is provided in the service agreement. Contractor assumes risk for flows within the specified range. City provides relief for flows outside of the range. Contractual provisions included for contractor to justify adjustments to service fees for flows outside of specified ranges.
Quality
City/ Contractor
Specified ranges of quality based on historical data are provided in service agreement. Contractor assumes risk for quality within the specified range. City provides relief for raw water quality (additional payment or reduction in treatment rate) outside of range.
Plant Performance
Quality (without change in law)
Contractor
Contractor is responsible for supply of specified water quality. Contractual provisions for the need to shut down facility if raw water quality prohibits ability to meet standards.
OCR for page 133
Privatization of Water Services in the United States: An Assessment of Issues and Experience
Risk
Allocation
Remarks
Quality (with change in law)
City
City is responsible for costs associated with upgrading and operating facility to meet new standards. Renegotiation principles are included in service agreement.
Quantity and Flow
Contractor/ City
Contractor is responsible for flows within specified range. Contractual provisions for delivery of water quantities requested by city outside of specified range.
Infrastructure for Transmission
City
City is responsible for installing and maintaining transmission and distribution systems for specified and requested flows.
Environmental/Permitting
Additional Environmental Review
Contractor
Contractor is responsible for complying with mitigation in existing final Environmental Impact Statement (EIS) and to prepare supplemental EIS/addenda if needed.
Existing
Contractor
Contractor is responsible for reporting to regulatory agencies and the city. City monitors contractor’s performance.
Change in Law
City/ Contractor
Typically allocated to the city. Limited risk can be allocated to contractor (i.e., dollar limit). Renegotiation principles are included in service agreement.
Permitting
Contractor/ City
Contractor secures most permits. City may be co-permittee. Securing permits typically undertaken as part of conditions precedent in service agreement.
Other Factors
Financing
City
City responsible for financing project as part of conditions precedent.
Escalation of Costs— Construction
Contractor/ City
Contractor holds price until a specified calendar date. Thereafter, price escalates at a percentage of a specified index (i.e., CPI, ENR, etc.)
Escalation of Costs— Operation
City
Service fee escalates annually at a percentage of a specified index (i.e., CPI). Certain pass-through costs are allowed.
Taxation
Contractor
All taxes (i.e., income tax) are contractor’s responsibility.
Natural Disaster
Contractor/ City
Insurance; renegotiation principles; force majeure provisions. City has responsible risk for amounts above uninsured portions.
Industrial Relations
Prevailing Wage Rates/Force Majeure
Contractor
Contractor’s choice whether or not to pay prevailing wages. Contractor’s risk if initial choice not to pay such rates is incorrect.
OCR for page 134
Privatization of Water Services in the United States: An Assessment of Issues and Experience
Strikes
Contractor/ City
For local strikes against the facility, contractor assumes risk. For national strikes, city assumes risk.
SOURCE: Westerhoff, G. P., D. Gale, P. D. Reiter, S. A. Haskins, and J. B. Gilbert. 1998. The Changing Water Utility: Creative Approaches to Effectiveness and Efficiency. Denver, Colo.: American Water Works Association.
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