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 131
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 131
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 131
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.