National Academies Press: OpenBook

Privatization of Water Services in the United States: An Assessment of Issues and Experience (2002)

Chapter: Appendix C: Seattle Public Utilities Treatment Plant, Design-Build-Operate Project, Risk-Sharing Matrix

« Previous: Appendix B: Overview of Safe Drinking Water Act, SDWA
Suggested Citation:"Appendix C: Seattle Public Utilities Treatment Plant, Design-Build-Operate Project, Risk-Sharing Matrix." National Research Council. 2002. Privatization of Water Services in the United States: An Assessment of Issues and Experience. Washington, DC: The National Academies Press. doi: 10.17226/10135.
×

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.

Suggested Citation:"Appendix C: Seattle Public Utilities Treatment Plant, Design-Build-Operate Project, Risk-Sharing Matrix." National Research Council. 2002. Privatization of Water Services in the United States: An Assessment of Issues and Experience. Washington, DC: The National Academies Press. doi: 10.17226/10135.
×

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.

Suggested Citation:"Appendix C: Seattle Public Utilities Treatment Plant, Design-Build-Operate Project, Risk-Sharing Matrix." National Research Council. 2002. Privatization of Water Services in the United States: An Assessment of Issues and Experience. Washington, DC: The National Academies Press. doi: 10.17226/10135.
×

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.

Suggested Citation:"Appendix C: Seattle Public Utilities Treatment Plant, Design-Build-Operate Project, Risk-Sharing Matrix." National Research Council. 2002. Privatization of Water Services in the United States: An Assessment of Issues and Experience. Washington, DC: The National Academies Press. doi: 10.17226/10135.
×

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.

Suggested Citation:"Appendix C: Seattle Public Utilities Treatment Plant, Design-Build-Operate Project, Risk-Sharing Matrix." National Research Council. 2002. Privatization of Water Services in the United States: An Assessment of Issues and Experience. Washington, DC: The National Academies Press. doi: 10.17226/10135.
×
Page 131
Suggested Citation:"Appendix C: Seattle Public Utilities Treatment Plant, Design-Build-Operate Project, Risk-Sharing Matrix." National Research Council. 2002. Privatization of Water Services in the United States: An Assessment of Issues and Experience. Washington, DC: The National Academies Press. doi: 10.17226/10135.
×
Page 132
Suggested Citation:"Appendix C: Seattle Public Utilities Treatment Plant, Design-Build-Operate Project, Risk-Sharing Matrix." National Research Council. 2002. Privatization of Water Services in the United States: An Assessment of Issues and Experience. Washington, DC: The National Academies Press. doi: 10.17226/10135.
×
Page 133
Suggested Citation:"Appendix C: Seattle Public Utilities Treatment Plant, Design-Build-Operate Project, Risk-Sharing Matrix." National Research Council. 2002. Privatization of Water Services in the United States: An Assessment of Issues and Experience. Washington, DC: The National Academies Press. doi: 10.17226/10135.
×
Page 134
Next: Appendix D: Biographical Information »
Privatization of Water Services in the United States: An Assessment of Issues and Experience Get This Book
×
Buy Hardback | $45.00 Buy Ebook | $35.99
MyNAP members save 10% online.
Login or Register to save!
Download Free PDF

In the quest to reduce costs and improve the efficiency of water and wastewater services, many communities in the United States are exploring the potential advantages of privatization of those services. Unlike other utility services, local governments have generally assumed responsibility for providing water services. Privatization of such services can include the outright sale of system assets, or various forms of public-private partnerships—from the simple provision of supplies and services, to private design construction and operation of treatment plants and distribution systems. Many factors are contributing to the growing interest in the privatization of water services. Higher operating costs, more stringent federal water quality and waste effluent standards, greater customer demands for quality and reliability, and an aging water delivery and wastewater collection and treatment infrastructure are all challenging municipalities that may be short of funds or technical capabilities. For municipalities with limited capacities to meet these challenges, privatization can be a viable alternative.

Privatization of Water Services evaluates the fiscal and policy implications of privatization, scenarios in which privatization works best, and the efficiencies that may be gained by contracting with private water utilities.

  1. ×

    Welcome to OpenBook!

    You're looking at OpenBook, NAP.edu's online reading room since 1999. Based on feedback from you, our users, we've made some improvements that make it easier than ever to read thousands of publications on our website.

    Do you want to take a quick tour of the OpenBook's features?

    No Thanks Take a Tour »
  2. ×

    Show this book's table of contents, where you can jump to any chapter by name.

    « Back Next »
  3. ×

    ...or use these buttons to go back to the previous chapter or skip to the next one.

    « Back Next »
  4. ×

    Jump up to the previous page or down to the next one. Also, you can type in a page number and press Enter to go directly to that page in the book.

    « Back Next »
  5. ×

    Switch between the Original Pages, where you can read the report as it appeared in print, and Text Pages for the web version, where you can highlight and search the text.

    « Back Next »
  6. ×

    To search the entire text of this book, type in your search term here and press Enter.

    « Back Next »
  7. ×

    Share a link to this book page on your preferred social network or via email.

    « Back Next »
  8. ×

    View our suggested citation for this chapter.

    « Back Next »
  9. ×

    Ready to take your reading offline? Click here to buy this book in print or download it as a free PDF, if available.

    « Back Next »
Stay Connected!