Tuesday, June 26, 2012

CAPpings - Performance Contracts: Shaking Up The Municipal Water Market? - Does this approach open doors for corrosion control leading to water conservation and supply of healthy water?

Performance contracts promise to shake up the municipal water market — and to open the drinking water and wastewater sectors to new heights of innovation, efficiency, and funding opportunities.

This will open the doors for efficient corrosion control to conserve water and avoid contamination.


Performance contracts promise to shake up the municipal water market — and to open the drinking water and wastewater sectors to new heights of innovation, efficiency, and funding opportunities.  As Steve Hoffman  wrote in Planet Water: Investing in the World’s Most Valuable Resource, “the water industry is being  rationalized from a delivery-based approach to a solution-based system.”
Instead of manufacturers delivering equipment to an installation and driving away, or consulting engineers wrapping up most of their work once a new facility is online, performance contracts put the risk — and the reward — of performance on the supplier side.  Contracted operators deliver water for a negotiated sum, or earn their pay as incentives for achieving agreed-upon goals — for instance, cost savings over previous systems. Utilities reduce their up-front expenditures, their risk and, often, the need to go to voters for bond measures.
To investors, that’s like a long, cool drink of water on a hot day.  A contract guaranteeing a certain level of performance, seasoned with the security of working with municipalities on the most inelastic of commodities — it’s a solid bet.  Coupled with growing interest in non-traditional financing tools like public-private partnerships and private activity bonds, performance contracts offer increasingly attractive opportunities for investors, which in turn open up great opportunities for municipalities.

To equipment manufacturers, performance contracts are a call to the drawing board, a chance to grow their business through innovation and product improvement rather than face the gauntlet formed when engineers only specify predictable, plain-vanilla, previously-approved technologies in traditional installations.

To consulting engineers, it’s a huge disruption.  Replacing the old design-bid-build model with design-build-operate or even design-build-own-operate arrangements changes the business model for many consulting firms.  In the new system, the money comes from efficiencies in operating expenses (OPEX) rather than a piece of the capital expenses (CAPEX).  The paycheck is spread over long contracts – no more bid ‘em, build ‘em and move on.

On the flip side, the shift creates opportunities for consulting engineers to focus their training and expertise on pilot testing, creating OPEX efficiencies and overseeing construction.  A lesson from the electric and gas utilities is that scalability — turning successful pilot plants into commercial realities that deliver the same benefits — is a huge challenge, notes Linda Jackman, vice president of industry strategy for Oracle Utilities.  That makes understanding pilot design and scale a key competency for the new generation of successful consulting engineers.

Consulting engineers’ expertise must bridge into the burgeoning world of data, which means tomorrow’s consulting engineers (and many of today’s) need to serve up their hydraulics with a data analysis chaser.

 By Jim Lauria

Article Source: Share Performance Contracts: Shaking Up The Municipal Water Market?
Publication Date: 19 June 2012

1 comment:

  1. This will open the doors for efficient corrosion control to reduce the contamination caused by leakage of pipes and also to increase the life time of equipments. Corrosion issues are generally neglected in potable water treatment business. These parameters should be included in the performance guarantee to safeguard the equipments and provide healthy water to the public.

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