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CHARLOTTE, NORTH CAROLINA (Contract Operations and Maintenance)
Type: Public-Private Partnership/Optimization Models
Description: The City of Charlotte seeks competition and outsourcing to reduce the costs of public services. Water and wastewater services are provided to Charlotte and Mecklenberg County by the Charlotte-Mecklenberg Utilities Department (CMUD) which runs three water treatment plants and five wastewater treatment plants. To explore cost savings through public-private partnership, CMUD offered the Vest Water Treatment Plant and the Irwin Creek Wastewater Treatment Plant for contract operations. The partnership offered was a five-year contract (a three year contract with two one-year renewal options) for operations and maintenance of the facilities only. Each plant was treated as a separate procurement, but firms were allowed to submit a combined proposal in addition to the individual ones, if there was a cost savings to the City.
Demographics: The City and County have a strong economy with significant growth and these trends are expected to continue. The service area includes Mecklenberg County (about 500,000 people) and both plants are in Charlotte, NC. The Vest plant treats 16-24 million gallons a day (MGD) and has a hydraulic capacity of about 30 MGD. The actual range of finished water ranges from 6-46 MGD. The Irwin plant treats an average of 12 MGD of mostly domestic wastewater, with a design capacity of 15 MGD. Secondary treatment is based on a modified Bio-Filter activated sludge process and recently completed upgrades add a single media filter to provide tertiary treatment. CMUD has not experienced recent compliance problems.
Procurement/Competition: The City used a two-stage procurement process which began in late spring 1995. The first was a request for qualifications from firms interested in proposing on one or both projects. Separate statements of qualifications (SOQs) were required for each. The City received nine SOQs for the Vest project and eight for the Irwin project. SOQs were evaluated based on management arrangements, experience, key staff experience and qualifications, technical resources, financial resources, performance history, and project understanding/contracting suggestions. The SOQs received were of high quality and only one firm did make the short-list.
Including the in-house proposal (it was pre-qualified), seven proposals were submitted for Vest and six for Irwin. The main criterion for evaluating proposals was cost. Technical criteria included the quality and reliability of proposed operations and maintenance services, level and skill of staff, transition plan, and specific areas of risk for each proposal. Considerable efforts were taken to ensure a level playing field for all proposers, particularly in regards to separating the in-house proposal team from the procurement team, and in fairly allocating indirect department and City overhead costs to the in-house proposal. In addition, an independent consulting team was hired to manage the procurement process, and assist in evaluating qualifications and technical/cost proposals.
CHARLOTTE, NORTH CAROLINA
Proposer Selected: The City selected CMUD's in-house team to operate both plants. Their proposed price was substantially lower than the lowest privatizer's price. Technically, the City's in-house proposal was comparable to the privatizers' proposals. The in-house proposal reduced costs through staff reductions, increased automation, and improved process control equipment. The City set up a separate cost center to track the performance of the in-house team in meeting cost-saving goals. Failure to meet the goals allows the non-binding memorandum of understanding with the in-house team to be ended and operation of the plants again offered for privatization. Employee bonuses are based on cost savings exceeding those guaranteed in the proposal. The contract began July 1, 1996.
Benefits: Based on the City's in-house proposal, costs savings of about 30% are expected the first year compared to the previous year's budget. Since the operation of these two plants is only a small part of the total CMUD budget, the impact on rates will not be significant over the five-year time frame of the contract. However, the implications for achieving similar savings throughout CMUD operations may have a significant impact on long-term costs and future rates. The City expects to benefit from improved maintenance and the corresponding preservation of its assets.
Drawbacks: None. Cost of capital was not an issue since the City was retaining responsibility for capital expenditures and none are expected over the five-year term of the contract. The City view of privatization is still favorable and perceived loss of control is not an issue. The City believes it can maintain control through the provisions of the service contract and by owning the land and assets.
Lessons Learned: Even though the City choose not to privatize, the procurement was successful and valuable lessons were learned, including:
* Open communications between the City and private parties are essential. * The evaluation process must be objective and provide a level playing field for all proposers. * A two-step procurement can be an effective way to streamline the process. * Requests for Proposal should include comprehensive and explicit draft service agreements. * Both sides must understand the maintenance risks assumed by the contract operator so that cost-effective proposals can be prepared and evaluated. * Given the same flexibility as a private party, a public entity can achieve major cost savings. * The proposal process must provide all participants an equal opportunity to develop creative and cost-effective proposals.
Reference for Further Information: Doug Bean, Director, Charlotte-Mecklenberg Utility Department, 5100 Brookshire Boulevard, Charlotte, NC 28216. Telephone Number: 704-391-5073. EFAB Member George Raftelis, 6100 Fairview Tower, Suite 615, Charlotte, NC 28210. Telephone Number: 704-556-1936. Fax Number: 704-556-1937. |
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