□  Specialist consultants

Few municipalities will have all the skills necessary to prepare and complete a complex partnership with the formal private sector, and most municipalities in developing countries are probably best advised to seek specialist expertise in the development of partnerships with international and national private firms and organisations (such as WSP). As such, a primary external agent frequently involved in the development of partnerships is the 'expert' who is brought in to a municipality to provide specialist skills, guide the process of partnership development, and/or supplement skills in particular technical areas. Both logic and evidence suggest that the role of the consultant is critical in the formulation of long-term partnerships involving the private sector.

The long duration of some arrangements, such as concessions, suggests that it is pointless (and overly ambitious) to expect municipalities to develop in-house expertise in defining a partnership arrangement - especially if this process happens only once every 20-30 years. Buying this expertise at key points in the process is more cost efficient, and allows municipalities to focus on developing in-house skills for other functions.

Second, some of the skills required in partnership development are extremely detailed in nature. Experts who do nothing else but prepare or negotiate water and sanitation contracts bring extensive specialised experience. Apart from their ability to identify and deal with the critical issues assertively, their involvement levels the playing field - ensuring that the experience in project formulation and negotiation of private operators is matched by a similar level of expertise on the public sector side. Evidence from Gweru, for instance, shows that the role of the consultant was important in building the confidence of the council and task force to carry out their tasks and make decisions, and the presence of an independent, donor-funded specialist was seen as an important mechanism for promoting transparency and assuring the public that the process did not involve corrupt practices.

The inclusion of consultants in the process does not eliminate the fact that municipalities must develop a general level of awareness and understanding of partnerships and their implementation. Nor does the hiring of consultants remove the burden of management from municipal staff. The use of external expertise must be carefully planned, effectively coordinated and meaningfully absorbed into the decision-making process.

In those countries inexperienced in privatisation processes, and where detailed skills are required, it will be necessary to bring in international advisors. This can be a costly process requiring external funding support. In some rare cases in which municipalities are well managed and financed, the cost of specialists might be accepted and absorbed into the transaction cost. However, for the vast majority, the question of appointing external consultants brings with it the question of funds. Donors and funding organisations such as the United States Agency for International Development (USAID), SIDA and the South African Municipal Infrastructure Investment Unit (see Box 10.2) have filled this gap in some municipal initiatives, providing both funding and advice on the identification and appointment of advisors. Yet, to procure this support, municipal managers must have contacts and awareness of such processes, and this is not always the case for those that need the support most.

The potential roles of advisors in the development of partnership arrangements will depend on the primary objectives established by municipalities. Some may appoint advisors from the outset to assist in the overall planning and development process (see Box 6.22). In addition, others may be appointed to advise on:20

•  social issues (the capacity of poor consumers, impacts on workers, social impacts);

•  economic and regulatory issues (market structuring, promotion of competition, tariff design, regulatory mechanisms, monitoring, economic instruments);

•  legal issues (legislation and regulations, bidding documents, the drafting of contracts);

•  technical issues (assessments, specifications and contract requirements);

•  environmental issues;

•  financial issues (projections, bankability, documentation and sales promotion); and

•  the contract negotiation process.

It is important that municipalities build the capacity to effectively appoint and work with advisors. They must take responsibility for the selection by understanding which skills and experience they need. Although experience in the South is now increasing, there is a risk that specialist consultants will not be experienced in issues concerning the poor (and frequently models used in middle- and upper-income countries have been inappropriately recommended). Care should be taken, and donor support enlisted, to ensure that consultancy teams are balanced, include social expertise and have experience in the South.21

Once funding is identified, the process of appointing advisors is an important municipal task, involving the preparation of terms of reference, tendering, evaluation procedures and contracting their services. This World Bank toolkits on water and sanitation22 outline the method of 'packaging' advisory contracts (be it through consortium or individual contracts) and of structuring fees (be they output based or percentage based), and provides indicative terms of reference for legal counsel, engineering consultants and financial advisors.