By Susan Mays and Paul Roy
Operations Management International, Inc.
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Although fewer than 2 percent of municipal wastewater facilities are privatized, public-private partnerships are thought to be on the rise.
Years ago, privatization meant selling municipal assets, such as a hospital or waste treatment plant, to a private company that would own and operate the facilities. Today, the term is used more liberally, referring to a variety of public-private partnerships between municipal or state governments and private companies.
Typically, the term is used when a municipality signs a contract with a private company to manage municipal services, such as water and wastewater services. Under this type of contract management, ownership of the assets remains with the municipality, but the private company takes over day-to-day operations and maintenance responsibilities.
Privately owned water facilities are quite common. More than 40 percent of the drinking water plants in the United States are privately run. However, privatization in the wastewater industry is much less common. Less than 2 percent of the 16,024 U.S. wastewater facilities are privatized.
Nevertheless, in recent years, public-private partnerships in wastewater facilities have been on the rise. Local governments now are more aware of the benefits of privatization, and private companies are anxious to expand into the market. And the U.S. government is making it easier for private companies to operate wastewater treatment facilities. Tax incentives that expand contract terms from five years to as many as 20 years, as well as Executive Orders that simplify federal requirements for contract operations, have stimulated the private sector's interest in operating wastewater facilities.
According to the U.S. Environmental Protection Agency's (EPA) Guidance on the Privatization of Federally Funded Wastewater Treatment Facilities, "The private sector has the potential to be a significant partner in the development of wastewater infrastructure in this county."
Why would a municipality contract with a private company to operate its wastewater services? For starters, a private company often brings in a level of specialization that usually is impractical or too expensive for a municipality to develop alone. Other reasons for a municipality to privatize operations range from difficulties retaining certified staff to challenges complying with ever-stricter regulations, to the need for financing, designing and building a new or expanded system. Mounting fines for non-compliance and regulatory pressures often intensify the reasons for privatizing.
But public-private partnerships are not the cure-all. When a municipality does decide to privatize, it is crucial it do so in a competitive environment where it seeks bidders that are financially stable, experienced and have the ability to deliver the services the municipality requires. The contractual conditions the municipality identifies should clearly define the penalties for non-performance. In addition, a reputable contract-management company should pay any regulatory fines incurred as a result of its management of a municipal facility.
A private company's reputation and ability to secure new contracts rests solely on it ability to maintain clean, safe water in compliance with federal and state environmental standards. Because difficulties meeting stringent compliance regulations often are responsible for a municipality's selecting a contract management company to run its facility, the municipality should make certain the private company will work closely with environmental stakeholders and government regulators to keep its wastewater system in compliance at all times.