Alternative Resources, Inc. began providing advisory services to the Borough of Chester in September 1996. A one-day meeting/workshop was held with the Mayor, the Administrator, several Borough Council members, and members of the Water Resources and Sewage Planning Committee. The purpose of the workshop was to explore the potential means by which a public-private partnership could satisfy the Borough's objectives and to lay out a process by which the Borough could receive private proposals and fully evaluate the potential benefits of such a partnership. After the meeting, the Borough decided to conduct a procurement. Alternative Resources, Inc. was retained to prepare an RFP and to assist in proposal evaluation. The private proposals would be compared to a scenario in which the Borough continued to provide public services with existing practices; i.e., a benchmark case.
Public-private partnerships offer an alternative means of designing and constructing new facilities; of pursuing upgrades to existing facilities; and of operating water and wastewater facilities. A partnership is a contractual relationship between the local government and a private party to provide a service. Every partnership is unique, designed to meet the particular needs of each community. Cost savings, risk reduction, and improved performance are the goals of such partnerships. Such partnerships also offer the potential for private financing, thereby allowing the municipality to use its own financing to pursue other community projects. There are many types of public-private. The most common for water and wastewater treatment facilities is contract operations, most of which until recently have been short term; i.e., less than five years. With the 1997 changes in IRS rules, longer-term contracts are now possible without jeopardizing the tax-exempt status of existing bonds and without precluding the use of State Revolving Fund low-interest loans. The recent trend appears to be toward long-term, 20-year agreements, which provide increased incentive to private companies and allow greater public cost savings. Municipalities often find that many of the potential benefits of a sale of facilities can be obtained through a long-term operating contract, without the need to sell assets. There is no right or wrong level of private participation in a public-private partnership. It is based on the needs and objectives of the community.
To determine if a public-private partnership will work, most communities first assess the potential benefits that could result from such a partnership. Such a feasibility study examines the existing condition and cost of facilities and any needs to meet mandated compliance schedules. Potential benefits to continued public services, or more efficient provision of public services, are compared to options and benefits to services being provided privately. Such a comparison most often includes looking at what other communities have done in similar circumstances so as to gain additional perspective on what might be accomplished in your community. If the potential benefits of private service are sufficiently attractive, the next step is to go to the marketplace for competitive proposals.
Procurement is a multi-stepped process. It includes setting objectives, selecting a procurement strategy, defining the service required and key terms and conditions for business arrangements, preparing the procurement document(s), interacting with the prospective proposers, evaluating proposals, selecting a party and negotiating a contract. A successful procurement will attract competitive proposals from qualified parties, obtain attractive terms that meet procurement objectives and result in an equitable contract that fairly serves both parties. There are a number of procurement approaches used. These include, but are not limited to: a Request for Qualifications (RFQ); a Request for Proposals (RFP); a combination RFQIRFP (two steps); and various hybrid approaches such an Expanded RFP-Menu Approach, which was used in Chester Borough. The most common approach is the RFP.
The objective of an RFP is to seek both technical and cost proposals in a one-step process. The advantage of the RFP is that it allows for open cost competition amongst all proposers, and provides the qualifications, technical, business, and cost information needed to make a complete evaluation of proposals received.
It is not uncommon for an RFP to be from 50 to over 200 pages, depending upon the complexity of the project, and Federal, state and municipal procurement laws and regulations.
Although not necessary in all cases, it is recommended that separate Technical and Cost Proposals be submitted to allow separate review. In this manner the technical evaluation and ranking can be completed first without cost bias. Technical Proposals should be evaluated in accordance with the process and using the criteria that were spelled out in the RFP. Cost Proposals are typically evaluated on a life-cycle basis and by present worth analysis.
A typical procurement schedule for an RFP process, from preparing the RFP to selection of the proposer, is eight to twelve months. Contract negotiations can take an additional one to six months. In the case of Chester Borough, approximately twelve months were needed from preparation of the RFP to a signed contract.
When conducting a procurement, it is essential to be cognizant of state and local procurement laws and regulations. In New Jersey for Chester Borough, it was necessary to conduct the procurement in accordance with the New Jersey Water Supply Public-Private Contracting Act, the New Jersey Wastewater Treatment Public-Private Contracting Act, and NJSA Section 40:62-1 et seq. for the sale or lease of facilities.
Remember that private companies responding to your RFP will be spending considerable resources to do so. It is not uncommon for a private proposer to spend in excess of $200,000 to prepare a proposal, particularly if design is required to prepare a cost proposal. Also, for a public-private partnership to work, one should recognize the relationship as a cooperative partnership, not an adversarial relationship. While it is necessary to protect the interests of the community, it is also necessary to recognize that for a successful procurement and relationship one should start with an attitude of trust; adopt an honest and sincere approach conveying that a contract will be awarded if municipal objectives are met; demonstrate that there is a fair and even playing field for all proposers; and provide a setting for an attractive business relationship for both the buyer and seller by considering a long-term contract. Other ingredients include realistic terms and conditions of contract with a well defined work scope and division of responsibility, attainable performance guarantees, equitable risk sharing, realistic conditions for defaults and remedies, fair termination clauses, and financial terms that keep both the buyer and seller financially whole.
Most procurements require a level of technical, financial and legal expertise not available through municipal staff. Consultants can provide guidance and information that allows informed decision making and help "steer" a client away from pitfalls. Their independent advice is valuable in setting attainable goals, preparing the RFP, contract negotiations and in dispute resolution. Perhaps most significant, consultants provide the expertise necessary to achieve an even playing field in discussions and negotiations with proposers, all of whom retain sophisticated and highly experienced advisors.
The Borough set as its objectives the following: meeting current and future water and wastewater needs alleviating the existing and potential environmental problems described earlier; meeting state and Federal environmental compliance requirements and reducing the Borough's economic exposure in doing so: reducing cost and potential rate increases; and improving system reliability and performance.
As described earlier, the RFP followed a menu approach, allowing prospective proposers to buy, lease or contract operate facilities. The procurement process was successful in attracting competitive proposals from several private utilities and private companies providing water and wastewater services. Proposals for purchase and long-term contract operation were received. Based on a comprehensive evaluation of proposals and a comparison of those to the option of the Borough proceeding with its existing public practice, the Borough decided to select the option of selling the water system to a private water utility, New Jersey American, and of entering into a long-term, 20-year contract with a private wastewater company, Earth Tech, for improving and operating the wastewater system.
As a result, the Borough will benefit from more than $9 million of capital improvements to the water system both for water supply and distribution, receive compensation of $750,000 for sale of the water system, and obtain a 30% discount on current water rates for three years. Thereafter, water rates will be controlled by the Board of Public Utilities. With the long-term wastewater operating contract, the Borough will save approximately 30% per year for operation and maintenance of its Wastewater System. In addition, for both the water and wastewater transactions, the Borough was paid a fee by the contractors to reimburse the Borough for its transaction costs; i.e., the cost for technical, financial, and legal advisors used during the procurement process and contract negotiations. The Borough will also receive a fee each year from the contractors to retain an independent engineer to monitor the performance of the contractors and to assure that facilities are being properly maintained.
In closing, from a consultant's perspective, it has been a pleasure working with the Borough of Chester. Advice was requested, informed decisions were made, and the business of the Borough, the taxpayers and the ratepayers was successfully concluded.