Service contracts are usually most suitable where the service can be clearly defined in the contract, the level of demand is reasonably certain, and performance can be monitored easily. Service contracts provide a relatively low-risk option for expanding the role of the private sector. Service contracts can have a quick and substantial impact on system operation and efficiency, and provide a vehicle for technology transfer and development of managerial capacity.
Service contracts are often short term, allowing for repeated competition in the sector. The barriers to entry are also low given that only a discrete service is up for bid. The repeated
| Box 3: Service Contract for Leak Reduction in Malaysia |
| Sandakan is a city of about 450,000 inhabitants in the Malaysian state of Sabah. The State of Sabah has had one of the highest levels of nonrevenue water (NRW) in Malaysia. In the 1990s, the level was calculated at almost 60% of system input volume. In the spring of 2003, Jabatan Air Sabah (Sabah Water Board) let an NRW reduction contract that was aimed at reducing real or physical losses from two directions, improving and expanding the current active leakage control activities, and replacing the mains with the highest burst frequencies. This contract was for a period of 30 months and was undertaken by Halcrow Water Services in partnership with a Malaysian company, Salcon Engineering. In July 2005, the project was successfully ended. During the course of the project, about 2,100 leaks were located and repaired. At the end of June 2005, physical losses have been reduced by almost 17.5 million liters per day (Mld) against the target of 15 Mld. About 11 Mld have been saved through active leakage control and 6.5 Mld by replacement of mains. This represented a savings of 20% of the total volume of treated water produced. The physical activities were paired with a training program to ensure sustainability of the efforts. In 2006, Salcon signed a contract for phase two of the contract. The scope of work includes providing core NRW team and technical personnel to carry on with the NRW reduction work, such as pipe replacement, setting up of district metered zones, active leakage detection, leak repairs, consumer meter replacement, pressure management, and network modeling. |
| Source: Pilcher, Richard. 2005. A Practical Approach to Developing a Sustainable Water Loss Reduction Strategy in Sandakan, Sabah, Malaysia. Halcrow Water Services, Rocfort Road, Snodland, Kent ME6 5AH, United Kingdom. |
bidding maintains pressure on contractors to maintain low costs, while the low barriers to entry encourage participation in the competition.