Contracting Water and Wastewater Utility Operations

Executive Summary

Mounting regulatory pressure, scarcity of competent personnel, and significant budgetary problems are leading more and more communities to consider private-sector contract operations and maintenance (O&M) of water and wastewater facilities. At present, there are about 400 O&M contracts in the United States for municipal water and wastewater facilities with rated capacities over 1 million gallons per day. This represents about 5 percent of all facilities.

When properly implemented, contract O&M can provide greater accountability for operations, allow community leaders to shift the risk of meeting environmental standards to the private sector, and bring added expertise to the increasingly complex operating environment of water and wastewater systems. Contract O&M also offers a more predictable operations budgeting process, and an opportunity for local governments to realize operational savings that can be shifted to investments in capital facilities.

While cost savings is often cited as the primary reason municipal officials consider contract O&M, price alone should not determine contractor selection. In addition to a guaranteed price, the contractor is providing professional management, technical expertise, and financial controls for water and wastewater operations. Hence, a contractor with a record of successful operations is the key to achieving maximum benefit from private contract O&M.

Equally necessary is a relationship of mutual trust between the contractor and the municipality. An objective and unbiased procurement process is important in early development of this relationship. Since contract O&M is a professional service that provides management, financial, and human resources capabilities, a procurement process similar to that used in securing other professional services should be used. Professional operation, efficiency, and performance are the keys.

For many municipal officials contracting out raises concern over loss of daily operating control. The owner is placing millions of dollars of assets in the hands of a contractor for operation and maintenance, yet the owner will continue to be the permit holder and be ultimately responsible for overall performance. It is important for the owner and contractor to develop an agreement that affords the owner a level of accountability, as well as liability and fine protection, that can substitute for the owner’s direct control. If this is accomplished, private operation of municipal water and wastewater facilities is a valuable option for community leaders.