On October 30, 2020, EUROCHAMTT hosted a webinar at the Trade & Investment Convention, highlighting Performance-Based Contracts (PBCs). Contracts of this nature are at the heart of a transparent and functioning procurement system. What follows is a deep discussion with SEURECA-VEOLIA and WMI – VINCI C GP Waterworks Division.
SEURECA is the Consulting Engineering and Strategic & Operational Assistance Division of the Veolia Group. The Group designs and provides water, waste and energy management solutions that contribute to the sustainable development of communities and industries. Through its three complementary business activities, Veolia helps to develop access to resources, preserve available resources, and to replenish them. Veolia also develops technological, contractual, social and managerial innovations on a daily basis in order to be able to offer high added value services to its municipal, industrial and tertiary customers. https://www.seureca.veolia.com/en
W.M.I. – Water Management International is a specialized subsidiary of the water works department of VINCI Construction Grands Projets, which designs and builds major civil engineering and building projects. WMI is dedicated to assessing and optimizing drinking water and sanitation systems, and has been providing its expertise worldwide to operators of networks and services since 1989. Currently, WMI is in charge of works and services to reduce Non-Revenue Water (Physical Losses) in Cali, Colombia (2.5 Mn Inhabitants), over 2,400 Km of water mains. https://www.wmi-water.com/en
Contractual Efficiency & Effectiveness
A performance based contract (PBC) is a common technique used across many areas of public infrastructure and services as a means to improving efficiency and effectiveness. Under a PBC binding contract, the private sector operator and Government agree to a set of robust performance indicators and standards of operational/ technical, environmental and economic/ financial nature to be met in the performance of the contract. Payments are then tied to meeting the standards. Extra financial incentives are also a key feature of a PBC.
EUROCHAMTT believes that the Government of Trinidad and Tobago should consider performance based contracts with the private sector. This is a good strategy for improving operational efficiency of essential infrastructural services including utilities, ports, road construction and maintenance, while eliminating the need to go to full privatization of services. Managing risks of monopolistic behaviour and ensuring accessibility of service to all users are among the key considerations of choosing PBCs versus full privatization of essential services.
Mr. Francois Lacour, Strategic and Operational Assistance Manager, SEURECA-VEOLIA
How can we leverage proven and innovative solutions from an international utility leader to improve financial and operational performance?
SEURECA-VEOLIA has a great introduction to Performance Based Contracting on their website. Go here to read more.
Mr. Fabrice Lupo, NRW Reduction Expert, Area Manager WMI / Vinci C GP Waterworks Division
Performance-Based Contracts for Non Revenue Water Reduction and Service Improvement – Opportunities for transforming industry and infrastructure through PBCs with the private sector.
Mr. Lupo’s presentation goes into further examination of PBC’s and their benefits:
Here are some questions posed by the attendees of our webinar, and responses from our presenters:
On political interference
- I recognize that it is multidisciplinary, and not an engineer’s job. But it is also not a politician’s job. How is that type of interference managed in such arrangements?
Mr. Fabrice Lupo: “The project requires some commitment at Management and Stakeholders’ level to ensure its success, more particularly for supporting actions to reduce commercial losses.
Education and communication campaigns, along with dedicated field works, are necessary to ensure people understand the scope of the project, the value of water and visualize that they contribute with improving and sustaining the water utility (WASA) through paying for the right amount of water that they use.
Political interference shall be avoided through strong and dedicated communication with politician PRs and community meetings.
Upstream engagement and validation at the contract design level, to ensure that contract’s outputs are aligned with the broad picture in terms of service improvements, savings, investments, capacity building, etc.
- Once awarded, ensuring that during the baseline period, assumptions are revised and integrated in the utility / sector business plan while expected outputs and benefits are confirmed or re-arrangement before the end of the baseline phase => providing the necessary visibility to all stakeholders, including the political level, in order to avoid the “black box” effect
- Promoting successes based upon facts and iterations whenever and wherever required, within a traceable system
- Making sure that an appropriate change management programme is onboard, tackling all layers of stakeholders, while appropriate communication resources are mobilized.
If it does not guarantee the removal of 100% interferences as these are quite normal and logical within a public services context, it provides the necessary transparency and facts to support decision making and / or avoid perception.”
On Contracts and Overall Cost
- It appears that this type of contract takes a longer time: (a) for definition of governance, (b) a good design takes time, (c) procurement and activities of an independent auditor, etc. Wouldn’t the cost of the project go up as well?
Mr. Fabrice Lupo: “There are many examples in the region of success stories that can be use as ‘benchmark’ to define and start this type of project without mayor delays or uncertainty. External Auditors / Engineers cost tend to be relatively low for this type of project with limited CAPEX.
The concept is to properly define the initial study / preparation / baseline phase and smoothly move to implementation phase. Once the roles are clearly defined between the Client (in this case WASA) and the Specialized Contractor, the project can run properly.
There is no particular risk of cost increase. At the contrary, cost is controlled through this kind of arrangement : Study/Design -> Implement –> Operate & Control is done by the same Specialized Contractor and no separate entities.”
Mr. Francois Lacour: “It is to note that this type of contract is not 100% the response to all situations. This type of contract is to be chosen following a preliminary cost-benefit analysis, ensuring that costs that would be incurred – from design to completing the project – are accounted for and that the contract in return is highly beneficial to the utility with good rates of return. Therefore, a preliminary analysis is mandatory to confirm that this is the optimal model for a given situation considering risk allocation, skills and technology to be mobilized, etc.). If not, other types of contract are available. Please note that however if this was to be chosen, design and set up is not to be neglected as it could be a recipe for disaster.”
On Making this Attractive to Government
- A contract of this nature in the Water Sector will more than likely expose Government patronage to their political constituents, in the form of illegal connections, wastage, with the resultant higher charges for the users who have no choice. How would the introduction of this model be made attractive to Government?
Mr. Fabrice Lupo: “This question is quite similar to the 1. Political interference shall be avoided through strong and dedicated communication with politician PRs and community meetings. For areas with high concentration of illegal connections, a specific programme shall be developed in order to first educate consumers to reduce wastage and fix their internal pipes, smoothly move to regularization of connections (geo-referencing, establishment of water contract etc.), then gradual implementation of water metering, and finally proper invoice of water.”
Mr. Francois Lacour: “In fact, such model should be seen as a win win model for all, ensuring that:
- Service is deployed in a transparent and traceable framework, with best value for money and right and duties from all parties and stakeholders
- Subsidies (or tariff) should be controlled considering effective utility management practices, instead of always funding more operational deficit
- From a social standpoint (with reference to illegal connection), it would put all consumers at the same level ensure the system is social to all