Providers stand to profit by delivering efficient, high-quality service
Alignment of interests occurs when all stakeholders stand to benefit from a particular outcome, so they’re incentivized to pull in the same direction to achieve common goals.
A win-win scenario is a big part of why public-private partnerships (PPPs) are dramatically changing the way infrastructure is delivered. From state governments in the United State to Southeast Asian nations, policymakers are rolling out new laws to encourage PPPs.
How do PPPs Work?
PPPs are contracts between public entities and water companies that function much like a concession. Build-own-operate (BOO) and build-own-operate-transfer (BOOT) contracts are two of the most popular PPP frameworks.
Under BOO and BOOT contracts, the private partner (the water company) assumes all or most of the financial risk, delivers the infrastructure, and operates and maintains the plant over a set timeline. The public partner pays for the water services it needs. After the contract period ends, often decades later, the contract can be renewed, or the specified party takes possession of the infrastructure.
When a public entity takes responsibility for new infrastructure, it also takes on risk, incurring monetary loss if something goes wrong with a project. Risk is more manageable for a water company because it has wide experience in infrastructure delivery and confidence in its risk assessment.
Under the PPP model, the private partner assumes a large part or even all of the risk. For example, the BOO and BOOT contracts offered by Fluence’s Water Management Services (WMS) remove the risk from customers and deliver up-to-date infrastructure with no upfront investment required.
When going it alone, a public entity deals with any number of contractors, from consultants to construction companies to equipment manufacturers. In most cases, the contractors fulfill their obligations, get paid, and move on, leaving the public entity on its own with only a few warranties in hand once a plant is commissioned.
In contrast, a PPP functions much like a concession. Because the water company is responsible for 100% of operation and maintenance, it’s in its interest not to cut corners on construction and equipment quality.
Continuing service is as important as providing or improving infrastructure. Water quality and quantity are specified in a PPP contract, and the water company loses money if it doesn’t perform up to the contract’s specifications.
Efficient Division of Labor
When a government entity takes on water or wastewater treatment, it’s also faced with the task of running it. This means attracting, developing, and retaining a skilled, specialized workforce. It must develop extensive policies, procedures, and maintenance schedules and keep up with sometimes-onerous regulations.
Under the managed services model, however, water is handled by a company whose core business and mission is water. For example, Fluence is a global water company with more than three decades of experience in wastewater treatment, water reuse, desalination, ultrapure water, and a host of services across the private and public sectors. Having a company like Fluence manage plant maintenance reduces a lot of the work.
Although PPPs are focused on public–private partnerships, BOO and BOOT models are also beneficial for private businesses. By outsourcing water build and operations to an experienced water company, private companies, like hotels or resorts, can remain focused on their core missions.
Contact Fluence to discuss how our Water Management Services can make top-quality infrastructure happen with no upfront investment and let you concentrate on what you do best.