Modern water treatment financing model saves more

Today’s realities have made managing water and wastewater treatment a complex undertaking. Across industries, manufacturers, food processors, and energy producers face rising costs, operational hurdles, and strict regulations—all while pursuing sustainability.

While traditional procurement may be a familiar way to go, choosing an updated water infrastructure financing model supports long-term success and resilience that traditional models may struggle to deliver. The build-own-operate (BOO) model offers cost efficiency and frees institutional resources where traditional procurement may have inefficiencies from the start and for decades to come.

The Challenges of Industrial Water Treatment Financing

Industrial customers face an uphill battle when addressing demand for water and wastewater treatment. From securing capital for design and construction to maintaining operations and ensuring regulatory compliance. These burdens often steer businesses toward the familiar design-bid-build model.

A more mindful choice can streamline operations, stabilize costs, and ensure compliance, laying the groundwork for sustainable growth and resilience. For many, the decision boils down to a comparison of traditional procurement and the increasingly popular BOO agreement.

These financial and operational burdens often lead businesses to the familiar path of traditional procurement, also known as design-bid-build. However, understanding the intricacies of this model reveals potential drawbacks.

Understanding Traditional Procurement

Design-bid-build (DBB), the traditional procurement model, has been the dominant infrastructure delivery mode in the modern water sector. It involves purchasing water assets outright, with the buyer assuming full responsibility for operations and maintenance (O&M). While familiarity may make the DBB model seem to be a good choice, tradition has downsides.

For instance, under traditional procurement, businesses must allocate significant up-front capital to design and build water treatment systems. This can strain budgets, divert resources from other critical demands, and burden operations with decades of debt.

Perhaps even more importantly, the responsibility to manage and maintain the system falls to the customer. The buyer must hire or train personnel, maintain a local equipment inventory, keep abreast of regulatory frameworks to maintain compliance, and ensure that the system runs efficiently. It can be time-consuming and costly to manage.

Operational costs such as energy, chemicals, and unexpected repairs can also fluctuate significantly, making budget forecasting a challenge. Costly failures can happen if maintenance schedules are delayed. Then buyers are left trying to exercise any third-party equipment warranties they might have. Moreover, they must navigate an ever-changing regulatory landscape, shouldering the risk of potential fines and legal action for noncompliance.

How BOO Agreements Work

To address the problems with the DBB model, alternative models like BOO agreements have become a game-changer in water sector financing. Under a BOO agreement, the vendor designs, builds, owns, operates, and maintains the water asset. The customer pays a fixed fee, eliminating the need for capital investment and operational responsibility.

Here’s how it works: BOO agreements shift risk to the provider and remove the financial barrier of up-front costs. Customers can preserve their capital for core operations while receiving services from water industry experts. In a BOO arrangement, the vendor has full ownership of the system and retains all O&M responsibilities, ensuring expert management and freeing the customer’s organizational resources.

Today’s performance-based BOO agreements incentivize the vendor to maintain high efficiency and ensure compliance, aligning their interests with the customer. If the vendor does not hit performance targets, the vendor does not get paid. BOO transforms water treatment from a capital-heavy undertaking into a streamlined, service-based model, allowing businesses to focus on their core missions without distraction.

By shifting risk and streamlining operations, BOO agreements offer a compelling alternative. To fully grasp the advantages, consider a direct comparison with traditional procurement.

Key Comparisons: BOO vs. Traditional Procurement

• Cost predictability
  Traditional procurement can have unpredictable O&M costs from unexpected repairs or rising utility prices. In contrast, BOO agreements offer fixed payments, enabling businesses to budget with confidence.
• Operational efficiency
  With traditional procurement, businesses must build in-house teams to manage their systems, which can be expensive and time-consuming. BOO agreements leverage the vendor’s expertise to optimize operations and reduce inefficiencies.
• Regulatory compliance
  Staying compliant with water quality and environmental regulations presents a constant challenge. In a BOO model, vendors ensure that systems are always up to standards. Traditional models leave businesses to navigate compliance hurdles on their own.
• Scalability and flexibility
  As industries grow, water treatment needs can change. Expanding or upgrading a traditionally procured system can be costly and disruptive. BOO agreements, however, often include containerized systems that can be more easily scaled to meet changing demands.
• Risk management
  Under traditional procurement, businesses bear the full risk of operational failures, compliance issues, and cost overruns. BOO agreements transfer these risks to the vendor, offering businesses peace of mind and stability.

The key comparisons highlight the substantial advantages of the BOO model. Given these benefits, it’s clear why BOO is increasingly superseding the traditional DBB approach.

BOO Supersedes DBB

In the quest for cost savings, operational efficiency, and compliance, the BOO model emerges as the clear choice in real-world scenarios. That is why Fluence’s Water Management Services offers updated, performance-based BOO agreements that eliminate up-front costs, provide and maintain systems, and keep billing predictable. Water Management Services frees customers to keep doing what they do best with a water supply they do not have to worry about.

Contact Fluence to learn how a BOO agreement can work for you now and through the decades ahead.