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Contractual Issues of Non-Revenue Water Contracts

Contractual Issues of Non-Revenue Water Contracts David Ehrhardt , Nils Janson , and Traci Kuratomi 6 November 2013. Table of Contents. Potential of NRW Reduction Contracts Non-Revenue Water in the Caribbean and Latin America is High

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Contractual Issues of Non-Revenue Water Contracts

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  1. Contractual Issues of Non-Revenue Water Contracts David Ehrhardt, Nils Janson, and Traci Kuratomi 6 November 2013

  2. Table of Contents Potential of NRW Reduction Contracts • Non-Revenue Water in the Caribbean and Latin America is High • NRW Reduction Contracts can Significantly Reduce NRW Design of NRW Reduction Contracts • Essence of a NRW Reduction Contract • How to Solve the Information Gap • Multi-Phase NRW Reduction Contract • Capital Cost: Who Pays? How is it Managed? • Incentive Design Options • The Problem in Selecting the Contractor • Alternate Approaches to Selecting the Contractor

  3. Non-Revenue Water in the Caribbean and Latin America is High

  4. NRW Reduction Contracts can Significantly Reduce NRW • NW Parishes, Jamaica (2005-2010) • Dublin, Ireland (1997-1999) • Bangkok, Thailand (2000-2004) • NRW: 71% → 57% • Billed consumption: 41,400 → 54,100 m3 per day • Physical losses: 175,000 → 125,000 m3 per day • Physical losses: ↓ 165,000 m3 per day • Manila, Philippines (2009-2014) • NRW: 63% (2009) → 42% (2011) • (in East Zone) • Stony Hill, Jamaica (2010-2012) • State of Selangor, Malaysia • (1999-2009) Ho Chi Minh City, Vietnam (2009-2013) • NRW: 75% (2010) → 39% (2012) • NRW: 72% (2010) →45% (2011) • Average pressure: 2 m → 8 m • (in Zone 1) • NRW: ↓ 117,000 m3 per day (2009)

  5. Essence of a NRWReduction Contract Government Oversight Payment for assistance NRWContract Utility Contractor • Don’t know: • Starting levels of NRW • Where losses are happening • Cost to reduce losses • Information • Gap Reduce non-revenue water Contract hard to specify Utility’s Objective for a Non-Revenue Water Reduction Contract: Get the largest reduction in non-revenue water for the lowest cost

  6. How to Solve the Information Gap

  7. Meter • Accuracy Sampling • Install Meters • Establish DMAs • Detect and Repair Leaks • Replace Mains and Service Connections • Sample DMAs • Install Computer Systems • Customer Surveys Multi-Phase NRW Reduction Contract • Volume • $ • Pressure • Continuity • Process must be specified in contract • Needs to be incentivized in contract

  8. Capital Cost: Who Pays? How is it Managed? Who pays?         Leak detection and repairs Costs of a NRW Reduction Program     SCADA communication costs      = Contractor pays all: Max risk, max incentive New Providence  Risk = Reimbursement contract Dublin  = Program Management: Risk limited, incentive limited  = Hybrid

  9. Incentive Design Options Cost (US $million) Minimum Performance Outperformance Option 1: Cost Savings 80 70 Option 2: Results Achievement Reduction in volume of NRW (Mg/year) 0 1700 1500

  10. The Problem in Selecting the Contractor Objective: Get Best Value for Money Low Information “Winner’s Curse” Prequalification Conventional Procurement (Quality and Cost-Based )

  11. Alternate Approaches to Selecting the Contractor

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