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Reason Foundation

Long-term Contracting for Water and Wastewater Services

Robin A. Johnson, John McCormally and Adrian Moore
May 1, 2002

Executive Summary

Providing safe and affordable drinking water and wastewater services for citizens is a necessary but costly endeavor. Simply staying apprised of the latest science and regulations takes considerable resources. Implementing changes as needed to provide quality drinking water and treated wastewater requires significant investment, manpower, and expertise.

Cities strive to cope with these challenges through a variety of means, one of which is contracting with private companies. Public-private partnerships (PPPs or P3s) allow local governments to stretch tax dollars by taking advantage of private-sector efficiencies and management approaches that can reduce costs. Recent regulatory changes now enable public-private partnerships on a long-term basis of up to 20 years. Long-term partnerships can create innovative solutions to water infrastructure problems, and in the current regulatory climate, contracting with a private company can provide a community with a long-term partnership that best serves citizen needs.

This how-to guide examines the rapidly growing phenomena of long-term contracts for water and wastewater services and provides lessons learned and best practices gleaned from the experiences of public and private practitioners. The goal is to provide public officials with a guide to long-term contracting so they need not “reinvent the wheel” as they pursue a privatization endeavor.

The reasons for shifting to long-term contracting are dominated by cost savings and improved compliance with environmental standards, but we find other motivations as well. These differing motivations are reflected in the variety of forms that long-term contracts take, from financing to outsourcing management, operations and maintenance.

Finally, we explain the best practices in long-term contracting, starting with the request for proposals and running through the elements of successful partnerships, all the way up to EPA approval of the privatization.


Adrian Moore is Vice President, Policy

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