Jim Lloyd’s Presentation to the CRD CALWMC

2010 March 04, by Chapter Council

February 25, 2010

My name is Jim Lloyd and I am a retired Water Resources Technologist. I have worked in Wastewater Plant Operations for many years in Ontario and at two plants in the Victoria area. Over the years I have seen, reviewed and worked with many examples of the good, the bad and the ugly of wastewater plant designs. And I am sad to say, the bad and the ugly, seem to be becoming more common these days.

Design-Bid-Build is the Best Option

Based on my first hand experiences with wastewater plants I know the Design-Bid-Build is the best available option. It will give the CRD complete control over the project, which is vital to a successful conclusion.

With a complete and detailed design in hand the CRD can then tender the project and get firm prices and delivery dates from the largest number of bidders possible. This approach will give the CRD the best chance to eliminate the possibility of later cost overruns and/or delays in the project.

It is a Real P3: Private design, Private building and Public operation.

One key component that must be included in any contract is that the designer is held financially accountable for any additional costs due to design problems. This is vitally important since even small design issues can turn into multi million dollar problems.

Learn from History – Don’t Repeat It

The new Halifax Wastewater treatment plant was initially a Design-Build-Operate (P3) project with the French multinational, Suez leading the consortium. After Suez tried to change the terms of the operating contract the city took back the operational component but retained the same consortium to design and build the project.

After just one year of operation the $54 million Halifax Wastewater Treatment Plant had a catastrophic failure in Jan. 2009 and will be out of commission until the Spring of this year. Repairs costs are estimated at 11 million dollars.

It is a text book example of “What can go wrong, will go wrong” and why you have to properly design for it. The Design-Build option is more prone to this type of outcome.

Design-Build or P3 – Too Many Ways It Can Go Wrong

With a Design-Build or P3 the price is set before the design is even started, therefore the project will be designed to fit the budget. To maximize profit or stay within budget cutting corners will be sure to follow.

So, on one hand you may have price certainty but on the other hand you will have product uncertainty as Halifax found out.

A Design-Build approach may work with simple projects like highways or condo developments but it is not the best choice for wastewater plants.

The P3 option also greatly reduces the number of bidders on a project. You could be down to one or two bidders at the end of a long drawn out process.

Hamilton Wastewater Plant

Hamilton, Ontario tried the privatization of the operation and maintenance of their wastewater plant in the 1990s. Over the term of the original contract there were many problems and the private company went through many changes in ownership including being owned by Enron.

The private operator had basically operated the plant on the “run to failure” maintenance principal.

In 2004, the contract was expiring and Hamilton put it out for public tender. Along with a number of private companies the city of Hamilton also put in their own bid to operate and maintain the plant. To no ones surprise Hamilton found it was much cheaper to do it in-house and they took back the operation, hired back staff, saved money and controlled the risks.

“Procurement Business Plan” – Who’s Minding the Hen House?

I would also like to comment on the documents that the CRD will be using to make a very difficult decision. The “Procurement Business Plan” and public information brochures with their comparison of the different procurement options were drafted by Ernst & Young. I consider this a real conflict of interest since Ernst & Young is very biased toward the P3 option and will gain financially if the P3 option is chosen.

Their own web site states:

“Ernst & Young is working on more P3 deals than any other financial advisory firm in the world and last year won the most P3 engagements, according to Tim Philpotts, who leads Ernst & Young’s Canadian initiatives for P3s.”

In closing:

-A traditional design-bid-build procurement method is the best approach

– keep control of the operation.

-Don’t rush the design phase, take your time and get it right the first time.

-Learn from history, don’t repeat it.

-and finally, the Provincial government may have forced the CRD to consider privatization (P3s) as an option – but the CRD is under no obligation to go that route.

Thank you for your consideration of my comments.