eric s. petersen, law partner hawkins delafield & wood llp new york, ny united states conference...
TRANSCRIPT
Eric S. Petersen, Law PartnerHawkins Delafield & Wood LLP
New York, NY
United States Conference of MayorsUrban Water Council
2005 Urban Water SummitSeptember 30, 2005
Albuquerque, New Mexico
DESALINATION DESIGN-BUILD:THE SAN JUAN CAPISTRANO
PROJECT
Hawkins
Delafield & Wood LLP
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PROJECT ELEMENTS
• 4 MGD reverse osmosis treatment plant with pretreatment
• 8 groundwater extraction wells• 5,000 acre feet annual production• Raw and finished water pump
stations and transmission lines• Brine disposal line
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CHALLENGES
• Limited staff availability• Limited expertise in groundwater
treatment technologies• Aggressive schedule to meet
deadlines for $250 per acre foot subsidy from Metropolitan Water District
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PROJECT GOALS
• Assure adequate water supply through local sources
• Avoid constructing large water reservoir• Accelerated schedule• Improved technology• Single source responsibility• Performance – based contract• Private sector financing risk
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PROCUREMENT GOALS (1): EARLY PRICE CERTAINTY
DBB City design costs 6 -10% of construction cost Bidder's price may exceed designer's estimates Project may be delayed or re-designed
DBO City design costs 1-3% of construction cost Proposers design to level necessary to guarantee
price City obtains price and performance guarantees for
low cost
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PROCUREMENT GOALS (2):CHANGE ORDERS MINIMIZEDDBB
Bid protests can be common Construction monitoring is 6-8% of
construction cost Change orders can be prevalent Litigation often accompanies contract awards
and change order disputesDBO
Proposals protests are uncommon Construction monitoring is 1-2% of
construction cost Change orders are rare Procurement Litigation is rare
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DBO PROCUREMENT
• CA Government Code 5956• RFQ/RFP Process• Concurrent Price, Non-Price Review• “Best Value”• Staff Selection• Council Contract Approval
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TIMEFRAME
• 1993 – 2000 planning• 2000 – RFQ Process (Eco Resources,
Earth Tech, Ionics)• 2001 – RFP Process• 2002 – Contract Execution and
Financing• 2003 - 2004 – Permitting Construction
and Commissioning• 2005 – Operations
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PARTICIPANTS
• City of San Juan Capistrano (CVWD)• Advisors – Pirnie and Hawkins• Contractor Team – Eco Resources,
Boyle Engineering, and ARB, Inc.• Guarantor – Southwest Water• Financing – Lehman Brothers and
AMBAC bond insurance
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CITY RETAINED RIGHTS AND RESPONSIBILITIES
• Ownership of assets• Ownership of system revenues• Setting user rates• Capital planning• Bond financing (tax-exempt)• Securing sites and rights-of-way• Obtaining water rights (San Juan Basin)• Obtaining MWD Subsidy
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PRICING AND PERFORMANCE GUARANTEES
• Fixed Design-Build Price ($25 million)• Fixed Annual Service Fee ($1.1 million);
Electricity ($1.0 million)• Water Treatment (7 enhanced standards)• Water Delivery (5,280 acre feet/year)• Production Efficiency (80%)• Hydraulic Transients • Electricity Usage (Guaranteed Maximum
Utilization of 9,092,300 KWH/year and Guaranteed Max Demand of 1,275 KWH)
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RISKS TRANSFERRED (1)
• Internal disputes among designer, builder, operator, and equipment supplier
• Design, permitting, construction and operating cost overruns
• Scheduled Acceptance Date (2 years: permitting, design, construction, commissioning, acceptance testing)
• Extension Period
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RISKS TRANSFERRED (2)
• Subsurface geotechnical risk• Regulatory compliance (fines, penalties)• Capital maintenance risk (major
maintenance, repair and replacement)• Energy consumption excesses• Loss of MWD subsidy due to Company
non-performance
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FOCUS ON PERMITTING RISKS
• DHS Domestic water supply permit
• Pilot testing
• Terms and conditions
• Delay
• Non-issuance
• Payment for permitting design costs
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RISKS NOT TRANSFERRED (1)
• “Uncontrollable Circumstances”
• Pre-existing environmental conditions
• Specified site conditions
• Buried infrastructure repair costs
• Changes in law
• Force majeure
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RISKS NOT TRANSFERRED (2)
• Raw water quality exceedencers
• General electricity rates (Indexed)
• General price inflation (Indexed)
• General interest rates
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SECURITY FOR PERFORMANCE
• Southwest Water
(Parent Guaranty)
• Performance and bonds
• Letter of credit (1.5 years debt service – for AMBAC)
• No stated monetary limit on liability
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DBO SAVINGS• Source of savings
– Core competency
– Competition as to design; operator-driven– Competition as to operation– Cooperative relationship between designer, builder and
operator– Smaller contingency allowances– Bulk consumables buying power– Broader technology access
• Preventive v. breakdown maintenance• Optimized balance between capital and operating costs• Excessive redundancy eliminated
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FINANCING PLAN
• No SRF funding
• City revenue debt
• Enterprise fund
• Tax-exempt (IRS Rev. Proc. 97-13)
• Ambac Bond Insurance
• Feasibility study
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CONTRACTOR FINANCING SUPPORT
• City debt cancelled if Company defaults
• Directly transfers “completion” and “performance” risks to Company
• Southwest repays Ambac up to $6.0 million
• Ambac has “cure rights”
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MUNICIPAL CONTROL• Comprehensive asset development and
management• Minimum design requirements and quality
standards• Performance guarantees (repairs, fines,
damages)• Costs guaranteed • Management by “full-service” contract• Vigorous, broader competition and
cooperation• Convenience termination rights (10 years)
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LESSONS LEARNED
• Allow full vendor comment on proposed transaction – and listen
• Private financing and siting complicates the transaction
• Minimum design requirements are key• Early pilot testing is advisable• Attempted transfer of excessive risk is
counter productive
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INGREDIENTS FOR SUCCESS
• Initial strategic planning• Thoughtful, well developed RFQ/RFP• Creative and responsive proposals• Clear, comprehensive contract• Full proposer due diligence opportunity • Fair and balanced risk allocation• Outstanding leadership