New Orleans restarts water partnership
Board to get look at bid request Tuesday

Thursday March 20, 2003

By Gordon Russell
and Stephanie Grace
, staff writers

Faced with a mammoth rebuilding job and no way to pay for it, the Sewerage & Water Board took a step Wednesday toward restarting the privatization process while keeping open less drastic options, such as dramatically restructuring the beleaguered agency or absorbing it into city government.

No matter which option, or options, the board selects, this much was clear Wednesday: Change -- big change -- is in the air.

Though it was hardly a surprise, perhaps the board's most significant action was its unanimous vote to hold a special meeting in two weeks to vote on releasing a draft request for bids to manage many of the board's operations.

The request for proposals hasn't been completed yet, but Mayor Ray Nagin, the board's president, said board members should have it by Tuesday. City Attorney Charles Rice said after the meeting that the proposal's scope will be "significantly different" from the one issued by the board during former Mayor Marc Morial's tenure.

Rice declined to elaborate, saying he needed to brief board members before publicly discussing the matter. The previous request for proposals, or RFP, was to manage the agency's water and sewer operations for up to 20 years.

It drew three bidders, including private companies USFilter and United Water as well as a group representing S&WB employees. In October the board voted 6-5 to reject all of the bids.

John Wilson III of the employees' group noted after Wednesday's meeting that the private firms had unsuccessfully lobbied the board to include capital projects in the previous bid request, and suggested they would mount a similar effort this time. His group believes capital improvements "should remain in the public domain," he said.

Wilson said members of his group have had only cursory discussions with the financial consultants advising the board on the new RFP. The employee group has advised consultants to take note of its critiques and those made by watchdog groups such as the Bureau of Governmental Research during the last bid process.

"If they clarify and eradicate those problems, they'll have a better document this time," Wilson said. But if the scope changes dramatically, he added, "There's a possibility you're going to see new mistakes."

David Smith of USFilter said administration officials and consultants have told him they plan to incorporate many of the suggestions that outside groups made last time into the new bid request. "I think it's going to be straightforward and to the point," he said.

As the board moved toward revising and reissuing the controversial bid request, its employees Wednesday presented an alternative plan for nursing the agency back to financial health and helping to pay for more than $2 billion in capital needs.

Councilman and water board member Oliver Thomas, a longtime critic of the privatization drive, requested the employee "White Paper" on financing and operational needs late last year, soon after the board voted down the initial privatization attempt. The document recommends a systemwide re-engineering effort and offers some specific recommendations to cut costs and increase revenue. Money-saving proposals included updating telephone and computer equipment, combining some functions, studying whether to repeal prevailing wage requirements, and seeking cheaper natural gas.

The employees singled out as a particularly promising target the system's two sewage-treatment plants, now run by USFilter. The employees claimed to have identified abundant opportunities for savings at the plants, and also argued that the year-to-year nature of the contract is not cost-efficient.

The board let USFilter's original 10-year contract expire during the privatization drive and included the plants in the larger contract proposal. On the revenue-enhancement end, the employee group proposed increasing its customer base by recruiting manufacturing businesses that use water for processing; regionalizing sewer and/or water services; selling bulk water and products featuring the S&WB's popular meter-cover logo; introducing a "drainage impact fee" for new developments that affect the system's capacity; and setting a cap on free water provided to other government agencies to encourage conservation.

The group's consultant, Matt Ryan of HDR, also made a pitch for a process called "bid-to-goal re-engineering."

Under that plan, a consultant -- likely his firm -- would be retained to come up with cost-saving guarantees to be realized by the employees' group over the next several years. If the employees failed to meet the targets, the board could then restart the privatization process.

Ryan said his company has overseen similar efforts in other major cities, notably San Diego, which has saved more than $80 million over a five-year period after a re-engineering effort.

Ryan promised to provide a more detailed report at a future meeting.

Wednesday's meeting was the first held since Nagin announced his plan to replace longtime executive director Harold Gorman. Gorman's status was not discussed at the meeting, but Nagin told board members that a study of the agency's management structure is under way.

There was also little discussion of a legislative proposal the Nagin administration is floating to merge the S&WB, nominally a state agency, with the city's Public Works Department.