New Orleans Board adds new duties
for privatization bidders

Friday April 04, 2003

By Gordon Russell

Staff writer

Before it cratered last October, the move to privatize New Orleans' water and sewer systems in a 20-year, $1 billion contract was believed to be the largest public-works privatization effort in the history of the United States.

Well, it's back. And the proposed deal is bigger than it was before.

Last time around, the Sewerage & Water Board sought proposals from firms seeking to manage the agency's water and wastewater operations only. This time, bidders also will be asked to oversee capital projects, according to a draft version of the request for bids that has been circulated to board members.

The board is scheduled to vote Thursday on whether to release the draft for public comment. Once suggestions from the public and potential bidders are heard, the modified request for bids would be issued in early May, according to the draft.

Apart from capital projects, contract bidders will now be expected to take over a host of other administrative functions now handled by the board, including human resources, payroll, purchasing, legal services and fleet management. None of those departments was completely covered in last year's request for bids.

As in the original proposal, the board will continue to oversee the city's drainage system and the S&WB's power-generation department, as well as certain administrative functions.

"The reason we're doing this is to avoid there being a duplication of efforts," City Attorney Charles Rice said. "Previously, the operator and the board were incurring expenses to provide similar services."

Tom Ingoldsby of the Sullivan and Worcester law firm, the S&WB's lead consultant for the privatization process, said he thinks the changes will result in slightly higher bids than those received last year, but the overall savings will be larger because fewer services will be duplicated.

The new document envisions a rapid timetable for choosing a private firm -- or the employee group that's also expected to bid on the job -- to run the board's operations.

It suggests that proposals be turned in June 30, and that bidders make formal presentations to the board July 21. On July 24, the board would select a bidder and the contract would be finalized soon afterward. The first version of the request for proposals, or RFP, called for review by an outside panel of technical experts and community leaders. The current proposal would send the bids straight to the board, following an analysis by the board's consultants.

The proposal retains the original version's point system for ranking the proposals on six factors, among them cost effectiveness, technical approach and disadvantaged business enterprise plan. The new matrix includes a seventh factor: the amount the bidder promises to save on costs associated with managing capital projects.

The fast pace of the process owes in part to the decision to allow only those who qualified before to bid this time. That's a short list, including California-based USFilter, New Jersey-based United Water and the employees' Managed Competition Employee Committee, each of which submitted bids last year.

Also eligible: a joint venture of OMI and Thames Water that qualified to bid in the first go-round but declined to in the end, citing "financial, legal and technical risks."

The decision -- at least, under the draft proposal -- against making any effort to seek new bids may be a controversial one. During the first bid cycle, the S&WB took heat from many observers, including the Bureau of Governmental Research, for pushing ahead with a process that eventually drew just two private bidders.

The bureau is likely to repeat its gripes, although Janet Howard, the group's executive director, said that she has not had time to review the new document. But, Howard added, "The objections we made the first time stand unless they've been corrected. One of them was a lack of bidders. If there are fewer than three bidders, that suggests a problem."

A consultant commissioned by the nonpartisan agency to study New Orleans' privatization process two years ago identified 14 companies that would be eligible to bid on the contract.

Ingoldsby said he believes the same three groups that bid last time will bid again. He added that OMI/Thames may re-enter the game as well, although company officials said Thursday that no decision has been made.

"We have had some discussions with the city and its consultants," said Susan Mays, a spokeswoman for OMI. "We need to have the opportunity to review the request for proposals and the contractual terms and conditions. Once we've done that, we'll make a decision."

Ingoldsby defended the decision to limit the new bid cycle to the groups that participated the first time around. "Everyone knew about this deal in the industry at the time of the initial proposal, and these were the only people who bid,"

he said. "I don't think today we're likely to pick up others. It's not a situation where we're getting calls from other companies saying, 'How do we get involved?' "

Ingoldsby said he believes the contract's appeal is limited because of its massive size. "This is a very big project, and it's very expensive," he said. "It takes a lot of time and manpower. We have the larger companies submitting proposals, but some of the smaller ones are concerned with devoting so much to one project."

King Logan, a spokesman for United Water New Orleans, said company officials won't be able to say for sure whether they are willing to invest time and money to compete until they've had a chance to review the draft bid proposal. However, he added: "Considering the investment they've made in this procurement, their interest is going to be keen."

The other two groups that bid last time sounded more or less certain that they'll be back. "The employee team intends to bid," said Melinda Nelson of the Managed Competition Employee Committee. "We had the low bid the first time, and we intend to be competitive this time. Our foremost concern is that the public is protected and kept safe."

David Smith vice president of USFilter New Orleans, said his firm is "very excited" about the new request for bids. "I think what you're going to find is that many of the concerns raised last time by groups like the BGR have been met. I believe this new request for proposals addresses those concerns and in some cases goes beyond them."

At least one of the more controversial elements of the original bid request -- a section that called for penalties of up to $30 million if the S&WB canceled the contract -- has been deleted. However, the potential for penalties still exists. Instead of the flat-fee schedule that was spelled out in the original bid request, the draft proposal calls for the S&WB to pay the system's operator start-up costs if the board kills the contract.

While that solution may be less controversial than the flat penalties proposed in the original bid request, the draft may contain the seeds of a new dispute. In a letter to board members, Ingoldsby recommends that the board adopt a new penalty clause. It would protect the winning bidder in the event that a company is selected and then loses the job because city voters reject privatization in a referendum.

The letter says the private companies interested in bidding on the contract "have expressed concern about the risk" of the contract being subject to a popular vote. Ingoldsby's letter calls their request for protection "reasonable." While he does not recommend an amount, he suggests that the penalty provision be built into the request for bids.