United States Environmental Protection Agency
Environmental Financial Advisory Board
A Decision-maker's Guide to Alternative Service Delivery Options
for Public Utility Projects
Decision-makers in the public water and wastewater sector often have too little
time and other resources and limited funding to address ever expanding infrastructure
capital needs and operation and maintenance costs.
This Decision-maker's Guide to Alternative Service Delivery Options for
Public Utility Projects (Guiding Principles) developed by the USEPA Environmental
Financial Advisory Board (EFAB) provides a concise set of steps when considering
Alternative Service Delivery (ASD) options, including Public-Private Partnerships or
Public-Public Partnerships for current or potential water or wastewater projects.
These Guiding Principles are designed to be considered with the more lengthy
and detailed "Alternative Project Delivery, Basic Concepts in Alternative Procurement
Operations and Financing for Public Infrastructure" produced by the Water Infrastructure
and Resiliency Finance Center (WIRFC) of the United States Environmental Protection
Agency (USEPA).
We emphasize that:
1.	ASD is not "free" money: private-sector partners always expect a return on
their investment.
2.	ASD shifts both risks and duties from the traditional procurement and project
management context. Each organization needs to understand which risks and
duties will be shifted by ASD, the value/cost components associated with
these risks and duties, and whether or not it has the organizational capacity to
competently address them.
3.	State and local laws generally create and support the conventional
procurement and project management context, but they do not always
support ASD. Changing them may require the investment of an organization's
political capital.
Properly executed ASD can help organizations effectively address infrastructure
needs - from initial capital investment and construction to operations and maintenance
responsibilities - by stretching scarce dollars. Members of the EFAB have had first-hand
experience in ASD in both public and private sector roles that informed development of
these Guiding Principles.
EFAB Members, November 2018
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Introduction to the Step Process
Our Guiding Principles have been organized as a series of steps designed to establish
the framework for a pre-development ASD option. At any point of the step process, it
may be determined that an ASD is not the optimal solution. It is important to continually
focus on the purpose and goals for considering an ASD.
The Steps:
Step 1: Identify a project (new construction or the major renovation of existing
infrastructure) for which an ASD approach is considered in addition to
conventional approaches.
WHY - In order to proceed with any ASD approach, decision-makers must select
a project that could be a candidate for evaluation. In order to be a candidate for
evaluation, the decision-makers in this step need to identify key issue(s) or
problem(s) associated with the project that could be potentially addressed more
effectively through ASD rather than conventional approaches.
When considering ASD and deciding whether or not the project is a candidate for
the pre-development ASD evaluation process, it is very important that decision-
makers understand and weigh, in broad, general terms at this Step 1:
•	The structure of various ASD options including the processes,
participants, required decisions, legal constraints, the related marketplace
and established practices;
•	The advantages, disadvantages, opportunities, and risks related to ASD;
•	The impact on affected parties including decision-makers, utility
personnel, ratepayers, procurement officials, and community and industry
stakeholders;
•	The capability of the utility/organization to manage and administer an ASD
option; and
•	The ability to achieve the project's objectives.
WHO- The decision-makers in this step include utility leadership, whether
political, policymaking and/or managerial, that would initially identify the project
that is a candidate for a pre-development ASD evaluation.
Step 2: Organize and appoint a Steering Committee (the Committee) to guide the
development and evaluation of pre-development efforts for the project.
We suggest forming a Steering Committee (the Committee) to guide the step process. A
Committee can provide expertise from diverse perspectives, independent technical
analysis and third-party autonomy throughout the process. A Committee approach may
be more relevant for large or medium-sized utilities. Smaller utilities may rely more on a
few key decision-makers to guide the process.
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WHY - The Committee can support the efforts of the key decision-makers that
have identified a project for pre-development ASD evaluation. Members of the
Committee will have a variety of expertise and stakeholder engagement to more
comprehensively guide the development and evaluation process.
•	Political and Managerial Roles - Some utilities/communities have established
practices for developing and evaluating new approaches. In some
organizations, involvement of political representatives (elected officials) is
deemed necessary to demonstrate accountability and to provide a channel for
communication with community and stakeholder groups. In others, the utility
leadership relies on management and professional staff to handle such
matters including community and stakeholder outreach. Unless there are
unusual circumstances justifying an atypical approach, an entity should find it
workable to utilize established practice to designate ownership and makeup
of the Committee. However, if a staff driven structure is used, there should be
a commitment to inform the political leadership about the critical aspects of
any ASD evaluation, plans or recommendation on an as needed basis.
•	Conflicts of Interest - Although businesses and organizations with knowledge
and experience in the ASD field can clearly contribute information for
Committee consideration, their involvement as a Committee member may be
perceived as self-serving and compromise the objectivity or validity of
Committee decisions or recommendations. This can be overcome by
selecting consultants as Committee members to perform an advisory function,
rather than those that could potentially provide project goods or services.
WHAT - Subject to the considerations below, the utility leadership, whether
political, policymaking and/or managerial, should create a Committee by:
•	Establishing a mission statement (statement of purpose) to broadly define
the Committee's purpose (expectation), including delegation of any
authority and responsibility, and the scope of the Committee's work; and
•	Appointing members, including a chair.
WHO- The Committee should either have ASD, general management, project
management, procurement or related expertise or experience, or include
individuals representing groups that will either significantly affect or be affected
by ASD. The key is to select a group that can both compile information (input)
and provide feedback (questions, suggestions and comments) in a constructive
manner during the Committee's work. Likely members include project engineers,
operations management and/or technicians, procurement staff, finance staff,
elected officials, general management, community or stakeholder
representative(s), and ASD consultants, among others. The size of the
Committee should be broad enough to be representative but small enough to be
efficient.
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CONSIDERATIONS -
•	Government and/or utility staff may be assigned to the Committee to help
facilitate work.
•	A Committee approach may be more relevant for large or medium-sized
utilities. Smaller utilities may rely more on a few key decision-makers to
guide the pre-development decision-making process
•	Note: If outside expert consultants are appointed, Steps 7 and 8 will need
to accelerate.
Step 3 Committee Develops the Mission
Step 3a: Identify and prioritize motives and objectives for any ASD options under
consideration
WHY-The goal of every public utility should be to bring projects to fruition in the
most efficient and effective way possible, and presumably it will be the steering
committee's responsibility to identify the options for making that happen. A
clearly defined set of project objectives and a consensus of their relative priority
is essential for evaluating project delivery alternatives and determining which
approach is preferred. This step is critically important and provides the basis for
choosing to engage in the ASD
WHAT - The Committee will identify and define the overarching goals and
objectives for the project irrespective of the delivery method selected. In other
words, the following questions should be answered:
•	What are the primary reasons for advancing the project - what is it
intended to accomplish?
•	What are the most important project objectives? These could include
lowest upfront capital cost, lowest operating cost, lowest lifetime cost,
fastest completion, greatest reliability, maximum risk transfer to the
contractor, etc.
•	How exactly would each objective be defined and/or measured? Some
objectives lend themselves well to measurement (e.g., cost, schedule)
while others are more difficult (e.g., retained control, risk transfer). It is
useful to establish measurable targets, where possible, although this step
may need to be revisited later in the process.
•	Once a short list of objectives is agreed, which are the most important?
The committee will need to understand the possible tradeoffs between
objectives (i.e., schedule versus cost) in order to prioritize thoughtfully.
•	How much control is the utility willing to give up in order to achieve the
core objectives?
A decision matrix may be helpful in communicating and analyzing the
relationships between alternative project objectives and alternative project
delivery methods. Once the objectives are identified and prioritized, they should
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be summarized concisely, communicated to stakeholders, and revisited
throughout the process as a measuring stick for future project success.
HOW- It can be beneficial for each Committee member to be interviewed
separately by one non-committee member to discuss potential objectives and
record initial comments and opinions. The interviewer would then consolidate
feedback from all the interviews and present it to the full committee for group
discussion, debate and finalization. If the organization has a collaborative culture
it may be more effective to address this in a workshop setting that can provide
both education and feedback.
Step 3b: Determine any significant barriers to ASD pre-development,
development, and procurement.
WHY- The Committee should identify any boundary conditions to project
delivery alternatives that are immovable or would be very difficult to overcome.
This will inform the evaluation process going forward and can/will be the basis of
an initial screening of the range of options under consideration.
WHAT - Significant challenges or barriers may include:
•	Whether local or state statutory and regulatory authority exists for pre-
development activities and various ASD options under consideration.
•	Whether sufficient, knowledgeable staff exists or can be added to advance
the project through the pre-development process as well as to properly
develop and manage any ASD through the procurement.
•	Whether there is sufficient budget to fund pre-development activities (e.g.
hire specialized financial, legal and engineering consultants)
•	Whether the organization's balance sheet or other financial constraints will
be adversely impacted by the ASD
•	Whether any contractual limitations (e.g., collective bargaining
agreements) might limit or prevent the use of ASD
The Committee should explore this topic with a mindset of understanding any
potential internal and external constraints, with a mindset of identifying feasible
solutions.
HOW- The Committee should meet with the community and utility legal,
financial and technical staff, consultants and professional organizations to
discuss what is known about constraints to pursuing ASD options. Many nuances
might not be understood at this stage, however, and initial red flags should be
noted as areas of concern for further assessment.
Step 3c: Define the work plan for System project personnel and/or outside expert
consultants to develop the preliminary comparative analysis of ASD options
under Step 3.
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WHY- Using the Committee to help identify additional expertise is very
important. A well thought out high-level plan for completing the comparative
analysis will set expectations for time, cost, and process for all parties and
facilitate completion of the analysis by the responsible staff and/or consultants.
WHAT - The work plan should identify key steps, timelines, responsibilities and
resources committed to the ASD evaluation process.
•	The Committee (in consultation with project personnel and/or outside
consultants) may use the Learning Module and other resources to inform
development of the work plan
•	The plan should clearly identify work to be performed by internal staff versus
work to be completed by external advisors
•	The plan should also specify points at which the Steering Committee will be
involved in the effort and when they will be consulted by project personnel
•	The plan should identify other stakeholders who should be consulted during
the process
•	If key stakeholders external to the analysis are identified, a communications
strategy for interaction with those stakeholders should be developed
•	The plan should identify decision points along the way at which the Steering
Committee can decide to continue or discontinue the effort
•	The plan should identify the timing and content of regular progress reporting
HOW- Once the initial plan is adopted, project management staff will assess
progress against the plan and present revisions as needed for Committee review
and approval.
Step 4 - System project personnel and/or outside consultants conduct a
preliminary comparative analysis of ASD options and prepare a preliminary
project ASD evaluation report:
WHY - It will be important for the system project personnel and/or outside expert
consultants to develop a comparative analysis that establishes a baseline case
that can be compared to all of the ASD options in order to provide a framework
for making decisions and establishes the next step.
WHAT - Define a baseline case for the project, detailing all of the project
lifecycle costs, using conventional approaches for design and construction,
operations and maintenance, debt financing, and ownership.
The system project personnel and/or outside expert consultants should also
rovide potential ASD cases that reflect the relevant potential ASD options for the
project from well-established private-sector techniques (e.g. design-build,
outsourced operations and maintenance, privately-placed debt and project
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financing, and shared equity ownership). These should be modeled as close as
possible to an "apples-to-apples" comparison to the baseline case.
The various cases can provide a comparative analysis that considers synergistic
value of various combinations of ASD options under similar assumptions and
scenarios.
The comparative analysis should identify any major legal and regulatory
limitations on using relevant ASD options beyond those identified in Step 2b.
The comparative analysis should be summarized in a preliminary project ASD
evaluation report for the Committee.
CONSIDERATIONS
A comprehensive analysis of such potential limitations should extend beyond
procurement laws to include ethics, labor relations and work rules, power to
contract, power to incur debt, environmental regulations as well as substantive
rules governing the ownership, maintenance and transfer of public property as
well as other topics. The analysis of these topics may be time consuming and
resource intensive. The range of potential solutions may be obvious or subtle.
The outcome of this comprehensive legal analysis may lead to dismissing ASD
as a plausible option for project delivery for a particular public body. The legal
barriers may simply be too complex or difficult. Changing such laws may be
beyond the power, resources or appetite of the utility or community.
Importantly, the comprehensive legal analysis should identify the stakeholders
and interests who are invested in both the conventional and ASD models. The
relative influence of these stakeholders and interests with respect to the local and
state executive and legislative branches should be assessed in order to calculate
the likelihood of success for any required legislative or regulatory changes. In
addition, care must be taken to consider the political, financial and public
perception implications of any lobbying activities.
If decision-makers conclude that state or local legislative, regulatory or other
policy changes are required and the foregoing assessment concludes that such
changes can be realized on a timely basis, the entity should develop a plan and
timeline for those changes taking into consideration other aspects of the project
schedule. In creating that timeline should consider whether to proceed
immediately or to await the outcome of some, or all, of the subsequent steps.
The decision to pursue such changes may lie with ultimate decision-makers (e.g.
policy makers) above the level of Committee members, who will either already be
aware of the identified stakeholders and interests or will be very interested in
their views. The Committee may not be able to engage in issue education unless
these ultimate decision-makers are prepared to expend political and financial
capital to pursue legislative changes. Assuming the Committee receives approval
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to proceed with changes, legislative champion(s) and allies must be identified,
approached and persuaded to pursue the necessary legislative changes. The
language of any proposed change must be carefully drafted to promote approval
and minimize potential opposition. Finally, the Committee must be prepared for
only a partial success or a lengthy legislative process.
System project personnel and/or outside expert consultants should summarize
initial findings, preliminary evaluation results possible roadblocks and suggested
next steps in a report to the Committee, including likely major stakeholder
concerns on utilizing relevant ASD options.
Step 5: Committee Review - Prepare a report summarizing the Committee's
findings to date.
WHY - The Committee can serve as the first step of scrutiny in deciding whether
to implement the ASD. Once system project personnel and/or outside expert
consultants have gathered the necessary information to compare the different
structures, the Committee can ask questions that will further clarify the relevant
decision-making points. Building consensus with the Committee is necessary to
gather the support of outside stakeholders.
HOW- Committee narrows scope of pre-development evaluation based upon the
preliminary project ASD evaluation report and testimony and prepares a report
summarizing the financings to date (with the assistance of System project
personnel and/or outside expert consultants).
Step 6: Committee Socializes the Plan - Communicate and consult with various
constituencies to educate and gain support for subsequence pre-development
activities (may include other city council members, utility unions and
professionals, various residential and non-residential ratepayer representatives,
the media, etc.)
WHY- The details, costs and benefits of an ASD are often misunderstood by
stakeholders because the transactions are often complex and tailored. Because
ASD may involve higher initial costs and/or require involvement by a party
outside of the government, those who are not involved in the comparative
analysis may not appreciate the transfer of risks or other potential benefits. It will
be important to structure a campaign to inform the relevant stakeholders.
Step 7: Secure resources for pre-development evaluation
WHY- ASD evaluation requires a range of skills, knowledge and investment in
order to provide leadership with a fully informed understanding of alternatives.
Few, if any, agencies have these resources available internally or within their
existing suite of external advisors, so external resourcing will likely be required.
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Furthermore, internal staff contributing to the process will need to be made
available from their day-to-day responsibilities in order to support the effort.
WHO - A mix of internal and external resources
Internal staff members that possess knowledge of key project areas will need to
be involved in the ASD evaluation process. This may include legal, finance,
operations, procurement, construction and public relations. Resource planning
should contemplate these staff members being dedicated to the ASD effort for
some portion of the process.
Specialized outside expert consultants may be needed in the following areas:
Engineering - Firms that understand the risk transfer mechanisms inherent in
various forms of ASD and the type of engineering support required during ASD
procurement
Financial / Procurement - ASD financial advisors typically assist sponsors in
evaluating the cost, timeline and market appetite for ASD options, and will help
evaluate alternative revenue, financing and credit considerations of these options
Legal - Most forms of ASD contracts are very different from conventional public
sector design-bid-build documents, and specialized legal advice is essential to
understanding what forms of ASD will be viable to the sponsor and the market.
Public Relations - For sponsor agencies that do not have a robust PR capability
it can be useful to engage external PR support that both understands local issues
and has experience in ASD communications.
CONSIDERATIONS - Given the specialized skills required and the learning
curve effects for a first time ASD project, the steering committee should
anticipate higher than normal costs for exploring ASD as opposed to more
conventional procurement options.
Sponsor agencies can leverage existing ASD advisory procurement documents
from other agencies in order to save time and to benefit from lessons learned by
other agencies.
Specialized advisory support can be expensive, and it will be important to scope
the initial effort carefully in order to get to a go or no-go decision cost effectively.
Advisory contracts should require a high level of cost and progress reporting and
allow flexibility to adjust the level of an advisor's effort without any penalty.
Effective project management of the ASD evaluation process will be important
both to manage costs and to ensure that core study objectives are being met.
The steering committee should pay close attention to how the project will be
managed and allocate sufficient resources for that effort.
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There is a strong tendency for sponsor agencies to default to using existing
advisory resources because it is easier, faster, cheaper and a level of trust
already exists. Unfortunately, this typically does not position the ASD evaluation
process for success. Potential advisors should be able to demonstrate successful
ASD evaluation and implementation experience. Existing advisors can be used to
augment the effort, especially in evaluating a "business as usual" baseline.
Step 8: Develop scope of pre-development evaluation process and final report
WHY-The goal of evaluating ASD options is to make an informed decision
about which project delivery path is preferred. The steering committee should
anticipate opposition from internal and external stakeholders when choosing an
ASD option. Therefore, it is imperative that the evaluation plan addresses the
core decision criteria and produces a report that fully documents the evaluation
process and provides sufficient evidence to support and defend a
recommendation.
CONSIDERATIONS for the scope of the study and the final report - The scope
should compare ASD delivery alternatives to a "business as usual" delivery
option as a baseline, but all delivery options should evaluate the same project
scope (same performance standards, asset quality, service conditions, etc.).
The process should seek both to identify any constraints on ASD options and on
how those constraints could be addressed. The evaluation effort might benefit
from reviewing relevant case studies of similar projects and how those sponsors
determined to use ASD the view of the market (such as contractors, investors,
and operators) should be investigated to assess the likely reaction to an ASD
option. The final report should document the sponsor's overarching objectives,
evaluation process, limitations of the evaluation, assumptions, sources, valuation
methodology, etc. Opinions and conclusions should be clearly identified as such.
One important purpose for the report is to educate decision makers. Therefore,
the report should explain key terms, avoiding P3 industry jargon, and provide
relevant examples of ASD applications where possible. Ideally, the final report
will conclude with a recommendation. If that is the objective, the report should be
structured as a "business case" for the preferred ASD option. If an ASD option is
recommended, the report should identify key steps required to implement the
ASD option and any additional resources that might be required, and provide the
steering committee a realistic timeline to completion
Step 9: Communicate report findings to various constituencies (see Step 6).
WHY- In order to determine whether or not there is sufficient support to proceed
with procurement of an ASD, there must be full and transparent communication
of the report findings to the various constituencies identified in Step 5. This
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communication can help build trust between the Committee and these
constituencies, particularly if the Committee has represented to these
constituencies that it would fully evaluate each of the ASD under consideration in
the assessment report and widely disseminate the findings once the report is
completed.
HOW- The level of constituent outreach will depend upon the type of ASD
evaluated and may involve the assistance of internal or external communications
experts. Certain ASD evaluations that are of interest to a large number of
constituencies are more likely to require presentation of the report findings in
public meetings to which they are invited. ASDs involving change of control such
as for privatizations or concessions are more likely to require greater community
outreach. Other ASDs may require more limited community outreach and could
be handled with presentations of report findings in group or one-on-one
meetings. One-on-one meetings with certain constituencies such as elected
officials may be most appropriate. A public relations firm may be deployed to help
the Committee publicize the report and assist in the development of the
messaging in the report presentation.
CONSIDERATIONS - Certain constituencies may be sensitive to some of the
conclusions of the report. The Committee and its advisors (including the public
relations firm) will need to anticipate the reaction of the various constituencies to
the report and tailor the message accordingly. Additional meetings or other
communication may be necessary to address constituent concerns.
Step 10: Determine whether or not there is sufficient support from various
constituencies to proceed with ASD procurement
WHY- Sufficient support from key constituencies to proceed with procurement of
ASD is critical to ensuring a successful procurement outcome. Without this
support, constituencies might be able to block the development of any ASD that
does not address their concerns.
HOW- Public engagement in Step 10 should identify any key constituencies that
have significant concerns regarding any of the ASD options under consideration.
Decision-making regarding proceeding with ASD development and procurement
should be based upon the determination of sufficient support.
CONCLUSION
These guide provides a step-by-step process for key utility decision-makers to
systematically identify a project for pre-development ASD evaluation, select ASD
options for evaluation, evaluate the ASD options from engineering, financial /
procurement, legal and public relations perspectives, communicate the results of the
evaluation to key constituencies to determine the level of support for the preferred ASD
option, and decide whether or not to proceed to the development and procurement
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stage. Decision-makers can establish a Committee to guide the process, supplemented
by outside expert consultants as needed.
This deliberative process should demonstrate the benefits of an ASD option, if any,
compared to the baseline of a conventional approach. If the conventional approach is
more beneficial, the utility should not proceed to the ASD development and
procurement stage. Alternatively, the ASD option may be more beneficial but may be
subject to legal or political impediments to implementation such as statutory limitations
on the use of this particular ASD approach at the state or local level. Under that
situation, the utility will need to decide whether or not it wants to try to overcome these
impediments through legislation. Political support will be needed to proceed to the
development and procurement stage which requires transparent outreach to key
constituencies throughout the process. By identifying any potential impediments early,
decision-makers may be able to overcome these impediments and proceed to the
development and procurement stage if it is considered to be beneficial for the utility and
the community it serves.
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