Tom Wolf on Cohasset’s Water RFP

Water RFP to be discussed Monday, March 26, 7PM
at Cohasset Middle/High School – Pond Street

The Water Commission’s proposed concession contract has nothing to do with water; water is merely the currency. It has everything to do with ‘the deal’ and consolidating power within the commission.

First, at one time it was the Water Commissioners putting together a big deal, mostly to impress their friends but also to rehabilitate the tarnished image of their failure to manage a simple operation. At the start it was a 20-year contract with a $4-5 million concession fee; now it is a 10-year contract with a $1.1 million concession fee. It’s no longer a ‘big deal’ but now it is even more important for the Commissioners to succeed; it is a small deal to save face at any price.

Second, the concession fee is nothing but a loan to an enterprise that is unworthy of further credit. It bankrupted itself three years ago and hasn’t been able to balance its books since; it required a bailout from Town Meeting in each of the past two years. Actually, it would be more accurate to say that it is a loan to the town with the check made out to the Water Department; it is their stated intent to cash it and keep it.

Third, the payment of a management fee is just one part of the contractor’s compensation that also includes a share of profits to be made from the sale of water to customers outside of the Town of Cohasset. There’s a performance fee as well: financial goals (including a 5% increase in said outside sales) and customer satisfaction (not including reduced fees or rates).

Fourth, the Contractor’s gross revenue consists of operating and management costs for the plant and the system, and also repayment of debt incurred under the Town’s name and for which the taxpayers are ultimately liable. Mixed in is the collection and dispersal of sewer revenues. This Contractor will be more our banker than our water provider. This all smacks of an overriding need to shelter this revenue and information from the public: not at all healthy.

Last, let’s flash back to the diatribes by Commissioner DeCaprio about the Water Department/Commission being a totally independent entity. After spending thousands of dollars to prove the opposite, the RFP states that the Town Manager is, after all, the Chief Procurement Officer. However, it also states that renewal of the contract is the Water Department’s sole option eliminating the Town Manager’s role but does concede Town Meeting approval.

This contract would place decision-making authority in the Water Commission by eliminating oversight or participation from the Town Manager and Finance Director. It gives control of the sale of our water to the Contractor who merely has to report sales. It makes the Contractor the Town’s banker by transferring control of the revenue to a private vendor who again merely has to file financial reports. Liability for future capital improvements remains with the ratepayers, as new debt will not affect the listed obligation of the Contractor.

The Water Department has had its fun and games. DeCaprio now displays the scalp of former Town Manager Mike Coughlin in his trophy case with no fear of penalty. This entire scheme remains dangerous in many, many ways*. Enough is enough; the last thing this town should do is to accept this contract in any form whatsoever.

*See also the comments by the Tinytown’s independent consultant

© Copyright 2012 Tanna K, All rights Reserved. Written For: Tinytown Unleashed
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  1 comment for “Tom Wolf on Cohasset’s Water RFP

  1. March 26, 2012 at 4:46 pm

    This comment is from TU’s Cohasset Water RFP Expert:

    Tom is right on the mark, where the net financial effect of the proposed concession (loan?) will be to the Town. For comparison purposes, we know what it would cost for Cohasset to borrow directly if it needs a loan for water and sewer purposes. Even if the Town has to borrow under a taxable loan for working capital (something that can’t be financed from tax-exemt bond proceeds), it is clear that the cost of money would be in the low single digits for an intermediate-term loan under current market conditions.

    What we do not know is the cost of the Concession, which will have to be teased out once the Town is in receipt of one or more proposals in response to the RFP. The cost of money under the concession will come in the form of reduced net revenues to the Town, not interest on an explicit loan or bonds. No doubt, it will be a good bit higher than in a direct borrowing. Cost components will be seen in the form of missed revenues for water sold out of town that the concessionaire effectively purchases at a fixed price, if I am reading the intent of the RFP correctly. It will also come in the form of special compensation to the concessionnaire for meeting or exceeding contract milestones. (Cohasset needs to be particularly careful in its scrutiny of the formulas and assumptions used to set the initial baseline for this compensation – i.e. look out for low-balling). Any private water services provider, whether a public company or a private one must work for the benefit of its shareholders. At a minimum, this means achieving an equity rate of return when the company’s cash and/or other resources are committed to a project. That would put the Town’s cost of funds at least in the low-to-mid teens.

    As I have stated in prior communications, there is nothing wrong with bidding out a qualified management contract for water and/or sewer facilities or selling surplus water. For that matter, there is nothing theoretically wrong with bundling services. What would be wrong would be to enter into a management agreement that is one-sided in favor of the concessionnaire, contains squishy, loosely-defined terms that let the concessionnaire tell the Town what its compensation should be, sets performance benchmarks for special compensation that give all the low-hanging fruit to the concessionnaire that the Town could easily harvest itself or exposes the Town’s credit to the financial health and management practices to an excessive degree. Where the sale of surplus water is concerned, the Town will want to avoid any agreement that does not fully take into account the actual cost of producing and delivering surplus water, including any additional capital costs, or sets a price payable to the Town for the surplus water that is unreasonably low. Where the bundling issue is concerned, it would be imprudent to allow a preference for bundling for convenience to override a preference for a good price. For instance, if there is only one prospective respondent to the Town’s RFP that is in a posiiotn to purchase surplus water, due to proximity of systems and the configuration of existing infrastructure (i.e. a connection) it would be a shame to exclude competitors, who might be willing to give the Town a better deal on management services.

    As a rule, when there is, by default, only one qualified bidder, the price can be expected to be measurably higher than otherwise. In order for BOS and the Town meeting to make an informed judgement on these essential matters, what is needed is better information on what comparable costs for the services contemplated in the concession would be on an unbundled basis. It is also essential to do as much as can be done to put a number on the market value of the town’s surplus water. The best approach for this purpose would be to establish the purchaser’s avoided cost, as well as its cost of connecting to the Town’s system (i.e. mains, a master meter, etc.) and accepting the surplus water from Cohasset. BOS and the Town Meeting will also want to have sufficient time and adequate circulation of proposals in order to make and evaluation.

    Because the RFP is not a bid on fixed terms, but a solicitation for proposals, BOS and Town Meeting will want to have inputs to the process of negotiating with any respondent whose proposal has been selected for purposes of negotiating a final concession, qualified management contract or wholesale water purchase agreement.

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