North Miami Beach Water Utility Operations Question 04/03/2017 Overview and thoughts

To Privatize or Not to Privatize

Last year the City of North Miami Beach opened a Request for Qualification for "Water Operations, Maintenance, and Program Management Services." On the evening of Monday, April 4, 2017, the city commission took the city manager's recommendation, permitting the manager by 4-2 vote to negotiate for a contract proposal to privatize the program management, operations, and maintenance services for the city's water and waste water utility. I attended the meeting to find out why some in my community felt concern about the future of the area's tap water.

Preface

A few firms responded to the initial request, but city management chose CH2M as the most qualified respondent, leaving them as the only firm eligible to negotiate a contract proposal. From the request for proposal (RFQ) Section 3.0 Description of Purpose:

3.1 Purpose and Intent
...The City intends to use the Statement of Qualifications (SOQs) submitted in response to this RFQ to rank order the Respondents according to the most qualified and to then initiate contract negotiations with the top ranked Respondent.

 While I can recognize the utility in pre-qualifying candidates before entertaining proposals, I did not notice any specified reason for only selecting one respondent to offer a proposal. Section 1.7 does give the city some leeway on the matter however:

The City may, at its sole and absolute discretion, reject any and all parts of any and all responses without prejudice or liability; re-advertise this RFQ, postpone or cancel, at any time, this RFQ process

While choosing a most qualified candidate suggests the completion of the RFQ process, phrases like "sole and absolute discretion," "without prejudice or liability," "postpone or cancel at any time" put the benefit of the doubt on the city and not the chosen respondent. I wonder if the city can legally open the negotiation process to more candidates, as suggested by Carl Smith, a director at competing respondent, US Water Services Corporation.
Despite this suggestion, the RFQ made contract negotiations with the manager's choice a foregone conclusion. "The City intends to...initiate contract negotiations with the top ranked Respondent."
Clear as day.

Regarding the actual scope of the project, it worries me in the RFQ that the city gives the responsibility of defining that scope to the chosen respondent, and not a direct employee of the taxpayers who will view the problem in the light of the community, and not business potential.
Two specific concerns voiced during public comment in the regards involved control over the pay rate for water use, and maintaining employment for the current utility employees.
Despite their vehement protests to the contrary the legally binding language of the RFP does not require any of these as conditional for negotiation

The City intends to provide functions including, but not limited to the following: oversight for the selected Respondent; policy development; and setting of rates and charges for services to customers. 

The road to hell is paved in good intentions.
On the labor pool:

 The Respondent shall provide all existing employees of the City’s NMB Water organization an opportunity to apply for positions with the selected vendor.

Opportunities don't guarantee employment, not that the city should guarantee employment, but the comments made in the meeting both by the city commission and the public suggests upper management, and not the employees, caused the current state of NMB's water infrastructure, which makes an opportunity to apply for positions a crap deal to the employees, many who live in the city limits.

The NMB Commission Meeting of April 3, 2017

I arrived about an hour late to a meeting I heard about a week ago. NMB wants to privatize their water!
Of course warning signs fly high. Not because I oppose privatization, but rather due to a strong skepticism of the propensity for governments to sufficiently represent the public interest in the process of privatization.
I do not live in the boundaries of North Miami Beach, but they provide my tap water. Honestly, I came in with very little idea of the issue, only concern. I left significantly more concerned with a much better idea of the issue.
I hope to reasonably clarify both for those in attendance and the greater community.

Commissioners made it clear that the water utility neglected many responsibilities, while maintaining service to rate payers. They spoke of a tour of the water plant in which they saw dilapidated or broken equipment and infrastructure. At some point in the growing consciousness of the state of the utility the city commissioned a study at $194,000 to review current operations. The Eisenhardt study backed up the Commissioners' anecdotal evidence.

Various members of the public brought up staffing and qualification issues. Chuck Cook, a former member of the Public Utility Commission, said the utility had a 30% decrease in employees. A retired employee Mr. Rose said that at one point the city only had two mechanics in its water department, and unqualified people in engineering positions who made costly, incorrect decisions in handling utility operations. Unfortunately the public dropped few names, and I could not catch the few they did.
The theme of mismanagement seemed the primary critique of the city's current direction. One after another asked in their own words that if the city can oversee a private company operating their utility, why can't they oversee their own utility company?
The mayor went to lengths to express that the problems started long before his administration, but never mentioned any steps taken to solve the problem other than to cut a check to a third party.
A brief discussion I had with Commissioner Kramer after the meeting led me to believe city management did not seriously consider an internal solution to the problem. The language of the RFQ suggests to me they only ever considered a very narrow path to a solution, a yellow brick road of sorts leading to Oz by another name.

My Takeaway

• The biggest risk of all, in every scenario, seems continued negligence of duty by city management to properly oversee the water utility. Their inability to manage it over the last few decades of apparent neglect bode very poorly for their ability to ensure a new layer of bureaucracy and obfuscation would sufficiently address the reasons for their employment, rather than simply offer comparable service. Either city management can or cannot adequately oversee the water utility.
• Suggestions of transparency seem misplaced when in reference to the process of choosing a contractor, but not applying any transparency to the contractor themselves. Contractors can and do hide any aspect of their operations considered a trade secret, proprietary, or confidential, eliminating access to all the most important information about the utility which the public could use to conduct their own oversight. While I do no suspect the city manager's intentions, I question their ability to adequately interpret private operational data without public input.
• The city cannot guarantee that CH2M or any other firm would pass the savings of their economies of scale on to the city. Unless they include such a provision in the contract one cannot assume any savings. Look for language or lack thereof in the final contract which specifies how the city can possible know it will save any money at all.
• CH2M may find they need increase staffing levels.
• Normal operation of the utility will not increase rates, but the city did not address the effects of the tremendous capital improvements necessary to bring the water system up to current standards.
• Increased staff and capital improvements will eat away at the current financial cushion of the water utility. 

The process lacks the dynamism necessary for creative, timely solutions. The mayor explained at one point in the meeting that if the contract resulting from this negotiation offers something better than the status quo he must support the contract.

They have no intention to ever consider other proposals. This raises a concern that the city will not pick the best possible proposal, but rather one that meets their standards and improves on the current situation at all. 

Next Steps

1.  If you take for granted that the city must privatize operations of water services focus on the RFQ and whether or not this guarantees the best possible service for citizens. The city may have the right to issue another RFQ, or entertain unsolicited proposals from competitors who may have better offers. It seems if the city commissioners only see the contract from CH2M they will likely pass it. If someone makes a better offer the commissioners may see that as a compelling reason to entertain other options besides the RFQ negotiated contract, to which they do not have any obligation as far as I can tell.
2. If you  want a public solution reach out to city commissioners and city management to see if they would explore the feasibility of hiring another utility director and restructuring the department from within.

Either way you have little time. The commission will consider the contract as soon as they negotiate it. If allegations of CH2M already establishing some presence in the utility turn out true that process may go very quickly.