Sector:

Water and sanitation

Name of Agreement:

Contract for the operation and maintenance of water and sewerage systems of a town

Type of Agreement:

Operation and Maintenance Agreement, with some performance incentives and incentives to reduce losses

Region (if known):

South Asia

Year of Agreement/ Draft:

2005

Annotated by:

Victoria Delmon, LEGPS, World Bank

Purpose and Context:

Medium term (7 to 15 year) involvement of a private operator in operation and maintenance of a municipal water [and sewerage] system where the owner is seeking improvements in service delivery and quality (aimed at 24/7 service for water) and reductions in losses and deficit. 

Circumstances where this contract may be appropriate:

Where the owner is willing to transfer a lot of responsibility to the operator in return for improvements in the system. 

Existing workforce is transferred (or seconded to operator)

Substantial capital expenditure is required to improve the assets, reduce leakages and increase frequency (with aim of 24/7)

Sewerage system is patchy and operator is willing only to operate parts of the sewerage system

Main Features: 

Term – 7 to 15 years

Operator to operate, manage and maintain the municipal water assets (raw and potable) + some of the sewerage assets.

Initial Benchmarking Period provided for at the beginning of the contract to verify the numbers regarding performance of the utility and the asset quality that are the benchmark for performance and for improvements under the contract.

Owner undertakes to make certain investments.

Billing is on behalf of and in name of owner.

Operator paid fixed fee + performance based fee + percentage of works for managing the asset investment plan and works.

Performance based fee linked to reducing the deficit of the utility each year (through reduced leakage and non-revenue connections, increased revenues through better bill collection and higher tariffs)

Owner to provide electricity (increases in tariffs will reset the balance of the contract).  In most contracts operator will procure its own electricity – important issue as power is one of the largest cost components for operating a water system.

Operator to manage and implement capital works in accordance with an agreed capital works program.

Clear provisions regarding changes in circumstances and variations (clause 20)

Dispute resolution – contract provides for negotiation, mediation and arbitration.

Possible additional provisions that it might be appropriate to include:

If billing is to be in name of operator, then wording will need to reflect this

If incentives relate primarily to leakage reduction rather than deficit reduction, then wording should be amended

Provisions that may not be advisable to replicate/ may need further thought:

N/A

Provisions of wider general use:

Benchmarking period (clause 5) – particularly useful where data or asset registers are unavailable or unreliable prior to contract

Incentive provisions (clause 11)

Change provision – this is clearly drafted

Dispute Resolution – provides for negotiation, mediation and arbitration

Experience Since Coming Into Force (including any amendments)/ if draft form, whether it has been applied:

N/A

Tracking Number:

waterO&M001.docx