In 1996, Florida’s West Coast Regional Water Supply Authority (which became Tampa Bay Water in 1998) wanted to develop a desalination facility as a new drinking water source for the region. In order to reduce risks and costs, they originally selected the design-build-own-operate-transfer (DBOOT) project delivery method. By utilizing a DBOOT approach, the water authority expected substantial benefits for its member governments, which included Hillsborough, Pasco and Pinellas counties as well as New Port Richey, St. Petersburg and Tampa.
DBOOT benefits included the transfer of project technology, transfer of risks to a private developer, access to innovative design skills and long-term facility construction, operations and maintenance cost efficiencies and other guaranties.
As a result, they selected Stone & Webster Water, consisting of S&W Engineering, S&W Development Corp. and Poseidon Resources Corporation. All parties signed a water purchase agreement in 1999 under which Tampa Bay Water agreed to purchase desalinated water of an acceptable quality and quantity from the developer. But it didn’t work out, as Stone & Webster went bankrupt. Poseidon, however, replaced them with Covanta Water, which eventually led to other problems.
In December 2001, Covanta Water failed to post a required construction bond needed to secure the private bond financing for the project, which delayed the project even further. By March 2002, with costs escalating, Tampa Bay Water purchased the project from the developer in order to secure long-term financing under its own name and excellent credit rating. At the time, the project was fully designed and permitted, construction was 30 percent complete, and half of the project budget was spent. Covanta Water, also responsible for the plant’s performance, failed a 14-day acceptance test in May 2003, and then, after a deadline extension to correct more than 30 deficiencies, addressed only 14 and missed the Sept. 30, 2003, deadline to retest. Covanta Water was out.
After searching for a design-build-operate (DBO) contractor to complete the project, Tampa Bay Water approved a 50/50 joint venture between American Water Services Inc. and Pridesa S.A. of Spain on Oct. 16, 2003. Today, the project is complete, and the facility has produced more than 2.8 billion gallons of drinking water since March 2007. The plant successfully completed a 16-day, 25 million-gallons-per-day run-in trial period Oct. 18, and a 14-day acceptance test trial Nov. 7.
But the path to success was rocky, beginning more than 10 years ago. The project has established some water project firsts, and its early setbacks also serve as teaching tools for future projects.
On the positive side, it is the first major public/private DBOOT Water Project in United States as well as the first large scale and large surface seawater desalination project in the country and the first reverse osmosis desalination project co-located with a power plant in the Untied States. But the path to success was studded with many lessons.
Tough Start
In the first DBOOT phase of the project, limited technical competencies, proprietary interests and overt emphasis on pricing significantly impacted the project outcome. After the original contract award in December 1999 and the subsequent Stone & Webster departure, the developer ran the project and retained a replacement design-build contractor, Covanta Water, in February 2001, at the developer’s original design-build price. The low delivered water price and guaranteed fixed capital cost were the major beneficial features of the water purchase agreement. The project was constructed in the time frame from mid-2001 to 2003, later than originally planned due to a permit challenge with no construction price change. Covanta Water opted not to use a general contractor as they were concerned over job cost and control.
Covanta Water had a proprietary business interest in using the DualSand technology for pretreatment as DualSand’s license was held by a subsidiary of Covanta. The design engineer of record was a local firm with limited water plant design experience. No design firm admitted to having designed the DualSand pretreatment system, and in the end, the design-builder elected to declare bankruptcy rather than attempt to undertake the cost to correct the deficiencies.
During this phase of the project, technology was not the problem. Poor project execution was. The developer had limited technical experience and was primarily focused on low cost instead of overall quality, as was the design-build contractor. In addition, the design engineer was inexperienced, and pretreatment technology had not been adequately demonstrated. The result was a matter of, “You get what you pay for.” The over-emphasis on price led to the contractor’s poor procurement and execution choices.
Important Lessons
In the project’s second remedial DBO phase, project controls, maintaining institutional project knowledge, the general contractor’s resource availability, schedule compression during the start-up period and limited precedents for regulatory requirements for start-up were significant issues that had an impact on the project outcome.
The AWP and Pridesa joint venture was selected in part because of their depth of technical experience with seawater desalination project design-build. Pridesa was the lead joint-venture partner for design, permitting, construction and commissioning. American would be the lead partner for the operations. This was Pridesa’s first U.S. desalination project. With most of the project’s technical or design personnel just having arrived from Spain, language and business differences presented obstacles. In addition, a U.S. designer was required to lead the project, and AWP needed to find a replacement. This exacerbated delays and again negatively affected on-time delivery.
As the project contract required a fully resourced and cost-loaded critical path method (CPM) project schedule, AWP struggled to provide and maintain such a complex deliverable. The project contract also required that the owner participate in AWP’s design development process as it had significant institutional knowledge about the prior project and wanted to be assured that the contractor clearly understood and included the stipulated project objectives.
Tampa Bay Water wanted assurance that the remediation project was well-planned and all costs were adequately addressed in the fee. AWP was required to prepare a CPM project schedule established by Tampa Bay Water as the key tool to manage the project. The CPM schedule would have been a blueprint that illustrated project sequences to ensure completion within the contract time. A fully resourced and cost loaded CPM schedule would also ensure adequate cost allocation. However, such a schedule requires extensive project planning, scheduling and system engineering resources to develop and to keep up-to-date throughout the project. The submitted schedules, however, fell short of these requirements. AWP was unable to complete a CPM schedule without noted exceptions, which contributed to further delays.
A complex design-build or DBO project should begin with the contractor’s sales personnel in association with technical staff, supported by the contractor’s management. The sale is closed when the contract is negotiated. Then a new design and permitting team mobilizes — often a substantially different group of contractor personnel. Managing such a transfer of institutional project knowledge from one phase to another throughout the project is significant. The challenge is not just from the sales to design and permitting phase but also from design and permitting to construction, then to commissioning and finally to operations. Knowing how a contractor intends to manage retaining project knowledge and client expectations on a long-duration, multi-phase project is worth attention by both owners and contractors.
Tampa Bay Water’s DBO contract included a fixed price for the delivery of proposed remedial modifications to the project. It also included an aggressive construction schedule. By the time construction permits were finalized, Florida’s construction market was reaching an all-time high. Local unemployment was 3 percent, and skilled foreman and supervisors were scarce. In addition, commodity prices were fluctuating. As a result, when the design was released to the general contractor later than originally anticipated, the revisions from the general contractor’s original proposal became an obstacle. Given the already limited construction schedule, AWP’s ability to handle these changes with the general contractor contributed to project delays.
With such limits in the Florida construction market, specialty skills from construction trades, such as welding specialty super duplex stainless metals, high pressure piping and specialty metal fabricating were scarce. AWP, however, alleviated the skill shortage as Pridesa provided certified welders from Spain. In these situations, careful consideration needs to be given to planning for and acquiring commitments for specialty construction trade and fabricating skills.
The Price of Delay
In most every multi-phase DBO project unable to meet the design and construction schedule, the start-up and testing schedule at the end becomes substantially limited. This phase generally requires demonstration of correct equipment installation, appropriate documentation, testing of the individual equipment systems and ultimately testing the facility’s overall performance. All these activities must conform with all permit requirements — difficult for a unique facility such as a seawater desalination plant. This is not a time to rush, so adequate time and resources must be included in a project to accomplish a successful commissioning and testing period. In complex projects, adequate resources are tantamount, as well as a defined start-up schedule and/or established milestone events included within such a schedule.
Manage the Risk
A successful design-build project has a design-builder who understands not just the technical attributes of the project, but the owner’s project management requirements, the local construction industry environment and any uncontrollable construction price risks. A key is to read the full contract to ensure understanding all the project’s requirements and other attendant risks.
Based on this full understanding the design-builder then must develop appropriate means for managing all the inherent project risks beginning at the project’s inception. When projects are developed with project risks clearly understood and reasonably allocated to project participants and managed commercially, it presents the greatest opportunity for all parties involved reaching the desired project outcomes.
INFO: R.W. Beck Inc. (www.rwbeck.com)