Design-Build-Operate - Design-Build for Water and Wastewater Projects - page 314

method is not typically used. Although DBO may have been considered, the question of
cost-effectiveness can favor municipal operation, especially when municipalities are able
to apply best practices to achieve maximum operation and maintenance efficiency.
When DBO is used, the typical scope of services and the related terms and condi-
tions associated with a DBO contract differ from a DB contract due to the operation and
maintenance aspect of the work. For DBO, the contractor's scope includes the permit-
ting, design, construction, acceptance testing, and long-term operation and maintenance,
including renewal and replacement or asset management of new water or wastewater treat-
ment and related facilities. DBO is not commonly used for water distribution or wastewa-
ter collection infrastructure, other pipelines, or pumping stations on a stand-alone basis.
Project implementation for DBO projects includes three phases: (1) a development
period, where major project milestones for preliminary design, permits, financing, and
property rights are achieved by the design-builder-operator and/or owner; (2) the DB
period, where final design, equipment procurement, construction, and acceptance test-
ing are completed by the design-builder; and (3) the operation period, where operation
and maintenance, including asset management, is performed by the operating staff of the
DB team.
For DBO projects, funding by the municipal owner (which requires financing to be
arranged by the owner) includes payments for specified milestones, construction prog-
ress, and service fees. Payment during the development and DB periods is commonly
based on discrete milestones, such as permit issuance and preliminary and final design
deliverables. A schedule of values for construction progress is typically a monthly payment
and subject to retainage. Payment during the operation period normally includes a fixed
monthly charge for the contractor's fixed costs (e.g., management and overhead, labor,
maintenance, asset management, and insurance) and a variable monthly charge for the
contractor's costs that vary with the level of operation (e.g., power, chemicals, and residu-
als management). Power and chemicals are often treated as pass-through costs , which are
reimbursed as the actual costs are incurred, or they may be paid directly by the munici-
pality. In this case, power and chemicals cost reimbursement may be subject to maximum
level as outlined in the contract for the project. Likewise, any power or chemical usage
that is less that the maximum contracted levels would be a cost savings that may be shared
between the owner and the contractor if this was a term in the agreement.
The risk for various aspects of a DBO project is generally allocated to the owner or
DBO contractor as shown in Table 26-1. This is similar to risk allocation for DB projects,
except that operation and maintenance risks are not allocated to the design-builder in DB
projects.
The DBO procurement process tends to mirror the two-step best-value selection
(BVS) procurement process utilized for DB, with an RFQ issued in the first step and
the RFP issued to a short list of qualified proposers in the second step. The addition of
long-term operations and maintenance, however, affects the DBO procurement process in
several ways. It adds complexity to the RFQ/RFP and may limit the number of qualified
competitors, due to the need to add an operations firm to the DB team. For DBO procure-
ment, there are usually fewer prescriptive design requirements or constraints in the RFP,
and this generates a wider variety of design solutions in the technical proposals. The BVS
approach for DBO procurement directly accounts for the life-cycle cost of the project,
whereas in DB it typically does not. There is added complexity to contract negotiations