Contract monitoring for financial and operational performance.

• Author: Eagle, Kimberly Scism
• Position: Charlotte-Mecklenburg Utilities' five-year competition/contracting plan

When a bid team from Charlotte-Mecklenburg Utilities won the competition for a five-year operation and maintenance contract for two treatment plants, contract monitoring required establishment of a separate accounting entity for financial and performance monitoring and internal auditing.

The City of Charlotte, North Carolina, focuses on providing the most cost-effective services possible to its customers. In pursuit of this goal, the city has undergone a major "rightsizing" process (see December 1994 issue of Government Finance Review) and has encouraged the use of outside competition for providing traditional city services. For example, one-quarter of the city's solid waste collection service area recently has been contracted out to a private firm.

A Competition/Contracting Plan

Charlotte-Mecklenburg Utilities (CM-Utilities) - a department of the City of Charlotte - is a municipal agency providing water and wastewater services to approximately 500,000 residents of Charlotte and Mecklenburg County through eight treatment plants. CM-Utilities has a comprehensive five-year competition/contracting plan that identifies services that will be competitively bid with the private sector. Some services, mowing and janitorial work for example, that are determined not to be core to the utility operation, are contracted out - outsourced - by CM-Utilities. In core business services, however, CM-Utilities is an active bidder, competing with the private sector to provide these services.

In accordance with its competition plan, which included the operation and maintenance of one water treatment plant and one wastewater treatment plant, in August 1995 CM-Utilities sought proposals for the operation and maintenance of the Vest Water Treatment Plant (WTP), and the Irwin Creek Wastewater Treatment Plant (WWTP). The City of Charlotte successfully competed for the contract with national and international firms, and contract operations by CM-Utilities staff began on July 1, 1996.

The Vest WTP was constructed in 1924 and underwent renovation and expansions in 1937 and 1947 and modifications in 1981 and 1996. One of CM-Utilities' three water treatment facilities, it is designed to treat an average flow of 24 million gallons per day (mgd). Built in 1927, the Irwin Creek WWTP similarly has undergone several expansions. This plant, designed to treat an average flow of 15 mgd, currently provides advanced wastewater treatment for the western sector of the city, discharging effluent into Irwin Creek.

The Competition and the Contract

The primary goals of the competition for the operation and maintenance of these two plants were 1) the determination of the most cost-effective service provider, 2) the promotion of competition from private operators, 3) the development and utilization of objective evaluation criteria, and 4) the establishment of a level playing field. When a formal request for proposals (RFP) was issued in August 1995, nine qualified firms submitted proposals, including CMConOp, the Charlotte-Mecklenburg Utilities bid team.

The statements of qualifications and the proposals were reviewed and evaluated by a six-person evaluation team consisting of two citizen members of city advisory committees, two non-CM-Utilities members of city staff, and two members of CM-Utilities' management staff. The Privatization/Competition Advisory Committee (a mayor/council-appointed committee) as well as the CM-Utilities Advisory Committee (a citizen committee) were involved in the entire process. The two committees reviewed and approved the steps throughout the competition effort, as well as the decisions of the evaluation team, and serve as an important element in the monitoring process. CM-ConOp, which was established to prepare the in-house bid, had no part in the development of the specifications or in the evaluation of the proposals - an internal artificial wall was established to guarantee no conflicts.

CM-Utilities staff submitted the low bid for the two plants in competition against some of the largest national and international firms in the business. The CMConOp bid provided for reductions in personnel, chemical, and utility costs to be achieved through increased training, providing gainsharing incentives, and increasing automation, such as automated chemical feed equipment and automated equipment controls. Cost comparisons between the CM-ConOp bid and the FY1997 budgeted costs are shown in Exhibit 1. Off-peak electric use and the use of digester gas in lieu of natural gas also was proposed for additional savings. The bid would result in a projected 22 percent reduction in...