The changing role of water industry contractors

Frost & Sullivan's John Raspin examines how the role of contractors has changed in the European water industry.

Mar 20th, 2001

By John Raspin, Research Manager

Environment Group, Europe, Frost & Sullivan

March 19, 2001—In the European water industry, the role of the contractors has changed significantly in recent years.

In the fields of both municipal and industrial water and wastewater treatment, the days of traditional engineering and construction contracts are nearly over.

Design, servicing, maintenance and plant operation are all functions that have increasingly become associated with water and wastewater contractors, with such value-added services becoming essential for companies looking to maintain profitability in an otherwise mature market.

Indeed, in instances where municipalities are looking to attract private sector participation (PSP) through management contracts, new plants are increasingly being built using a Design-Build-Operate (DBO) structure rather than conventional procurement practices, where the design engineer is independent of the construction company.

The contracting companies have subsequently come a long way from the days of following the traditional procurement structure, not only by offering design and consulting services, but also by utilising their technology and know-how to operate plants on behalf of the owner, which is typically the municipality. At a time when large capital expenditures are being required to improve infrastructure, networks and plants; a private operator offering DBO contracts may be able to significantly reduce both the transaction costs and the operating costs for the asset owner. This allows further capital expenditure (CAPEX) to be funded by the efficiency savings and not via debt or rate increases.

Furthermore, the contractors are effectively taking responsibility for a number of the functions traditionally supplied by engineering consultants and subsequently greying the distinction between the two. However, this trend in favour of DBO contracts is currently restricted to countries where there are opportunities for the outsourcing of management contracts. In Europe this means that the majority of DBO contracts are in France, Germany, Scotland (encouraged by the PFI initiative), Russia and Poland. It is also commonplace in Canada and the U.S.A.

Among industrial sector customers, there is also an emerging trend in favour of outsourcing plant operations, with industry increasingly turning its focus to its core functions and leaving peripheral activities to the relevant experts. With the market for industrial water and wastewater treatment equipment growing strongly in Europe at present, this is making the market for industrial DBO contracts extremely lucrative.

The DBO process has already showed itself to provide significant cost savings for both municipal and industrial customers looking to outsource management contracts, and there is no doubt that the proportion of contracts executed on this basis will increase in the near future.

For more information visit www.water.frost.com, or contact Kimberly Howard at 210.247.2488.

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