[00:00:00] Speaker A: It's becoming clear that the potential to transfer risk to the private sector can be a pretty appealing option for cities that are facing these kinds of budgetary pressures.
[00:00:13] Speaker B: You I am Reese Tizzle, and this is future water, which we talk about all the ways which companies, utilities, and people are addressing the challenges and opportunities in water. This is episode 91, and I know it's going to be a good one. That's because I'm joined today by Bluefield senior analyst Charlie Seuss to discuss some of his recent analysis of what we call collaborative delivery and its growing impact on water wastewater infrastructure build out in the US. An interesting topic that happens behind the scenes, but why are we doing this? Well, because public sector water, wastewater infrastructure, project owners, engineering design firms, contractors, they're all honestly grappling with cost overruns, scheduling delays, sometimes contractual disputes that are slowing the execution and delivery of critical infrastructure. This is happening amidst significant demand for infrastructure, whether it be rehabilitation, replacement, or just new builds. So, quite honestly, we don't have the money, the time, or the resources for any slowdowns, truth be told. So these factors have created, I think, what we would call a swell of new policies at the state level on project experiences that are designed and are accelerating what is commonly known as collaborative or alternative project delivery. The methods include everything from design build, progressive design build, construction manager, at risk approaches, as well as public private partnerships. So they are kind of challenging the traditional dynamic, or maybe is it a new paradigm for infrastructure build? We are seeing this happening in other sectors, such as transportation. So, Charlie Seuss, my colleague, is closely watching what's happening in water wastewater. So, in truth be told, for some time now, clients, particularly engineering firms and contractors, they've been asking about the growing and potential role of collaborative delivery, and it is being demonstrated, like I said, at a state by state policy level as well as in projects. So, given the fact that Charlie's essentially created a menu or mapped the policies geographically, so clients can kind of get an understanding of where the potential applications can be used or applied. But he's also tracked upwards of 200 projects, and I think, as Charlie will get into it in the conversation, collaborative delivery projects beget collaborative delivery projects. Right. The more it happens, the more it happens. Sounds a bit like Yogi Bera, but we thought it'd be interesting to share some of the results and some of the analysis with you because feedback has been really positive. And like I said, a number of different clients have been looking at this, so it'll be interesting to see how this shakes out going forward. But lots of good stuff to talk with Charlie about. So before we do that, thought I'd share some news that caught my attention this past week. So for some reason this really got me excited. I find this to be interesting, but the Panama Canal has avoided, I think, the worst of a shipping crunch that's threatened up in the global economy. We already have problems in the Red Sea, in the Middle east, with the hooties and disruption to shipping channels, but it's also happening in the Panama Canal for different reasons, and it's come at a cost of marine life and in some respects, the country's supplies of drinking water. According to Bloomberg, thanks to conservation measures this past year, water levels have just fallen over a foot this year. So positive sign through March twelveth. And this is positive because compared to last year, water levels had fallen 3ft during the same period. So significant impact. Prior to drought conditions and conservation efforts, Panama Canal typically handled about 38 transits per day. Currently, the authority permits about 24 vessels per day, and this is largely due to water scarcity and low water levels. However, there is hope for, I think, a return to normalcy, with potential increase up to 30 or 32 under normal circumstances. This is what I think is interesting. Panama Canal only handles about 3% of the world's maritime trade volumes, so not that big of a deal. However, 46% of containers moving from northeast Asia to the US east coast goes through the Panama Canal. That's really where the rub is. So bottlenecks in the canal can ripple through the global economy. We're already seeing disruptions. So any climate related impacts on the Panama Canal, which probably was not really thought about when it was built, I'm certain of that, are creating a bit of a problem that we're all going to pay for one way or another. But why at Bluefield do we care? Well, part of this is related to salinity levels in Lake Gatoon, which is a crucial potable water resource for Panama. In fact, it is its largest. Salinity levels have been steadily rising. I think. According to Bloomberg, the salinity levels have reached about zero point 35 parts per 1004 years ago after inauguration of the new locks. And really the level is now nearing its previous peak, which poses a significant threat to freshwater quality. For it's really not the canal, but also drinking water supplies. The canal recycles water from the locks that the vessels pass through and instead of simply flushing it into the ocean, the reused water gets saltier. And sometimes it has begun to infiltrate. Some of it has begun to infiltrate, like Lake Altoon which is an artificial lake that forms part of the channel and is part of the entire infrastructure network of the Panama Canal. And like I said, lake Altoon is the country's largest potable water supply for those who are interested, and maybe this is why I'm excited about this, is, I think it's been 1015, maybe 20 years ago. I read the book path between the Seas by David McCullough, which really talks about the design, the build out of the canal from beginning to end the Panama Canal. That is so really interesting read if you're looking for the history of it and what it all means, getting into everything from malaria and mosquito mitigation to actual key players, including some big names that you may have heard of out of France.
But that being said, really interesting. I thought I'd share that. And I think the takeaway is we look at climate, we look at drought, we look at rainfall, and the implications are broader and bigger than we often think about. So it's not just drought impacting households and water supplies to people, it also impacts broader country. Potable drinking water supplies. In this case, it's impacting businesses and quite honestly, potentially, or is already to some extent impacting the global economy. So this should lead to more advanced treatment technologies in Panama, because if there are high salinity levels in the lake, and it's going to have to be treated with things like Ro and other solutions, as well as potentially building out even more reservoirs in the country, which will take some time. So that being said, thought it was a good, interesting article that I got into this week and thought I'd share that with you. But really, point of this discussion is bring in Charlie Seuss and talk about collaborative delivery. So let's get to Charlie.
All right, so I'm joined here by Charlie Seuss. Charlie, how goes it?
[00:07:45] Speaker A: Doing well? Yeah, thanks for having me.
[00:07:47] Speaker B: So right before we started recording, I was not complaining. I was just saying that it was hot in my office because the sun is starting to sort of bear down on this aquarium. Not so much where you are, it sounds like.
[00:08:01] Speaker A: No, but we're starting to plan out summer research and webcasts, so warm days are coming up soon.
[00:08:10] Speaker B: Nice. All right. And I know you're not a big football, but. And the Bears. So you should be excited about that. I'll follow the team for you. All right, well, with that being said, get the sports out of the way. All right, so, Charlie, as I was talking about in the intro, you've been doing some recent analysis on collaborative delivery, alternative delivery, but let's start with sort of the. I mean, you know, when I say collaborative delivery to people, their eyes may glaze over, but you've dug into this in great detail. So give us a definition, or why don't you walk us through what is collaborative delivery and how you've defined it in some recent research you put together.
[00:08:54] Speaker A: Yeah, so I guess first to take a step back. In the traditional design build approach to project delivery, the owner is contracting separately with an engineer for the design and then the contractor for the construction. Traditionally, this is pretty much a universally accepted approach, but it's also susceptible to project cost overruns and scheduling delays, as well as even contractual disputes that ultimately can kind of slow execution and delivery of these critical infrastructure projects. So some of these frustrations with the traditional approach have led to the emergence of different collaborative or alternative delivery methods, all of which kind of aim to address these challenges and are driven by more early staged collaboration and owner risk mitigation. So our research focuses on four core delivery methods, being progressive design, build, construction manager at risk, as well as public private partnerships. Now, there are some others that are being used, and the definitions can certainly get a little bit fuzzy depending on the particular project and the scope. But what is clear is that as we see increased policy adoption and applications of these different collaborative delivery methods, this is creating new opportunities for engineering and construction firms.
[00:10:13] Speaker B: Yeah, I think, truth be told, there have been a number of companies that have come to us asking about it, and it sounds like. Well, I know it's the case because they've been asking about it. A lot of it is driven on the policy front, right. State by state, whether certain methods are even allowed or enabled. So what are the main drivers of the interest and maybe even the policy changes for collaborative delivery?
[00:10:42] Speaker A: Yeah, I think that's definitely an interesting question. There are probably two key drivers that I would want to highlight and maybe a few more to a lesser extent. But first and foremost, it's where are we seeing legislative momentum? There have been strong lobbying efforts by different industry leaders that have helped move legislation forward in recent years, and that's kind of set the stage for this broad shift in state policies. And then on the other hand, certain states have been slower to adopt and expand legislation that authorizes whether it's progressive design builder or p three s for water and wastewater infrastructure. And even in some states where these methods are authorized and legislation has been passed, we've heard cases of owners either lack of understanding of certain collaborative delivery method processes and how that's kind of inhibited broader adoption in those states, on the other hand, another major driver would be where has there been demonstrated activity, and where are we seeing this growing portfolio of projects? Some owners have been kind of reluctant to engage in alternative delivery approaches out of fear of whether it's loss of control or perceptions of reduced transparency and lack of competition in the procurement process. But these collaborative approaches are really designed to address owners frustrations with these traditional processes, which, again, often suffer from longer delivery times or excessive costs and other issues that have come up beyond that, I think to a lesser extent. Some of the other factors that we're seeing drive this space are utilities, financial constraints, whether it's aging infrastructure or regulatory pressure, and even climate change and extreme weather events. It's becoming clear that the potential to transfer risk to the private sector can be a pretty appealing option for cities that are facing these kinds of budgetary pressures and looming infrastructure upgrades on top of what we've seen over the last few years in terms of supply chain constraints and record material prices. So definitely a range of factors driving activity in this space. And for us, an exciting thing to watch.
[00:13:01] Speaker B: Yeah, I think you're exactly right. So even just simplifying it for the listeners to understand is the engineering firms definitely understand this. I think it's a really active space that they've been watching. I mean, there are entire industry or trade organizations dedicated to things like design build, DBIA being the one that comes to mind. But I think it's also the traditional bid build approach. You're dealing with a number of players, and there are steps or milestones along the way that are slowing things down that have sort of created some friction in the process and an opportunity for others to present these methods as options to speed things up, like reduce the number of players, transfer some of the risk away from the project or system owner to those that are actually doing it. So I think it's really interesting. And like you said, part of it is lobbying efforts. Part of it is collaborative delivery projects, beget collaborative delivery projects. That's sort of the way the world works. The more educated people are, the more they understand what's happening and what their options are. And if these are some of the options, then they're more likely to use them. So you've looked at legislation across 50 states or all 50 states, and then some. What are some of the trends you've seen as far as which states have authorized the delivery methods, and are they all the same, or do they vary?
[00:14:36] Speaker A: Yeah, so it's been interesting looking at different state statutes or different delivery methods across the US in terms of design build to start with, that after first gaining traction in the transportation sector in the design build projects are now widely embraced in the water sector. More than two dozen states have authorized or amended design build legislation for water in just the past ten years, and that has brought the total to 43 states and counting. On the other hand, for progressive design build, when you compare that to transportation, it's clear that legislative authorities have been far slower to adopt that for water and wastewater infrastructure. As of the beginning of this year, there were just twelve states that have authorized progressive design build for water and wastewater projects. With a handful of other states either kind of lacking clarity around their respective policies, particularly as they pertain to water infrastructure, they're often again, transportation has kind of been one of the leading sectors for that delivery method. And then on top of that, there have been at least 30 states who have enacted the legislation authorizing CMAR for water projects, where we've also seen some clusters in the Northeast and Midwest which have lagged a little bit in terms of authorizing CMAr. But again, there's been this kind of shift in policy and growing lobbying efforts. So we are seeing increased number of bills each year that are impacting these kinds of legislation.
[00:16:13] Speaker B: Yeah, truth be told, I think I said that before, but this is not sexy stuff. What is interesting, though, is that you've basically put together a menu, state by state. What are the different, I guess, legislated options within the various states. And I know a number of clients have been really excited about that because it is a lot to track, it is a lot to follow and keep up with, and that oftentimes is a precursor to project activity. And you've also collected a number of projects as well, to sort of get an idea of what's happening. But one thing that stands out, at least within the group of the four, are public private partnerships. So what is the story about p three s, or ppps, as they are often termed, we see when we started Bluefield research a decade ago, we're doing a lot of work looking at p three s around the world, quite honestly, whether it be in Europe or Latin America or the Middle east and so on, whereas the US has always been a bit of a hole. When you look at the global map, what's the story with p three s in the US?
[00:17:24] Speaker A: Yeah, p three s still are pretty few and far in between in the US water sector. But we have seen different factors, whether it's inflation, climate change, or mounting investment needs, that have prompted certain cities like Fort Lauderdale, Florida or San Antonio to kind of turn to private financing and some of these progressive delivery methods to mitigate risk or rising costs. But again, pretty few and far in between in terms of number of projects and legislative authorization. And then even in the states that have authorized P three s for water, specifically, certain cities reluctance to really leverage the private sector financing has kind of highlighted the inherent challenges to this method in the US. Just last month, Epcor proposed public private partnership in Lake Oswego, Oregon, fell through as a result of the city's city council's concerns with the proposed cost of private financing. So there are certainly some barriers to further adoption of P three s in the US water sector.
[00:18:35] Speaker B: Yeah, it feels like everybody's got a strong opinion about P three s in the water sector. They're obviously the sponsors, those that are pushing it, and they're not a lot of experiences in the US, but they in some cases haven't had great experiences in certain cities. And so oftentimes they are proposed to larger cities and they say no. I think one of the challenges is also it is a lack of understanding of what they are, a lack of a sponsor internally. But also the terms are long, right? They're not five years, it's not ten. In many cases, they can go out as far as 50 years.
I think city councils and or I guess politicians feel somewhat trapped if they do sign into it. And there's a lot of convincing that has to happen. So it's interesting to see that because they've been so successful in other parts of the world. And there are a number of companies this know, whether it be Suez or violi or Sauer or, you know, the french companies and then a number of the spanish firms. There are a number of them in Europe as well as around the world that have been active using them. It just hasn't really taken hold in the US. But you've also been tracking project data. Are there any insights that you've gleaned from the projects that we've been able to gather in the various states?
[00:20:01] Speaker A: Yeah. So to date, we've compiled this growing list of about 200 collaborative delivery projects across 32 or so states, the vast majority of which are design build, followed by progressive design build. We think about geographic trends. It's really a handful of states that are paving the way for collaborative delivery legislation and project activity. So that's from what we've observed, largely driven by water stress in southwestern states and growing treatment needs in the southeast. More than half of all active projects in this data set are located in some belt states. So California, Texas, Florida, Colorado and Georgia. And most of these projects are mainly serving medium to large cities in metropolitan areas. And then in terms of the companies we're seeing, there's again a growing list of at least 120 or so companies with demonstrated activity in this space. And among those, there's this group of about 18 firms who are really leading the charge, with average contracts ranging from 15 million to over 350,000,000 on average. So a lot of activity in this space every day. There's something coming through our inbox regarding progressive design, build or collaborative delivery, whatever it may be. So definitely an interesting space that we're looking forward to continue tracking.
[00:21:27] Speaker B: Yeah, and I think, as you mentioned earlier, transportation is ahead of the water sector and the application of some of these methods. And so we've seen that really take off water is definitely lagging behind. As far as project activity, you've collected about 200 or so projects. We know that they're more out there. We know that the dollar value is probably bigger than what we've seen. And partly it's a fragmented landscape. There are a number of players, but also it's growing. Right. I think at the early stages of a market, you can usually spot the projects, but the more activity there is, I think we've even seen estimates as much as 40% of the market is served by some form of collaborative delivery. That might be a bit aggressive as far as total, but it's not an insignificant share at this point. And so it'll be interesting to sort of see if the market accelerates. And like you said, the pressures, the financial pressures on a lot of these cities and projects are greater and greater, whether it be financial, whether it be climate, maybe both. And so any way to speed up the delivery of projects, but also mitigate the financial risk or offset it or share it collaboratively? Hence the word between the owner and the contractors will be interesting. So, yeah, I think it's really interesting.
We've been looking at this for some time now, and I know how much work has gone into this.
A lot of clients have asked about it and think you should be commended on the work that you put out on it, because I think really, just looking at the state policy maps is really interesting to see how they differ. But then you start digging in the projects and overlaying that on top of actually, what are the forecasts, state by state and size of the various markets. So really interesting.
Well, before I let you go, a common question I always ask is, what else are you working on now that you're done with this.
[00:23:39] Speaker A: Yeah. So we've got a investor on utility market share report that will be coming out soon.
And I know some of my colleagues are working on some really interesting stuff as well between stormwater and other industrial forecasts and research. So definitely a lot of interesting stuff in the cube.
[00:24:01] Speaker B: Yeah, the IOU market share will be interesting, particularly given that this will be the last sort of stamp. And then we'll see potentially what happens with eversource to see if there's any changes there.
And then we'll move on to other things.
Like you said, stormwater and other interesting stuff when it comes to the municipal water sector. So, Charlie, thanks a million for jumping on on a warm, sunny day here in Boston, but at least in my office, which feels like a fish tank, but for you, not so much. So thanks a million for jumping on. I appreciate it.
[00:24:38] Speaker A: Yeah, thanks, Reese.
[00:24:39] Speaker B: All right, take care.
All right. There you have it. That's super helpful to hear from Charlie about what's going on. Like I said, it ain't the sexiest subject, but I can tell you a lot of people and companies have been interested in this as we try to address and tackle the growing water wastewater infrastructure challenge in the US.
But before we sign off, if you're in Boston or Barcelona, got a meeting with someone tomorrow in Boston who's in town, and we're actually going out to dinner. So if you're in Boston or Barcelona, let us know. We'd enjoy the opportunity for a meeting. Please subscribe to the Future Water podcast and give us a review. I noticed on Spotify you can give reviews now, and our numbers are starting to climb, at least on that platform. You can also do it on Apple podcasts. Send us a note to water
[email protected] with any topic ideas you'd like us to discuss. We're doing this for you. Lastly, tell a friend about it. I'll leave it at that. This podcast and these water industry insights have been brought to you by the one and only Bluefield research. Learn more about us, visit
[email protected] till we talk again, be well, be safe, and take care.
