How to Engage Private Entrepreneurs Using Pay for Performance
The South Orange County Water Quality Improvement Plan (WQIP) calls for an unprecedented pace of implementation with costs expected many times greater than existing budgets. Sustainably meeting the human and ecological goals of the WQIP will require city and County stormwater managers to maximize the effectiveness of every available dollar, leverage additional funding options, and engage new partners in delivering water quality improvements.
Private entrepreneurs are interested in using private capital to develop water quality improvement projects aligned with the WQIP. These private-sector partners bring a promising combination of engineering expertise with experience permitting and developing complex wetland and species mitigation projects. They also have access to their own capital, enabling them to invest in design and implementation without contracting delays. Private entrepreneurs are willing to invest their time and capital and take on project implementation risk, as long as they have clear rules for defining water quality outcomes and a contract that defines the terms of payment on delivery of outcomes.
Pay for performance contracting enables municipalities to engage these private parties to deliver water quality improvements. The Pay for Performance Toolkit (https://www.enviroaccounting.com/payforperformance/Program/Home), released in March 2018, is an online resource that provides stormwater managers strategic guidance on how to implement pay for performance contracts that inspire private sector actors to proactively bring price competitive project proposals. The Toolkit demystifies various pay for performance strategies, and provides sample terms that procurement and legal staff can integrate into RFPs and contracts.
Pay for performance contracts define a price per unit of water quality improvement. Payments are made using as-built conditions to verify water quality benefits from the built project. In this way, municipalities can shift the risk of cost over-runs to the private entrepreneur and reduce the amount of staff time needed for project management. Recent experiences in Maryland demonstrate that pay for performance contracts are enabling counties and departments of transportation to secure water quality credits at an estimated 40 percent cost-reduction compared to traditional municipal led projects.
This presentation will simulate the actual conversation between the South Orange County stormwater manager and a private entrepreneur. The interactive dialogue will provide various perspectives on the benefits and challenges of using a pay for performance approach to engage the private sector in meeting the diverse water quality and availability needs of people and species. The audience will be encouraged to ask their own questions about how a similar approach might (or might not) work in other regions and describe the tools and resources available to design and implement pay for performance contracts.
Grant Sharp is Manager of the South OC Watershed Management Area of OC Public Works and serves as Chair of the Southern California Stormwater Monitoring Coalition. Throughout his 17 years with the County, Grant has helped develop and implement programs to improve watershed health and protect beneficial uses of water bodies in Orange County. Grant also teaches courses on Stormwater Management and Green Infrastructure at Santiago Canyon Community College.
Jeremy Sokulsky founded Environmental Incentives in 2006 to pioneer Performance-Driven Conservation as an approach to align public and private sector objectives to create resilient water, land and wildlife resources. Jeremy combines lessons as a water quality regulator with over a decade of experience enabling program managers to maximize the results from limited budgets. Jeremy is leading the adaptation of performance-based payment mechanisms to enable innovative financing and public-private partnerships for stormwater and conservation. Jeremy earned a BS from UC Berkeley in Chemical Engineering and an MBA from the Stanford Graduate School of Business.