Market Feature: Water Infrastructure
The outlook for the near future in the water and wastewater industry is a mixed bag. Nationally, water and wastewater projects are on the rise for two primary reasons, according to a 2012 survey of industry professionals by auditing firm WeiserMazars: an aging and deteriorating infrastructure and Environmental Protection Agency regulations. However, while funding is available for some water infrastructure projects, particularly through recent federal funding initiatives like the Water Resources Development Act, which is picking up steam in Congress after Senate committee approval on March 20, adequate funding to fully meet the demand is not available through traditional channels.
The dilapidated and crumbling water system infrastructure is a top concern in the industry nationwide. “Failure to Act,” the 2011 American Society of Civil Engineers report, determined that the 54,000 community–based drinking water systems and the 15,000 public wastewater treatment facilities in the United States are “old, decrepit and in dire need of capital expenditures”.
The EPA estimates that 60 percent of the American cities it surveyed identified rehabilitating aging urban water infrastructure as their top water resources priority. That same report indicated that because of the deteriorating infrastructure, 92 percent of those respondents invested in water infrastructure between 2000 and 2004, and were planning on investing again in the near future.
This old infrastructure is widely recognized to have significant effects on operations and potentially water quality and consumer health in some cases, due to the issues that tend to stem from aging systems: increased main breaks, higher volumes of unaccounted for water sewer system overflows and loss of system pressure.
Public water and wastewater services and infrastructure in America are traditionally provided by local municipal governments. Until 1972, when Congress passed the 1972 Clean Water Act, federal assistance for public water and wastewater infrastructure development was nominal. Since 1972, assistance in the form of grants and loan programs has increased the amount of federal funding to communities for improvements.
Recent federal funding has freed up some funds for improving water infrastructure. Significant funds have been injected into the economy through the American Recovery and Reinstatement Act of 2009, with the water industry receiving a total of $6 billion to upgrade operations of water facilities across the country through the EPA and the State Revolving Funds.
However, despite the recent influx of federal funding, water treatment plants, distribution lines and sewage facilities are deteriorating faster than government entities can fund and repair or replace them.
Original construction of a majority of American water and wastewater infrastructure dates back more than 60 years, so between the age of the facilities, growing populations and new security issues, public water authorities are paying more attention to infrastructure management and maintenance. In 2009, the EPA estimated the capital cost of modernizing drinking water and wastewater treatment facilities supplying 264 million people is $91 billion; however, capital funding is estimated to be only $36 billion, leaving a capital funding gap—what’s referred to as the “needs gap”—of $55 billion.
With municipal budgets tightening and some government entities considering raising taxes—an unpopular idea in the current economic climate—to fund the necessary water work, many states are turning to public-private partnership legislation to better allow for alternatively financed projects. Industry professionals surveyed by WeiserMazars consistently agreed that privatization and public-private partnerships with public water authorities will be on the rise in the next five years.
“We are also seeing a trend towards design-build in the water/ wastewater market,” notes Justin Thorne, who is managing Flatiron’s new $32 million contract to expand the Leo J. Vander Lans Advanced Water Treatment Facility in Long Beach, Calif., which currently produces 3 million gallons of treated water per day. Flatiron is expanding the facility to 8 million gallons per day and reducing the area’s dependence on imported water.
Flatiron acquired water/wastewater contractor, Ellsworth Paulsen, about four years ago. This experience has helped Flatiron become a recognized leader in the water/wastewater market, particularly in construction of conventional water and wastewater treatment facilities along with membrane and reverse osmosis technology. Since the acquisition, Flatiron has executed approximately $100 million in water treatment work.
Most of the projects we target are between $10 and $200 million. Most are in California and other western states, like Utah, Idaho, Nevada and Colorado. Justin says that similar projects are happening across the U.S., but that we’re focusing on the areas where we have existing operations. Flatiron self-performs a large portion of concrete, piping and mechanical work on wastewater projects, which helps to control quality, cost and schedule, benefiting the client. Federal funding and EPA regulations require regular repair and maintenance of the water infrastructure, which has supplied Flatiron with a steady stream of projects to bid.
“Flatiron bid about a half billion in water projects last year. We’re currently prequalified for about $75 million in work, and plan to bid another $250 million in the coming year,” says Justin.
Common water infrastructure work includes construction and installation of new water treatment systems, including microfiltration, reverse osmosis, ultraviolet disinfection with advance oxidation, dissolved air flotation, chemical systems, piping, pump stations, site work, structural, electrical, instrumentation and all associated work.
Flatiron continues to build relationships with engineers that are engaged in the water and wastewater treatment markets.
Despite the funding issues, the outlook is not all doom and gloom for water infrastructure projects. The growing trend of different contracting methods like design-build and PPP positions Flatiron favorably in the pursuit of water infrastructure projects in the future.