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Procurement

4 big insights for finance teams about the future of water management

Public water utilities around the country are facing the monumental task of updating aging water systems. But trying to fund a persistent list of deferred and priority projects in an era of shrinking local government revenues, staff constraints, and heightened constituent sensitivity to rate increases makes for a challenging environment.

There’s never been a better time to explore creative solutions for stretching budgets further and turning federal infrastructure funding into transformative investments in efficient and sustainable water management. This is a topic municipal finance expert and former mayor of Kansas City, Mark Funkhouser, recently sat down to chat about with seasoned finance and water utility leaders. Funkhouser, who is currently the President of consulting firm Funkhouser & Associates, joined Jennifer Presutti, COO and CFO of the Pittsburgh Water & Sewer Authority (PWSA), George Hawkins, former CEO of District of Columbia Water and Sewer Authority (now the Founder and President of Moonshot Missions), and Anthony Berry, Director of Sales at Bonfire.

Here are 4 a-ha moments from their conversation that should be on the mind of every finance professional.

1. There’s always going to be more work than money to fund the work.

Federal funding initiatives in the U.S. are creating opportunities for teams to address maintenance that has been deferred for many years, as well as kickstart innovation on new projects. The goal shouldn’t be to simply fund projects. There also needs to be a focus on making your utility more efficient, permanently reducing operating costs, and looking through a strategic lens at where to funnel capital dollars.

“During the years I was running [District of Columbia Water and Sewer Authority], our economy was growing but our proposed capital program was three times the size of the money we had to fund it,” says Hawkins. “This is true of every community in every jurisdiction anywhere in the world. How that money is invested becomes the most important question, because you’re never going to have enough. I learned that the hard way at DC Water.”

2. Rate increases are easier to swallow when coated in equity and a strong value prop.

80% of webinar attendees indicated that their organizations have implemented, or are in the process of implementing, rate increases. It’s no wonder equity is top of mind for the panelists. Presutti shared a few ways PWSA addresses the equity question, including working with their finance team to roll out a phased approach to rate increases.

“We’re contemplating when we go back to the PUC for that next rate increase, but always front of mind is the affordability for our customers,” says Presutti. “And, so, working with the PUC, with other entities, and then internally, we have a very robust customer assistance program. We’re always mindful of those folks who are most vulnerable in our communities.”

During his tenure as CEO at DC Water, Hawkins had subsidy strategies in place to protect low-income constituents. He’s also a big proponent of ensuring the citizens absorbing rate increases clearly understand the value proposition of the additional cost, something he personally presented at more than 65 rate hearings during his tenure. It’s an approach that was highly effective in gaining unanimous support for every rate increase he ever brought forward.

“I had two justifications I had to make every time I was presenting a rate increase,” says Hawkins. “First, I had to be able to prove that we were doing more with the money they were already sending us than we did last year. That’s the only way I get to ask you for more money. Second, I had to prove that we’re more efficient…because we’re implementing innovative solutions that are less expensive than our prior practices.”

3. Modifying your approach to procurement can make your business permanently more efficient.

A lot of agencies view procurement as a transactional tool for negotiating with suppliers. But the truth is, making a strategic investment in procurement and sourcing can stretch dollars further and help uncover new supplier partners who ensure you’re getting the most value for the money you spend.

In Pittsburg, they’ve expanded their procurement team from one person to six people and invested in technology that widened their vendor pool, increased supplier diversity, and streamlined their overall procurement process.

“When we had a team of one, it was emails, it was phone calls, it was in person, it was paper, it was disorganized,” says Presutti. “Now we have a system that will take our procurement all the way from solicitation to contracting, (with) one source of truth. And when you’re looking at a capital program with $300 million or $1.4 billion over the next five years, procurement is essential. We need to have transparency. We are a public organization. That is absolutely non-negotiable, and our Bonfire system has helped us achieve that.”

Hawkins also discovered that more streamlined procurement at DC Water was a path to funding projects that would permanently make the business more efficient to operate. “We hired our first ever Chief of Procurement. I sat him two doors away from my office and I was in there every single day because what we were able to do was so dictated by procurement.”

The other element DC Water staff started including in every procurement process was business planning. It was no longer just a question of making a choice based on lowest cost. They implemented a formal review factor around whether any option on the table would be the most efficient over time. This was a game-changer.

“As soon as we implemented that business planning component in procurement things began to change over the enterprise,” says Hawkins. “Procurement started driving innovation because it asked the right questions. In the public sector, most procurement systems don’t do that…but it turns out sometimes you can pay a little more up front and then permanently have a system that’s cheaper, and it’s far better for your ratepayers. I think that was one of the single-most important elements to the success we then saw at DC Water.”

4. The biggest barriers to implementing technology are people and time.

The desire to invest in technology to improve your procurement is one thing, but old perceptions can create barriers to implementing new technology. Innovation has been historically viewed as risky because it’s difficult to know whether a new approach will work. In Hawkins’ view, that’s no longer an issue.

“Many of the innovations we’re talking about, like Bonfire, are well known. These are not brand-new things that we think might not work. There’s a tremendous track record of how it works in a utility, and you can call and talk to someone if you’re interested to know how it works,” says Hawkins. “I think the bigger issue that I’ve seen with utilities is having the personnel time to evaluate, selecting, and implementing new technology, because that is all time that people need to add to their work schedule.”

Berry concurs that the people element is important. In fact, he advocates considering three key elements if you want to create change: process, people, and technology.

  • What is the process we’re trying to change?
  • How will the technology impact that process?
  • Do we have the right people in place, and do they have the bandwidth to actually own the change?

Once you look at these three factors, you may conclude that you’re not ready to embrace the technology (yet). But going through a careful consideration process shows you where the gaps are, so you can create a plan to solve for them to support positive change in the future.

Driving efficient and sustainable water management requires a new mindset

Federal grants are opening doors for water agencies to invest in large contract projects aimed at making significant improvements to existing infrastructure or adding new infrastructure that has been sitting on the back burner due to lack of funds. There’s also an opportunity to make strategic one-time investments that will reduce operating costs for the long run.

“We must look at this through the lens of ‘how can these investments fundamentally alter the balance sheet?’” says Hawkins. “My guess is that a lot of smaller water utilities are going to have to band together and submit applications so they can share costs, implementation, and expertise in putting in some of these new approaches. But the whole notion of transformation is front of mind. That’s absolutely the opportunity before us and we’re excited to see how it’s going to happen.”

Procurement can be a critical driver of sustainable efficiency in how your organization builds, operates, and maintains water infrastructure. There’s never been a better time to look at how you can extract more value from your procurement workflow.

If you’re interested in exploring how modernizing procurement can drive transformation in your organization, reach out to schedule a chat with one of our experts.

Interested in hearing the whole conversation between Mark Funkhouser, Jennifer Presutti, Geroge Hawkins, and Anthony Berry? Access the recording here.

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