The online RCAP Resources Library has a variety of resources that are useful to small, rural drinking water and wastewater systems.

Capital ideas

In the midst of the budgetary process, perhaps the biggest question is what to do about capital improvements – those big projects that are needed to repair or improve the system but are costly and can take a long time to complete.

The Rural Community Assistance Partnership and its regional affiliates offer information and guidance to help small water systems prioritize, finance and begin their capital improvement projects.

In this edition of eBulletin, we’ll borrow some tips from RCAP on developing those big projects, including how best to find the right engineers, how best to take care of the preliminaries and what financing options are available.

Stepping Stones

According to southern RCAP affiliate Community Resource Group, there are six basic steps in the capital improvements process.

  • Step 1 – Needs assessment. Figuring out exactly what improvements or major repairs are needed, and prioritizing those needs, since funding probably won’t be available for everything
  • Step 2 – Defining the project, selecting the engineers. Once you have the top project determined, engineering consultants will be able to tell you exactly what needs to be done and how much it might cost. You’ll need to find a good engineering firm to handle the project.
  • Step 3 – Preliminary design. The best way to figure out the financing is to figure out what you’ll be doing and what materials will be needed.
  • Step 4 – Financing. It’s time to start exploring your options for financing a big project, from loans to grants to rate increases, or a combination of options. Which is best for the project?
  • Step 5 – Final design, bids, regulatory approvals. The ball really gets rolling with finalized plans for the projects. Bids are needed from contractors, and it’s time to start getting the necessary permits from local, state and federal agencies.
  • Step 6 – Project construction and startup. This is the heart of the project when the months of preparation finally take shape. But it’s not over. Plans must be made in case of delays due to material shortage, bad weather or other issues. Then you must figure out how best to incorporate the new facilities, or how best to switch from the old to the new. Final plans must be submitted, and final inspections must take place.

It’s a long process, but with the right methods and plenty of contingency plans, it’s one that can go relatively smoothly.

Step 1

The first step is to figure out exactly what your system needs to maintain top-quality water treatment and distribution. One of the best ways to do this is to conduct a system-wide assessment every year. This may not seem like a fun idea, but it will save you time, money and headache in the long run. For one thing, you won’t be surprised by major repairs or issues that seem to pop up suddenly. An annual assessment should spot the minor problems before they become major ones.

It’s also important not just for the water system employees to check things out, but the water board as well. The board not only regulates the system, but it also provides a communication link between the system and the public, so it’s important for board members to know the system well.

Once the assessments are done, it should be easier to figure out the most immediate needs, large or small. The next step is to put those needs in priority order. What can be done right away? Can anything be done with little cost? What is the biggest issue facing the water system, and what needs to be done to fix the problem?

Then, it will be up to the board to decide which projects need financing right a way, and which ones can be put on the back burner for a revisit later.

Step 2

The next decision is a big one that will effect how well the project goes. The next step is to find the right engineering firm to consult with throughout the project. The engineer will help design and plan the project, give recommendations on cost, possibly help with financing and will provide inspection services to ensure the project meets local, state and federal standards.

There are plenty of questions to ask on this step. Would it be less costly in the long run to fix your existing equipment or just buy new equipment? Can your solution withstand the test of time, or will the technology become obsolete quickly and require more costly repairs or replacement in the next few years? How long will it take to make the changes? Would you undertake the project right away if money wasn’t an issue?

The engineering firm will be able to help you better understand your needs, situations and financial abilities in conjunction with the project, so you’ll know the time, money and man power needed before you begin.

The key is to choose the right engineering firm. There are eight steps to help you find the right engineer.

First, figure out exactly what you expect the engineer to do, such as prepare a preliminary report and cost estimate, recommend the best of several solutions, do final construction drawings, and provided construction inspection services.

Next, make a list of several candidates for the job. You can get suggestions from your state’s water regulatory agency, as well as from small, neighboring communities. Make sure you check references thoroughly, so you’ll know if the firm has ever had problems with quality or meeting deadlines.

Once you have a solid list of potential candidates, contact the firms and let them know about your project. Ask for proposals on how they would handle the project, what experience they’ve had handling such tasks, references for past work, their capability in handling such a project in a timely and cost-efficient manner and their familiarity with state and federal funding programs and regulations.

Be sure to come up with set criteria for proposals, because board members or water officials should use those criteria when reviewing proposals. It’s important to make sure the firms’ proposals meet all your criteria. It’s also important to check their references. They may think they did a good job at one site or another, but the town’s officials or water board members may say something else.

Once the top candidates are determined, conduct a thorough interview. Make sure you have questions that will apply to each interview, such as what experience the firm has with similar projects and whether they’ll agree to a contract with a fixed or maximum cost listed.

Finally, select the best firm for the job and begin negotiating a contract. But don’t reject the other firms until a contract is set, in case the best firm refuses your terms.

Regarding the contract, make sure you have everything in writing, from cost to fees to timetables. Don’t assume they understand or will accept something just because you talk about it. Make sure everything is written down. Tie payments to completion of tasks like delivery of the final design. Make sure they’ll accept payment for preliminary work once the project is funded, so you don’t have to scrape for money for the engineer while waiting on a state or federal grant to come through.

Finding the engineer may be the toughest part, but once it’s done, it’s time to really get the ball rolling.

Step 3

The next step is to get the preliminary work out of the way. While a lot of this will fall on the engineer’s shoulders, it’s important to remain closely involved with all aspects of the program, including this one. Make sure the report meets all your expectations, such as providing a thorough assessment of the situation, the impact of the potential improvement, the cost, the time needed and the amount of work the project will entail. Be sure board members can review the report before it’s submitted to state and federal agencies. You definitely don’t want to expect one thing from the project while the state expects another.

The preliminary report shouldn’t just include information about the project itself. It should also explain your current facilities and financial situation and how the project will affect your system and your finances. Make sure the report outlines all permits and easements that will be needed. Have the engineer mention alternative solutions and lay out reasons for why the project is the best solution. Make sure you know what materials and manpower will be needed to complete the project. Finally, have the report include recommendations for financing the project, including rate increases, bond issues, state or federal grants or loans, private or bank loans or a combination of these.

Once the plan has been reviewed by board members and all aspects are approved, the engineer can send it to the appropriate local, state and federal agencies for approval.

Step 4

The next step is a doozy. Without it, the project goes nowhere.

It’s time to figure out how to pay for the project.

Are there ways for your system to pay for this project? Will the project help your finances in the future, or will it eventually bankrupt the system? Will it prove too much of a financial burden on your customers?

The answers to these questions could determine whether to proceed with the project as planned or if you will need to make some changes, either minor or drastic, to make it more affordable.

Luckily, there are several options to consider when trying to finance a project. There are several state and federal programs to help small water systems, including grants and loans from the USDA-Rural Development and Community Development Block Grants programs.

A bond issue is a possibility for public systems, such as those run by a city or county. Communities interested in bond issues should consult with a reputable bond counsel and investment broker experienced in dealing with financial public improvement projects before deciding on this method of finance.

Another possibility comes right from RCAP. Your regional RCAP Revolving Loan Fund is an option for some of the smaller projects. The RLF provides loans to rural water systems for capital improvements or the steps necessary for the improvements, such as hiring an engineer. Check with your regional RCAP affiliate for more information or call (479) 443-2700 for more information.

The RCAP southern affiliate, Community Resource Group, recently received funding for a new method of financing through the USDA-RD’s Intermediary Relending Program. CRG now provides small loans to water systems in counties designated as part of the Delta Regional Authority. The counties can be found in the following states: Alabama, Arkansas, Illinois, Kentucky, Louisiana, Mississippi, Missouri and Tennessee. A list of the counties can be found on the Authority’s web site, listed below. More information is available by calling CRG at (479) 443-2700.

Finally, there is a possibility of working with a private firm to complete a project. The advantage is not only in the financing but also in giving some responsibility to the private firm. The disadvantage is, you would have to ensure the firm would live up to its responsibilities for maintaining the water system quality and expectations. This solution isn’t the best for every system, but some systems may find it to be just what they need.

The EPA provides information on public-private partnerships, or privatization. A link to that information is provided below.

Additional information

Delta Regional Authority

Step 5

Once the financing is worked out, it’s time to really get things going. It’s time to take care of the last of the preliminary work before the construction begins.

This step has many different aspects. Final contracts must be completed with the engineering firm. Local, federal and state permits must be obtained, and final plans must go to these agencies for approval so construction can start.

Make sure the final plans are reviewed once more by the board members and city and water system officials.

Once the plans are ready and approved, it’s time to start asking for bids from contractors. Make sure they have detailed fixed costs and a “bid bond,” which will charge the contractor if they agree to do a project then back out during construction. The engineer should check the math on final bids to ensure everything is correct. If a bid exceeds the planned cost, then the bids can be negotiated or new bids can be requested.

Finally, once the contractors are chosen, it’s important to have a meeting before construction begins with everyone involved – the water system board members and employees; representatives from local, state and federal agencies; the engineer and the contractors. Everyone needs to be on the same page before construction begins. At this point, it’s good to check that all permits have been received, all paperwork has been properly filed, all materials are ready to go and all contracts are completed.

Step 6

All the details are worked out. The firms are hired, the workers are ready and the permits and checks are in hand. It’s time to start construction.

You’ve finally reached the point for which you’ve been working for so long, but it’s not time to relax just yet. There are still plenty of tasks to perform. The engineer needs to make weekly inspections to the site to ensure construction is going according to plan and according to regulations. The board must ensure payments are being made properly. Change orders, or changes in the design or plans, must be thoroughly checked to ensure they’re needed, affordable and within regulations. The board also must deal with any public complaints about the construction.

Once completed, the engineer should provide “as built” plans to show exactly what was constructed or changed. While these should be pretty close to the original design, change orders could have altered the project. Local, state and federal agencies need to know what those changes are and how they affected the final result.

Finally, have another meeting with those involved with the project to go over any unfinished business. Make sure the site is cleaned up and any painting, landscaping or other such task is complete.

The board and engineer should then conduct a final inspection to ensure everything is complete and done as needed. Then final payment can be issued to the engineer.

Finally, be sure the details of the construction warranty are set. Usually, the warranty covers construction for a year. Any problems during that time should be fixed by the contractor at their expense.

No one will tell you (at least truthfully) that capital improvement projects are easy tasks to undertake. But with the right plan and the right tools, such plans can go relatively smoothly. No matter how smoothly (or roughly) it goes, the important thing is the end result – a better water system for your customers.