A Contract Period Optimization Model for Water Saving Management Contract Project Based on Equipment Replacement

Water saving management contract (WSMC) is a new water-saving strategy based on market mechanism. As a period for the water saving service company (WSSC) to provide funds and technology to water user, contract period is one of the key elements in WSMC projects. This paper attempted to establish a model to determine the optimal contract period based on equipment replacement. First, the performance degradation simulation of water-saving equipment was constructed based on degradation path model. Second, water-saving process simulation under equipment replacement was established based on measured renewal cycle of water-saving equipment. Third, a contract period optimization model for WSMC projects was built with the objective of maximizing WSSC profit net present value (NPV) and with constraints of water user incentive constraint, WSSC rational constraint, and minimal cooperation duration. Finally, a WSMC project case in China was studied and the solutions were compared with traditional model. The results showed that the optimal contract period in this paper was 3 years longer than the one in traditional model. Meanwhile, the measured equipment renewal cycle was 7 years and it was less than the estimated economic lifetime. Based on the 9-year contract, the water user’s revenue was higher with 55.8% than original contract, while WSSC’s profit loss was lower with 60.8% than the traditional results. The findings reveal that the implementation of an equipment replacement plan considerably boost the revenue of participants and assist WSSC in obtaining more profit.