I set the .002 clearance using a feeler gage. Of course I had to take the pump on and off a few times to get this set. Then I set a precision parallel across the water pump flanges and depth miced to get the dimension, took the set screw out, coated it with teflon paste and reinstalled it to the dimension. I work at a tool and die shop so I can borrow parallels and depth mics easily.

After some thought this can be set without the use of precision tools as follows:

Drill and tap hole in W/P housing in line with camshaft with the pump out. Bolt housing to engine. Install set screw with loctite or teflon paste from the front of the housing using a feeler gage between it and the front cover to set the gap (I used .002). Bolt water pump in and you are done.