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Water prepares for a new age of procurement

This year is set to be busy for contractors and consultants alike. The biggest year of capital spend in the £22bn AMP5 programme coincides with clients coming to market to start negotiations for AMP6, the next round of asset management planning between 2016 and 2020.

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Pic by Charles Knight *EDI*Yorkshire Waters waste treatment works in Bridlington.

The procurement merry-goround continues, only this time they will be looking for something different from their supply chain as the focus shifts from large capital projects to asset maintenance, and from capital expenditure (capex) to total expenditure (totex), which takes in capital and operating costs.

“We are moving to outcome-based regulation, so companies have to be better at delivering outcomes”

Jason Jones, Turner & Townsend

At the same time, water regulator Ofwat is moving away from output-based requirements - many of which were driven by the need to meet European legislation - towards outcome-based requirements that take account of the whole life costs of assets and value for money for customers.

As a result, water companies want clever solutions to keep their existing assets as efficient as possible. So AMP6 programmes are likely to consist of large numbers of small projects, some of which may not have a construction element to them. In all likelihood, programme management skills will be important.

“Project and programme management will be key for two reasons,” explains Turner & Townsend water sector director Jason Jones. Turner & Townsend works largely on the client side, advising on procurement and delivery strategy.

“One, there will be a lot more projects in a similar capital spend,” he explains. “Two, we are moving to outcome-based regulation, so companies have got to be better at delivering outcomes.

The result is that there are Water prepares for a new age of procurement going to be huge challenges ahead for a lot of companies, he says.

“It is a great opportunity to focus on innovation and what customers want, but some will still find it a challenge.”

“Having the capability is one thing. Having the capacity is another”

Graham Keegan, Costain

A typical outcome could be to reduce untreated discharges to rivers by 50% by 2030, or to provide water to an additional 8,000 households. Under AMP5, the regulated requirement may have been to build a new wastewater treatment works with a capacity of X, or lay Xkm of mains. Now the solution might be to reduce leakage or to work with customers to reduce demand.

“The question we have is: can water companies contract with the supply chain on that basis?” explains Jones. “Probably not,” he notes. “So they are going to have to manage that with lots of small contracts. They have to make sure they have got the right skills and programme management.”

Costain water director Graham Keegan agrees that AMP6 will be different. “Many of the skills we’ve already learnt will be very useful, but if all you know about is construction you’re missing a trick,” he says.

CH2M Hill water director for Europe Helen Samuels, plans to use the approach to accelerate market growth (See news, p5).

“Utility companies are wanting to do things differently,” she says. “It is about outcomes not commodities. They are being more strategic, and looking to make more use of alliances to drive the right behaviours. It is a more mature way to look at the challenge.”

Three water companies have already announced their intention to use alliance delivery models to undertake AMP6. Thames Water, Anglian Water and Scottish Water are all intending to procure long term delivery partners to support their capital investment programmes, and want their delivery partners involved early to help guide preparation of their business plans. These are due to be submitted to Ofwat this summer, ahead of a final determination in the autumn.

Much jockeying for position is going on across the industry to try to ensure that joint ventures have the right mix of design, construction, and, crucially, project management skills.

“Very few companies can deliver the complete service offering,” notes Keegan, whose firm is bidding in partnership with Atkins and operator Veolia for a place on Thames Water’s super-framework.

These AMP programmes involve a large amount of work, so even if one firm did have all the necessary skills, they may struggle to cope with the workload. “Having the capability is one thing, but capacity is another,” Keegan says.

CH2M Hill, with its blend of programme management and design expertise from the Halcrow business it acquired in 2011, is reassessing its partnerships. It is bidding for the programme management part of Thames Water’s framework on its own.

“The relationships with our partners are being reshaped,” notes Samuels.

“We are not turning away from existing relationships but we are looking for a diff erent place in the market so we are talking to new people.”

For all firms, headcounts are expected to grow.

“We are very, very busy; our water sector turnover will increase this year by around 10%, and so will our headcount,” says Jones. Recruitment drives will be all the rage.

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