AMP 6, the new regulatory five year investment period for the water industry has started. In a round table discussion sponsored by Lafarge Tarmac, leading industry figures from clients to contractors discuss what it means for them.
The latest asset management programme period for the water industry (AMP6) has finally arrived. The new five year investment plan from regulator Ofwat shifts the focus towards total expenditure (totex), giving the individual water companies the power to decide the appropriate balance between capital and operational expenditure.
The industry has spent the last year gearing up for the change, which will also mark a new era for the consumer, with the water industry forced to sit up and take notice of an increasingly tech savvy customer base which expects value for money.
At an NCE round table discussion in London last month, influential clients, contractors and consultants from across the water industry spoke candidly about the impacts of the new AMP 6 regulations. There was a general feeling of excitement about the impending changes and the influence they will have around innovation, risk management and the opportunity to use the supply chain to its full potential.
The night started with a healthy debate about innovation. How best to manage risk and engage the supply chain to get the best out of it was a common thread through the different parts of the industry.
Anglian Water head of innovation Steve Kaye said, “What we found is by setting aspirational goals, for example to have reduced our embodied carbon in structures by 50% - and in the last AMP period we hit 55% - the aspirational goals drive innovation,” he said.
“We’ve tried to open up the challenges to small and medium-sized companies as well as our tier 1 suppliers. In the past, the tier 1 suppliers used to block the smaller companies from being innovative.”
Severn Trent Water head of asset creation John Bentley agreed that research and development was something that should be shared by the rest of the supply chain.
“I believe that investment at tier 1 level is not good enough. When I look at the balance sheets at tier 1, if we are going to move on as an industry, I would like to see my tier ones as well as my twos and threes invest in R&D.”
Interested in how that might happen, Lafarge Tarmac national business development manager Nick Toy asked how engagement might be promoted deeper through the supply chain.
“A lot of the engagement happens at tier one. Innovation is a big focus for many companies but it’s not the case throughout the whole of the construction industry. And quite often, innovation is missed that can come from the tier two and tier threes.
“Within Lafarge Tarmac we have a clear focus on innovation and future trends, but the main driver for us is the customer. And unless we get the opportunity early enough to understand what you’re looking for in terms of innovation and collaboration, it will stifle the outcome. Collaboration is a win-win. Unless both parties see a win-win out of this it just slows down the process for the contribution.”
Mouchel technical director, wastewater, Martin Osborne, wanted to see collaboration across the industry.
“To encourage innovation it’s also important to encourage the sharing of knowledge between organisations,” he said. “How will the water industry procure AMP6 in a way that encourages technical thought leaders to moveknowledge between organisations as well as within their own organisation?”
As a major client, Bentley said he was pragmatic about working collaboratively.
“In the end it’s the client that sets the agenda,” he said. “If the client doesn’t set a collaborative agenda, I would not expect my supply chain to create a collaborative agenda.
“Supply chains mirror the behaviours that clients display and if they display collaborative behaviours, we stand a chance.”
Yorkshire Water asset management director Nevil Muncaster took the argument a stage further by trying to imagine how a collaborative culture could be implemented and what had to change to make the process better.
“One of our biggest frustrations in our industry is that many key suppliers don’t understand our processes, and still don’t design for operation and maintenance.
“While we can talk about improving collaboration up and down the supply chain all the time, I believe we need more collaboration across the industry. Each company tends to do things its own way and we need to try and get some standardisation in the industry, which then helps the supply chain.”
Water consultant Steve Ntifo also wanted the industry to share ideas, not just with itself, but with other industries to improve innovation and collaboration.
“I also think that there is so much that we would consider [as] innovation in the water sector which is either common or best practice in other sectors,” he said.
“It’s just that we haven’t taken the time to understand them and link them to our sector, to be able to make our processes more efficient and cheaper for the customer.
“We need to be ready to accept some of these technologies and processes. If that requires some piloting and some collaborative demonstrative work, then so be it.”
Osborne was concerned about the risk surrounding innovation.
“There needs to be a clarity about all risks, particularly about those that come with innovation. Some water industry clients, for example Severn Trent, want to know and understand all of the risks to project delivery, but some clients are only interested in risks that they own and not in risks that are carried by the supply chain.
“I think that they should be interested in all risks because that then encourages innovation.”
“If you go back to basics, our four big risks are clear,” said Muncaster.
“We don’t poison people, we don’t run out of water, we don’t pollute the environment and we don’t cause widespread flooding.
“Customer service is a really important measure of how well we are delivering, but those four risks will be the ones that keep directors awake at night. So when talking about the future of the industry, that’s what you must come back to.”
Costain director of water Matt Crabtree agreed.
“There is a reputational risk that companies can’t outsource however complex the contract might be,” he said. “If things go wrong, it’s not the consultants or the contractors held to account, it’s the license holder. That’s something which we all should recognise.”
Bentley said he thought the risks in the construction of an asset were so complex he didn’t think it was possible for one organisation to manage that risk.
“You need multiple parties to help. Not every goal can be aligned; you have to be realistic about what you can achieve,” he said.
However he also added that the industry had to be prepared for the pace of change in society and that the industry should be flexible to risks that simply couldn’t have been foreseen
“Industry is moving so fast and we in construction need to be ready to move with it,” he said.
Looking forward to the coming period with totex at the helm, the participants were keen to drive change and were excited about how a holistic view of the industry would enable them to do that.
Kaye was enthusiastic about the new regulations. “I think we struggle to operate existing assets in an optimum way,” he said.
“We’ve become quite a reactive industry, the activated sludge industry is about 70% inefficient, and there’s loads we could do to [improve] that, but it means spending more operational expenditure (opex). It means putting more control in, more people with different skills. Now we’re entering the world of totex it should open a door to doing that.”
MWH UK water sector director Richard Ratcliff concluded the discussion on an upbeat note. “I think we beat ourselves up about not being innovative in the water industry.
“I think in the early stages of AMP 6, we are seeing innovation growing through the totex challenge, we’re seeing data analytics and we’re seeing some real innovation around the productivity challenge. I think we have to realise that there are more challenges coming up and we’ve just got to be nimble. We’ve got to rise to the challenge and obviously those companies which do so will be the most successful.”
In association with