A new regulatory period for the water sector brings challenges along with new work. Jo Stimpson talks to industry experts about what to expect.
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April 1 this year was the start date for AMP5 the water industry’s new regulatory period. After a lengthy price determination period, months of scrutinising business plans and much wrangling with Ofwat, water companies are now finalising plans and starting work on their investment programmes for the next five years.
A huge number of contracts has been let already, with tenders for many more ongoing.
AMP5 work is characterised by a relative lack of major projects and new build, and more focus on networks, capital maintenance and small projects to improve operational expenditure and energy efficiency, says MWH Europe & Africa strategy director David Smith.
Engineering firms can probably expect to deliver “a considerable number of small schemes over the next five years,” agrees Black & Veatch managing director Tony Collins.
But first they must deal with the aftermath of regulator Ofwat’s price determinations, which allowed water companies a bigger capital spend than ever at £22bn, but restricted them to spending £5bn less than they argued that they needed to in their final business plans.
“In every AMP period we have to change ourselves to serve our clients. Clients want more for less and we need serious efficiency stretches.”
Tony Collin, Black and Veach
“Each AMP seems to have its own challenges,” says Smith. “For this one, the determination puts tough targets on water companies. That therefore puts an increased focus on us to be very efficient, deliver very well, produce the right solutions and look to improve.”
Successful engineers will identify the new needs of water companies for the next five years and position themselves to satisfy those needs, says Collins. “Every AMP period we have to change ourselves to serve our clients.”
The most pressing issue − thanks to the recession and the price determinations − will be getting the best deal possible for the investment budgets that water companies have to play with. “Clients want more for less, always more for less,” says Collins.
Mott MacDonald water and environment divisional manager Mike Haigh agrees that there will have to be “really serious efficiency stretches of 10% to 20%”.
Finding ways to deliver those savings requires stringent thinking − and some water companies have decided that time really is money. Scottish Water and Severn Trent both awarded their framework contracts early, in August and March 2009 respectively.
A timely start on projects is a first step towards cost efficiency, says Haigh. “We were appointed by Severn Trent last year so we’ve had a chance to do some work so we can get moving early,” he says.
Aqua Consultants business development director Ali Khan agrees that early collaboration with water companies leads to better results later. “When we are able to get involved at the [Ofwat price] determination level we are much better equipped to help the client make savings,” he says.
Early action is also important at the design stage − rigorous interrogation from the beginning can help to weed out design inefficiencies before they take hold. Scottish Water found this in its project to build its new Glencorse Water Treatment Works.
“By having a number of challenges in the initial stages [we have] a smaller site, a tighter site that’s still effective,” says Scottish Water senior project manager Kenny Naylor.
Productisation is another strategy that could serve engineers well in AMP5. Establishing specific elements that can be manufactured and used repetitively saves time, money and manpower at the design stage, and can be applied to “any piece of infrastructure which is replicable and can be designed once to be used many times,” says Haigh.
Smith agrees that the “less” in “more for less” is dependent upon finding “faster, more efficient ways of doing things − such as the templating of things so that you can repeat them.”
“We have to be innovative in the way we do things and do things differently.”
Mike Haigh, Mott MacDonald
That templating is one aspect of a wider need to innovate in order to find effective and valuable solutions. Khan warns against “resources being used the same way again and again”.
Mott MacDonald’s Haigh agrees. “We have to be innovative in the way we do things and do things differently. There isn’t a single silver bullet with this.”
This idea was, again, proven on the Glencorse project, where fresh thinking at the design stage revealed that the plant could be built with eight filters instead of 10, which − together with an innovative layout − achieved space savings of between 10% and 20%.
“That was an efficiency worth having,” says Black & Veatch design manager Gavin Gibson.
Another emerging trend is the incorporation of thermal hydrolysis and sludge digestion facilities into waste water treatment works − it is the “use of advanced technology to get more out of what [water companies] have already got”, says Collins, noting that it also meets sustainability requirements which are “high on clients’ agendas”.
“There are probably more joint ventures in this AMP as companies look at what is the most efficient way”
David Smith, MWH
Innovation aside, the notion that comes up repeatedly in water engineers’ plans is synergy. Industry experts agree it’s more important than ever to have communication and collaboration across disciplines and the supply chain.
AMP5 is notable for the fact that a great deal of work is being awarded to consultants and contractors which work together in joint ventures.
“There’s probably more of that in this AMP as companies look more at what is the most efficient way of delivering the work,” says Smith. Indeed, the country’s biggest water company Thames Water has awarded all its contracts so far either to joint ventures or to Black & Veatch, which offers consulting and construction in-house.
For MWH, integrated teams proved effective in AMP4 and will be key in AMP5. This involves staff from consultants, contractors and sometimes clients working together in a shared office.
“It can help an awful lot in terms of sharing learning and getting teams focused on delivering objectives for the client,” says Smith. Collaborative working can spawn new ideas and better methods, he says.
Aqua Consultants offers another idea. The consultancy, which works largely on the costing side, offers what it calls “Commercial Engineering” - an integrated team that comprises staff who have knowledge across technical, commercial and construction disciplines, plus experience with contractors, consultants, water companies and regulatory bodies.
This setup allows the consultant to evaluate designs from multiple positions at once and exploit the different perspectives within the team to find excellence and efficiency. “You’re able to challenge the scope and technical feasibility of the project [clients] have put forward,” says Khan. “Very few companies have got this.”
For one water company, he says, the Commercial Engineering method delivered capital expenditure savings of £1.5M, for a fee of £20,000.
There are challenges ahead, but Smith remains optimistic about prospects. “We’re starting to see things pick up, which is good,” he says. “I’m excited for the challenge of AMP5.” Khan says the industry should also be looking ahead to AMP6 and thinking about the next steps.
And Collins says that while AMP5 will see new attitudes and methods, it is important to keep a hold on the values that have worked in the past.
The “more for less” agenda cannot come at the expense of “all the things clients take for granted”, he says, citing health and safety, environmental responsibility and good service. Equally important is remembering the value of recruiting and maintaining real experience and expertise.
Retaining the core of good people who are going to add value in AMP5 is going to be crucial, says Collins. Khan agrees, saying that too often projects are not assigned to the people with the most relevant experience.
As more and more work is awarded, the time is approaching for water engineers to stop planning for the new phase of work and start putting their AMP5 ideas and agendas into practice, says Collins. “It’s really important to get yourself positioned. And once that’s happened you’ve got to gear up to deliver.”
Who has won what?
has a five year framework contract with Wessex Water under which it will provide capital design services to that water company for the first time.
was awarded a contract of undisclosed value to provide program management, design, construction, and construction management services to South East Water.
has a £5M framework contract with Bristol Water to provide multidisciplinary services on its capital investment programme − despite the fact that Bristol is currently challenging Ofwat’s price determinations, with the result not to be posted until 6 August.
has frameworks with clients including Southern Water, Severn Trent, United Utilities, Yorkshire Water and Scottish Water.
5. BLACK & VEATCH
has signed a five year contract to deliver Thames Water’s Lot B3 programme of capital improvements to treatment works valued at up to £100M. Black & Veatch is also a framework partner for Bristol Water, alongside Atkins.
6. MOTT MACDONALD BENTLEY
the integrated joint venture between consultant Mott MacDonald and contractor JN Bentley, has a contract with Severn Trent for AMP5 and AMP6. MMB has another £60M framework contract for reservoir related works with Yorkshire Water.
7. MERIDIAN UTILITIES
has won a £50M water and sewerage networks service contract with Northern Ireland Water.
8. BALFOUR BEATTY
has been awarded £600M worth of contracts for AMP5, including a £500M infrastructure capital delivery contract with United Utilities and an extension to its existing alliance partnership contract with Anglian Water under the @one Alliance, likely to be worth over £100M in total.
has been retained by Dwr Cymru Welsh Water as a capital delivery partner to design and build clean and wastewater programmes.
10. GALLIFORD TRY
has been selected for two streams of Yorkshire Water’s AMP5 framework worth £150M, and has also won work with Thames.
11. MAY GURNEY
has secured two long term contracts worth up to £120M with Anglian Water. The contracts cover repair and maintenance of infrastructure assets in the water company’s East Area. Two further contracts totalling up to £65M position the contractor in Wessex Water’s framework. May Gurney also has a £170M contract for Integrated Drinking Water Services for South West Water, which has sought new efficiencies in AMP5 by opting to have all its sewerage maintenance handled by an in-house team.
has been appointed as clean water contractor for Northumbrian Water and will be involved with network and metering works
services, maintenance and building group Interserve is delivery alliance partner for South West Water in AMP5.
Three joint ventures have won contracts for up to £1.2bn of work on Thames Water’s pipes, sewers, network extensions and other assets. They are:
(J Murphy & Sons/Clancy Docwra / Barhale/MWH) for north London and Thames Valley water pipes and sewers.
(Morrison Utility Services/ Galliford Try) for south London water pipes and sewers.
(Galliford Try / Biwater/Mott MacDonald) for north and south London water and sewage treatment works.