A year ahead of the start of AMP6, Thames Water’s alliance is well bedded in and already focused on delivering value, as Margo Cole discovers.
Last month marked the first anniversary of the formation of eight2O, the alliance put together to deliver between £2bn and £3bn of work for Thames Water during the next asset management plan (AMP) period. No big deal, you might think, except that AMP6 does not even start until April 2015, meaning the alliance will have been in place almost two years before any shovels go in the ground.
To do what we wanted to do, an alliance was by far the best way to leverage value
But this was always the purpose of appointing what became known during the procurement process as Thames Water’s ‘super alliance’ - the water company wanted expertise in place to help put together the business plan that identifies where money needs to be spent during AMP6. Only by having that expertise on board did Thames believe it could get the best value out of the budget it hopes regulator Ofwat will approve later this year.
“The most important thing for us - and the reason we went so quickly - was because we wanted to fully involve eight2O in the production of the business plan for the regulator,” explains Thames Water director Lawrence Gosden.
“The business plan was submitted to the regulator with eight2O fully part of the team.”
Gosden’s reference to “going quickly” refers to the remarkably short time from announcing that it thought alliancing was the best way to approach AMP6 to appointing the alliance: just six months. The process started in 2012 with what Gosden describes as a “massive listening phase” during which he and his team met dozens of organisations involved in the water sector.
“From this consultation we concluded that, to do what we wanted to do, an alliance was by far the best way to leverage value,” he explains. “We needed to provide a significantly better service for less cost, so we knew we had to be more innovative. And the only way you can do that is to provide an environment that will facilitate innovation, so an alliance was the obvious path we wanted to go down.”
Quality of people
Gosden says he wanted the procurement process to be all about the quality of the people in the organisations, “not about unit costs”, in order to achieve “multi-million pound savings through innovative ideas rather than just shaving pence off”. And he was determined that the procurement process itself should be indicative of the new approach.
“Generally, procurement processes are long and laborious,” he says. “They cost an awful lot for the supply chain, and that cost eventually comes back to us.” Thames decided to do it in three months. Rather than asking potential alliance members to submit one massive qualification document, Thames broke it down into “bite-sized chunks”, along with weekly submission deadlines for each chunk.
“It dramatically changed the cost of it, and dramatically improved what we got out of the process,” says Gosden.
“The process was short, sharp, keen, and focused on behaviours and people.”
According to eight2O chief operating officer Graham Keegan, breaking the submission down into its component parts worked well for the bidders, as well as the client. Keegan, who was Costain’s water director at the time of the bid, says: “Bidding is a very intense experience, and it is usually very painful. With this piecemeal approach we could see what was being asked, and we were able to control our costs.”
Costain successfully bid in joint venture with Veolia and Atkins for one of the two design and build places on the alliance, with the other going to a Skanska/MWH/Balfour Beatty JV. The other two spots went to MWH as programme manager and IBM as technology innovator. These seven firms plus Thames Water itself make up the eight2O alliance.
We’re pulling teams together to deliver the efficiency challenges we’ve got
Keegan was appointed as chief operating officer when the alliance was formed in May 2013. Since then the alliance has been involved in what is known as the early contractor involvement (ECI) phase - building up the team, getting suppliers involved, working on Thames Water’s AMP6 business plan and designing some of the work that will be carried out during that period.
Eight2O already has around 100 people in full-time positions, and expects that number to steadily increase to over 300 by the time the programme starts next year.
Thames has also put forward a proposal to Ofwat for a “transition programme” that would allow some AMP6 work to start before April 2015.
“The alliance is working on all the early design work,” explains Gosden.
“We wanted to mitigate that structural inter-AMP dip. We’re not there yet, but we’ve put a £180M transition programme to Ofwat. The lion’s share of that is with eight2O, and they are doing the design work now so that we can go smoothly into AMP6.”
Keegan says there are “no preconceived ideas about how this will work”, for example, no quotas of work for the individual companies and JVs within the alliance.
“We’re pulling teams together to deliver the efficiency challenges we’ve got,” he says.
The alliance has invited 200 suppliers to discuss how it can best engage and work with them, and to make the most of the innovation it believes the suppliers can offer.
“The beauty of this two-year ECI phase is that it is actually allowing us to think and engage with the supply community,” says Keegan.
And if one important impact of creating this alliance is a change in relationships with suppliers, another is the relationship with the client - Thames Water - and its customers. Eight2O, which is based at Thames Water’s head office in Reading, is already being seen as a department within the water company, rather than as a supplier, according to Keegan.
“We’re seeing all the relevant data and seeing all the challenges they’ve got,” he explains. “That’s been a massive change. I’m finding it very exciting. Because we feel like one of family, people listen to us more readily; people are prepared to engage with us and share information with us.”
He says that, between them, Thames Water and eight2O are also trying to overcome what he describes as “a personal itch of mine”: the traditional delineation between asset delivery and operation within client organisations.
“We’re trying to get away from the idea of an internal customer,” says Keegan. “There is only one customer - Mr and Mrs Smith, who are paying their water bill. Let’s do the right thing for the customer. We’re absolutely convinced that if we do that, it will be to the benefit of all of us.”
Doing things differently
Thames Water recently carried out a consultation exercise with 40,000 customers to gauge what really matters to customers.
“The two biggest things they said to us were that they wanted a safe and reliable water and wastewater service, and affordable bills,” says Gosden. “The only way we’re going to improve the service is by doing things differently. We have to find new ways to solve old problems.”
Unlike previous AMP delivery programmes, eight2O’s success will be measured - and financially rewarded - according to how well it serves Thames Water’s customers, with the alliance’s pain/gain share mechanisms geared to reflect this.
“Within the business plan is a series of outcome delivery incentives,” explains Gosden. “Wherever we get to with the delivery of a particular outcome, there are measures of how well we’ve done.
“At the end of the day, these are profitable, sustainable contractors, and the incentive mechanisms we’ve got will lead to processes that allow all of us to be profitable,” he adds.
I can see excited conversations rippling through the alliance, but we can only do this because we’re up and running two years ahead
Gosden says that one of the most important things about the way the alliance has been set up is that its business objectives are aligned with those of Thames Water itself.
“If we can get our businesses and goals aligned, then we’ve got a good chance of making it work,” he says. “There’s not a client - there’s an asset management capability. This is all about having the skills and capabilities needed to provide a service to the end customer.
“When we have completed the ECI, the contractors will be aligned right at the highest level, and the alliance will have to perform against our business outcomes,” Gosden adds.
Both Thames Water and eight2O are also geared to meet Ofwat’s stated desire to see water companies focusing on customer service and so-called ‘totex’ - total expenditure - in AMP6. Gosden says this new approach by the regulator frees up the company and its alliance to look at the whole life cost of any proposed projects.
“This is genuinely exciting,” he says. “We can make the right choice - an operational intervention or a capital intervention - on a whole life cost basis, because those constraints are gone.
“I can see excited conversations rippling through the alliance, but we can only do this because we’re up and running two years ahead.”
Gosden says the alliance has already “fundamentally helped us put forward efficiencies that will go straight back to customers”.
He adds: “They have helped us to provide a different angle. For example, one of the companies is IBM; it has a different way of looking at design and construction, and a whole different way of thinking about how you approach innovation - it makes it into a process. What it’s brilliant at doing is getting things from ideas generation into being successful.”
Keegan adds: “We’ve got thousands of ideas. Lots of them won’t get off the ground, but lots will.”
Although both Keegan and Gosden are extremely positive about the collaborative environment that has been created over the last year, they are also aware that alliancing is never easy.
“It’s going to be fun and enjoyable, but it’s not going to be a walk in the park,” says Gosden. “To make it work is the hardest route of all.”
However, he adds: “We are 100% convinced that we’ve got the right team on board, and that gives us the chance to get the most out of it.”