Stand up and be counted

An inefficient, boom and bust culture exists in the UK water industry's supply chain, according to initial findings from research by UKWIR. Dean Stiles reports on why suppliers need to influence the regulatory cycles' poiicy makers.

The cynics among you may doubt the merits of more form filling as a way of reducing the burden of regulation. But that is what UK Water Industry Research (UKWIR) is asking of suppliers to the industry.

It is undertaking a nationwide survey in an attempt to quantify the effect of the UK water sector's regulatory cycle on the supply chain and is asking the industry to participate by completing its survey questionnaire.

According to UKWIR, there is growing consensus that "an inefficient, boom and bust, culture has been evolving unchecked within the supply chain since privatisation in 1989". This is the initial findings from its enquiries involving British Water, the Society of British Water and Wastewater Industries (SBWWI) and industry regulator Ofwat.

UKWIR hopes that its industry-wide survey - The Regulatory Cycle and its Impact on the Efficiency of the Supply Chain - will be able to quantify the costs and is urging everyone involved in the sector to participate.

The survey is part of a growing clamour across British industry to tackle what many see as expensive, unproductive, over-regulation. Regulation is a burden; a justified one in many cases, but the burden is growing at an alarming rate.

The CBI has reported that 95% of business leaders feel that the time they spend dealing with regulation has increased while a Mori survey for the CBI concluded that regulation in the UK was playing an important part in business decisions to relocate abroad.

On the flip side, a strong regulatory regime in the UK water industry is also cited as one of the reasons for its high levels of foreign investment.

The government does not dispute the problems of regulation, and its own estimates of the financial cost of the regulatory regime are extraordinary. The Better Regulation Task Force suggests that the cost could amount to £100B per annum, the equivalent to the value of the entire revenue raised by income tax.

Anecdotally, many suppliers to the water industry have indicated the strain that the regulatory system places on their businesses as order book uncertainty and shortage of work switches to burgeoning workload and lack of capacity to meet delivery timescales.

Policy change
Until now, no one has attempted to quantify the financial impacts of the cycle on the sector. UKWIR's project will endeavour, for the first time, to establish the costs to the sector and identify opportunities for efficiency savings.

Preliminary results from earlier surveys by UKWIR suggest that in the water industry some businesses experience little adverse impact over the course of the five-year cycle while for others the impact is devastating. There is evidence too that the pressure on small suppliers in the supply chain is greatest with the potential to "significantly undermine the supply chain as a whole", says UKWIR.

In what is being touted as the best opportunity yet to instigate far-reaching policy change to the five-year periodic review cycle, senior industry voices are urging the sector to respond to UKWIR's study.

According to its director, Mike Farrimond, the impacts of the regulatory cycle on suppliers have always been anecdotal with the focus on damaging peaks and troughs leading to inefficiencies, lost opportunities, lack of innovation, low morale, skills shortages, and loss of talent to other sectors.

"Ofwat, the water companies and other key industry bodies are now working together and tackling this important issue. For the first time there's a real sense that something can come of it. Crucially, what we need now is more evidence to support the project and that means more companies responding to the second phase survey," he said.

"There's been a lot of talk in the past, but this is the first real opportunity for the water industry supply chain to influence the policy makers and make a difference. It's a case of speak up now and help instigate change or miss out altogether," said Farrimond.

Kay Webb, senior analyst and engineer at Ofwat's Network Regulation Division, welcomed the initiative as the best way to influence policy change in the future. She urged all involved in the industry to respond to the questionnaire and make their issues and recommendations known.

"Since privatisation we've seen a roller coaster expenditure profile which has been cited as a significant cause of inefficiency in the industry's supply chain. To date there has only been an emotional argument to support this and the cost to the supply chain has not been systematically measured.

"We're committed to supporting a project like this because we need to ensure the industry is equipped to deliver the capital programme now and in the future."

Real opportunity
The timing of the study was also welcomed. The intention is to include recommendations from the final UKWIR report within Ofwat's methodologies paper for the periodic review in 2009 and which is due to be published in the autumn.

The research being undertaken is still in its mid-stages and the contractor, Mouchel Parkman, is currently receiving responses from the water companies and the supply chain to the questionnaire that was sent out.

The final report dissemination event will take place in late June.

Carol Hickman, executive director at the SBWWI, welcomed the survey with which the society has been involved from the start. "The questionnaire analysis will be used to develop an insight into the costs to the industry and will provide a real opportunity to influence the thinking and behaviour of water companies and regulators in a way that could benefit the whole supply chain. SBWWI would encourage members and non-members alike, to complete the questionnaire," she said.

Whatever the figure eventually placed on the regulatory burden for the industry we know that regulation is extensive and growing.

It is some consolation that this is recognised; we have already had the Hampton Report, a review on regulatory inspections and enforcement in 2005 and the investigation by the House of Lords Select Committee into the regulatory state.

The government aim is to reduce regulatory but worryingly reducing regulation seems to have spawned yet more bodies like the Better Regulation Executive with its enthusiasm for Regulatory Impact Assessments, "a key tool in delivering better regulation", it says on its website.

We have been down this road before with promises of simplification and reductions of regulation but to little effect.

It's to be hoped the initiative by UK Water Research is not only well supported but that its results are acted upon.

The UKWIR questionnaire is available for download from www.ukwir.org/site/web/content/news.

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