Savings will hit supply chain
Water companies will be forced to re-think their supply chains and use of contractors in the face of Ofwat's price determinations for AMP5, according to Terry Povall, head of utilities at cost consultant EC Harris, who believes that the quest for efficiency savings by water firms during the 2010-2015 period will have important consequences for contractors.
According to Povall, there will be a shift from expensive capital investment programmes to smaller capital maintenance schemes. Water companies' future spending plans show an emphasis on schemes to upgrade and improve assets and networks.
Povall points to South West Water, which has stated that the cost of its average project will now be less than £75,000.
"There will be a massive shift in the size and scope of projects," said Povall.
This shift will have consequences for the entire supply chain, says Povall. He believes that small and medium-sized contractors are likely to secure additional work as water companies look to make efficiency savings. Water firms could look to local companies in favour of larger national contractors, added Povall.
"Or they might bundle up 20 separate projects and hand them to one main contractor, who might then give them to 20 subcontractors."
Another knock-on effect could be a move away from outsourcing to increased "insourcing" as water firms strive for greater cost efficiencies. Povall said: