My point is… Water Industry Reflections

If you were to ask suppliers to the UK water companies "How was 2000 for you?" The chances are you'll be told they spent the year waiting for something to happen. Rather like waiting for a London bus, the expectation is that two or three contracts will come along any time now.

Five years ago, the uncertainty over the level of funding that would be allowed by the AMP2 periodic review prevented the water companies from committing to work until the results were known. There then followed a period of review and re-planning of companies’ capital expenditure programmes, which resulted in a six to 12- month delay in letting of work followed by a rush of projects. At the time, this effect was unimaginatively labelled ‘stop-go’.

The stop-go effect should not be underestimated. Suppliers cannot maintain resources without work. Without work, factories and offices close, staff are made redundant – often to be lost from the industry forever – and companies go out of business. The result is a depleted supply base which may struggle to cope adequately with an influx of work. In order to manage, suppliers will use contract staff and workers from other industries, and companies from other sectors will join the market. It is inevitable that inexperience and unfamiliarity will lead to inefficiencies and higher costs.

A year on from the AMP3 determination, we can see that history has repeated itself, only this time there have been other contributing factors. Not only are the targets set by the regulator arguably tougher this time around, but the profile of work has changed, with a larger number of smaller projects to be completed. Water companies have looked closely at what they do, as well as how they do it and as a result, most, if not all, have decided to change their ways of working. This will result in a considerable restructuring of the supply base. Contractors familiar with working directly for water companies will be forced to look to other contractors for work, others will leave the industry or go out of business. Links all along numerous supply chains will be broken and reformed into different orders and in different chains. This will not happen overnight.

The repercussions from the 1999 periodic review will extend well into the AMP3 period. Eventually, the stop-go effect will pass. There will be a consolidation of the new ways of working and they will start to bring-in some of the efficiencies expected of them. There will be a period of near stability, a time when maximum efficiencies are being achieved, and then there will be AMP4. Surely there must be a better way?

Paul Mullord, commercial manager, British Water

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