Strengthening water relations
British Water’s Municipal Liaison Group aims to encourage open dialogue between water companies and the supply chain. Biwater’s Tony Williams reports on his year as chairman
At the British Water Municipal Liaison Group (MLG) summer meeting in July, I stepped down as chairman of the group after a direct involvement of over three years. The meeting, at Oswestry WTW (a Biwater/Morgan Est joint venture project) was attended by over 35 of our membership and reflects the growing strength and importance of the group and the benefits to individuals and companies of working collectively in the water industry supply chain.
Getting the message
At the outset Paul Mullord, deputy chairman Mike Froud and I, agreed objectives which have largely been met. As our membership are stakeholders in the performance and delivery of assets in the regulated water market, we had a collective message to deliver based on the experiences of our membership. At the time efficiency savings were being driven into the supply base, AMP2 carry-over projects were drawing towards a close and in reality AMP3 delivery in England and Wales was slow to start up. On top of this our membership were recording an increasing level of budgetary and rebudgetary activity requiring increased staff numbers without the return of turnover revenue from real orders. Skilled staff were leaving the plc’s and not necessarily rejoining the industry.
To be discussed
We gathered data from our membership to demonstrate trends and this was discussed with Ofwat director general, Philip Fletcher, and director of costs and performance, Bill Emery. A further key issue was the coincident nature of the capital programmes of England, Scotland and Wales in 2010 and the potential of a stop/go at the AMP3/4 interface in 2005. I believe the 2010 issue is now recognised and measures will be in place to alleviate the issue. On the interface at AMP3/4 it has become clear that an overhang of AMP3 activity into AMP4 is not intended. A recent statement by the director general showed that consideration is being given to an early determination for year one of AMP4 is therefore welcomed by our membership.
We entered a good dialogue about the five-year AMP cycles. It was indicated they are likely to continue into AMP5 and possibly beyond. A ten-year cycle could cause an even greater wave of investment activity. Staggering the investment plans of each of the water companies to smooth the investment activity across the industry would cloud the issue of comparator performance over differing national economic indicators. The director general’s brief is clearly ‘customer interest’. It was a successful first meeting with Ofwat and we have agreed to continue the dialogue on an annual basis.
In the autumn, Paul Mullord and I were pleased to attend the Ofwat workshop on the forward programme for AMP4. Later in the year we were able to welcome Bill Emery to our winter meeting where he outlined the success of the AMP programmes to date and the challenges ahead. Of particular interest to our membership are the ‘plausible’ issues to be addressed in AMP4. These are:
- an upward trend in capital maintenance,
- more meters,
- water quality improvements for lead, Cryptosporidium and distribution,
- the NEP including CSOs, habitats and sewer flooding.
Issues associated with climate change are currently considered to be premature and the impact of the Water Framework Directive may feature in AMP4 but more realistically AMP5. Funding of the AMP’s is likely to continue at present levels although the activity type will change.
In December 2001, our group visited Scotland for worthwhile dialogue with stakeholders. Jim Brown, director of transition for Scottish Water, briefed us on the challenges and timescales for the formation of Scottish Water, with the drivers for change being efficiency and modernisation. Alan Sutherland, the water industry commissioner for Scotland (WICS) explained his position on the basis for efficiency and regulating the Scottish water industry’s performance against the indicators set by English utilities and others. He also spoke about the possibility of retail branding of water.
Scotland has proved to be a changing market with the formation of Scottish Water requiring further dialogue in June 2002. Our membership were not surprised, but disappointed to be advised that all existing frameworks in Scotland are under review. The cost of participating in these processes is considerable and whilst beneficial to the water companies in the short-term, may have wider more damaging impacts on a reduced supply base.
Andy Scott of the Scottish Executive provided an indication of the funding challenges for Scottish Water and an understanding of the resource issues associated with the delivery of their programme. Reassuringly, the 2010 message had been received.
We also met with the Scottish Environmental Protection Agency (SEPA), who contributed to a debate explaining the differences between SEPA and the Environment Agency (EA). Key issues for SEPA are the Water Framework Directive and sustainable urban drainage (SUDS) where there appears an obvious challenge to the industry as a whole. Recent flooding in the UK and last month in Europe is a clear indicator of the growing importance and need for action.
The year has seen a full diary of liaison visits with water companies. Most of the companies have variants of a common theme in place, namely, frameworks for capital works procurement and certain strategic items of equipment. There is a consistency of approach:
- a drive for standardisation,
- a wish for innovation balanced against proven and robust technology,
- the issue of low against high technology,
- a growing recognition of whole life costing,
- retentions are disappearing within frameworks,
- increasing use of target costs and incentive bonuses,
- management by key performance indicators.
For British Water’s membership the implications of frameworks are obvious. Those companies in a framework agreement should have a stable future providing the terms are fair and reasonable. For those outside of a framework the short-term could be bleak. There are indications from some that within these arrangements margins are so tight R&D and marketing are suffering, and a deferred commencement to the AMP programme has disrupted cash flow. Some are questioning involvement at all.
The past year has seen the growing use of e-procurement and in particular reverse auctions. Without exception our membership oppose the use
of reverse auctions in its current format. The lack of transparency and apparent subjective administration, irrespective of like-for-like quality comparisons in the final selection process are a common complaint even from those who have been successful. Indeed, some of the water companies in the vanguard of this approach have given indications that outputs have not been met.
One of the key issues for the supply chain is a skills shortage. In the region of 11,000 staff have left water companies and only 6,000 have rejoined the industry within the supply chain. Our members continue to report shortages and a churning of staff, creating inflationary pressures. This is, in part, due to the creation of large framework partners for the delivery of AMP3. The Gas and Water Industry National Training Organisation (GWINTO) is working with British Water on this issue.
Our visit to Water Service, Northern Ireland was informative. It is obvious that further strategic thinking is underway to meet the delivery targets. The treasury ‘underfunding’ of 30% on their programme is a figure very familiar to our members working in the regulated market. However, the programme is slow in developing and the message from our membership was consistency in the protocol of existing procurement. There have been some wide discrepancies over the past year.
Freedom of speech
During the year we have welcomed many new members and introduced a number of regional get-togethers where members can meet and interact. These usually follow MLG liaison meetings and offer the opportunity to brief members of the key points.
These strengthened relationships have been clearly demonstrated in our summer and winter meetings in what we call the round robin of business experience. Initial reservations about discussing individual company performance in the market have been dropped and the open statement of business position is a powerful one. At our winter meeting five themes came out:
- SME equipment suppliers and manufacturers were busy,
- main contractors were looking for construction starts and depending on frameworks,
- resources were short and staff churning,
- water companies were using the supply chain for free budgetary and scoping exercises,
- general optimism.
By our recent summer meeting in July the position had changed:
- deferred AMP3 activity impacting on supply chain,
- SME equipment suppliers and manufacturers were quiet,
- manufacturers were looking to markets outside the water industry,
- water companies continuing to re-scope and price projects,
- indications of main contract construction commencement,
- resources short and staff churning,
- inflationary pressures,
- very little business activity outside frameworks for main contractors,
- optimism from larger contractors involved in frameworks,
- how to enter the European market,
- resignation from SMEs.
Obviously a changed picture and of interest to our guest Catherine Wright, AMP4 project manager with the EA.
Whilst we all continue to participate in the highly competitive regulated water market it is important the industry recognises the position of our supply base and its contribution to our home economy and sales internationally.
Mike Froud of Copa takes over as chairman of the MLG, and Jimmy Carter of Mott MacDonald has been elected deputy. I know they will continue to represent the membership as a key stakeholder in the UK water industry.
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