Utility Week

22 | 2ND - 8TH AUGUST 2019 | UTILITY WEEK Operations & Assets Roundtable Charlotte Street Hotel, London, 4 July 2019 A s water companies and network oper- ators come under pressure to deliver more for less, those delivering new capital assets and maintenance programmes are having to tear up the rule book in a bid to make their investment budgets work harder. The heat is on particularly for water com- panies negotiating PR19, which will de• ne the settlement for AMP 7, where Ofwat has set down tough demands for improved performance while keeping a tight lid on consumer bills. Leakage has to be reduced across the industry by 17 per cent, for exam- ple. Networks expect to be similarly under pressure when RIIO2 takes eƒ ect and are pre- paring the ground now. Exactly what constitutes this holy grail of delivering more for less made for a fas- cinating discussion at Utility Week's latest roundtable, supported by Oracle Construc- tion and Engineering Global Business Unit. Very much in evidence during the two-hour debate was the urgency to inject new think- ing by the senior professionals responsible for this task – and to learn from those in the room who were further down the road. It felt as though we were witnessing a change in the zeitgeist: tier 1 suppliers are being taken oƒ the menu in favour of con- tracting directly with tier 2s; or as one del- egate put it, tier 1.5. He was referring to medium-sized companies that are not the big household names of the contracting world, but not SMEs (small and medium-sized enterprises) either. By working with smaller organisations, utility procurers are looking to become so- called intelligent clients, cutting out what is increasing seen as an unnecessary layer of costs. Tier 1 contractors tend to orchestrate the project, subcontracting out the construc- tion work, and take a cut for their eƒ orts – though margins are woefully small. This can cascade down a fairly long supply chain, with each supplier having to make a pro• t out of the work. The time is right for this shi— to work directly with tier 2s because it chimes with a move away from the construction of huge and complex new schemes, to a high volume of lower value maintenance projects, as our delegates made clear. To outsource or not to outsource But it was also evident from our guests that making this transition comes with chal- lenges. In terms of deciding whether to bring the project management and administration in-house, there was a general consensus that for complex large schemes, tier 1s would still be necessary to provide an "integration" role. While for smaller projects (for one water company this was at a value of £5 million or less) it made for better value to cut out the middleman. One school of thought in decid- ing which direction to take was to start from the point of view of who is best served hold- ing the risks – the essence of being an intel- ligent client. As one put it: "Because we haven't under- stood the risks, we've simply pushed these down the supply chain, and paid a lot of money to do that. It's been the vogue to outsource everything but it's given us false hope. We still carry the can when the leaks aren't • xed." There was also a feeling from those in the room, from both smaller and larger clients, that tier 1s tended to reserve their A-teams for more glamorous infrastructure work – like Hinkley C or HS2, which also added to their clients' frustration and perception they were not getting value for money. That said, if • rms are to take processes (such as programme planning, and sched- uling) back in-house, it requires boosting internal resources, which should not be underestimated either, according those who had already started down this path. Making it work Moving to work directly with smaller con- tractors – tier 2s, or tier 1.5 – was not without challenges both in terms of being attractive to smaller • rms in a sellers' market and also excepting, at times, a lack of sophistica- tion. "In order to reach tier 2s, you have to Doing it for themselves One company slashed costs by a fi fth by bringing management of capital projects in-house. Is it the way forward, asks Denise Chevin. Is regulation taking a short-term approach? A source of frustration for those round the table was that the regulatory regime was not keep- ing pace with the level of investment needed to upgrade infrastructure, and that problems were being stored up for future generations. One example given was a planned pipe renewal of 0.5 per cent agreed with Ofwat, meaning it would take 200 years to go through the whole network and inevitably get to a point where repair was not keeping up with the deterioration. Though it was pointed out that companies were meant to have a long-term strategic plan, with the next price review period representing the next stage in the plan, it was felt that the • ve-year spending window for water, unlike those for networks, le• no scope for innovation. And neither for simply doing what's right. "Certain things that are the right thing to do technically get knocked back because they are not a- ordable in the prescribed period. There is just too much short- term thinking – we are putting huge pressures on the next generation," was a general view round the table.

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