Water & Wastewater Treatment Magazine
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16 | APRIL 2018 | WWT | www.wwtonline.co.uk • DPC EXPLAINED • Direct procurement for customers (DPC) involves a water company competitively tendering for a third party (a competitively appointed provider, or CAP) to design, build, finance, operate and maintain infrastructure that would otherwise be delivered by the incumbent water company. • Water companies will be urged to use DPC where it is likely to deliver the greatest value for customers. Companies will be given guidance from Ofwat to help them identify suitable projects. Companies should consider DPC for discrete, large-scale enhancement projects expected to cost over £100 million, based on whole-life totex. • Ofwat's initial assessment of business plans will look at whether companies have considered DPC for relevant projects and how well business plans have considered potential DPC projects. • Ofwat will not mandate which tender model is used for DPC, such as whether to use an "early" or "late" tender model. • Companies will be the purchaser and run the procurement process, as well as managing the CAP. Companies will not be permitted to award a DPC contract to an associated company. • Companies will be expected to enter into a long-term contract with the CAP. Ofwat will amend companies' licences to allow them to recover the CAP's revenue from their customers. The regulator will also allow companies to recover the cost of tendering a project and the ongoing cost of managing the contract with the CAP. The Works: Direct procurement The Thames Tideway Tunnel, the UK's largest water engineering project, used a direct procurement model particularly in the Middle East. Matthew Toy, Atkins' client director (international water), believes the UK water sector can learn a great deal from a number of suc- cessful projects in the region, including a wastewater treatment facility in the emirate of Ajman and the new Muhar- raq wastewater treatment works in the Kingdom of Bahrain. Both projects were backed by the same funding and operat- ing model: build, own, operate, and transfer (Boot). For the development in Ajman, the Ajman Sewerage Private Company was awarded the contract to provide the ser- vice, and build and own the assets for 25 years, operating on behalf of the Emirate of Ajman. A private finance consortium provided funding for the design and con- struction of the wastewater treatment fa- cility. Atkins was involved as the lender's engineer, responsible for quantifying and explaining any engineering risk and interpreting that in terms of cost. Toy says that as the facility is now operational, the loan is being repaid through billing customers. "Once the con- cession period has elapsed, the company will hand everything over to the client. It's a model that's very similar to direct procurement," he explains. "For me, these examples of direct procurement should give us the confi- dence that, when introduced, it will bring state-of-the-art, innovative solutions that provide the best value for the customer." Challenges ahead Despite offering more opportunities for companies to innovate and build on best practice from other operators around the world, the DPC approach is not without challenges for water companies and the wider industry. "A concern for some about direct procurement is its impact on competition in the industry," says Ledger. "With the potential for more overseas operators having a direct route into the UK market, some traditional UK-based suppliers might see that as an added threat. That could be an anxiety for the supply chain. "But there's a flip-side to that – I really think increased competition should be seen as a great opportunity, not a disad- vantage." Ledger also acknowledges that compa- nies could perceive DPC as making some procurement more complex. "I'm not say- ing it will become more complicated, but it might be a concern for some companies. For example, at the moment bidders pick up their bid costs, so if the bidding be- comes more complicated, then that would be a disadvantage for the supply chain," he says. But Ofwat anticipates a more en- trenched challenge facing the sector. "The main challenge for [water companies], as we see it, is a shi™ in mindset for what they do. Direct procurement would move them from provider to procurer to find the best value solution for customers," Knowles explains. "In our methodology we've been clear that we expect a strong focus on running robust procurement processes and in par- ticular running robust contract manage- ment processes because these contracts will have a long life, perhaps between 15 and 25 years. It's very important that these contracts are managed robustly." In a bid to address potential concerns while developing the PR19 methodology, ently in the industry, as well as bringing in real innovation in a lot of broad ways. For example, technological innovation might come from companies operating overseas who have different treatment process techniques that can be success- fully adopted in the UK," says Ledger. As an international engineering con- sultancy, Atkins has broad experience of how direct procurement has been used for infrastructure projects around the world,