Water Industry Procurement How can it be improved for AMP7? Date: 20 th June 2017 Location: The Rose Bowl, Leeds
About me I’m not an expert in the water sector, but I do know about procuring and delivering major infrastructure projects and programmes; Worked with clients such as BAA (Now HAL), Network Rail and TfL on programmes including the expansion of UK airport capacity in the South East and TfL capital delivery; Experience in major project and programme assurance as an Independent Reporter of Network Rail performance. I led the review of £13bn of forecast renewals expenditure in CP5; Experience in risk analysis and major project review and assurance in the Defence Sector; and Recently involved in the procurement of two major projects using the Competitive Dialogue approach; Seconded to HM Treasury in 2012 and was heavily involved in the development of the Infrastructure UK “ Project Initiation Routemap ”.
Perspectives from outside the water sector
Heathrow Airport Limited • Regulated - Heathrow operates under CAA license; Pre 2000 •Traditional approach •Relationships with key contractors • Key regulatory measures for capital investment, •Risk averse service quality, traffic forecasts and operational •Thin client organisation resilience; • Clear need in 1999 to develop more sophisticated 2000-2008: Terminal 5 approach to managing business risks of the T5 •Unique business risks relating to delivery programme; •Directly engaged in programme delivery •Bespoke partnering agreement (The T5 Agreement) • Client organisation “up-skilled” and focused on •Supply Chain Agreements with Tier 1-2 suppliers developing the capability of their supply chain to deliver; Post T5 • Was prepared to change and adapt post T5 with new •Back to basics! A new risk environment procurement models and strategies; •More competition, greater risk transfer •Target cost contracting •Some flex in approach for projects such as T2 Queens • Is now developing its procurement strategy for the Terminal Expansion Programme (R3). 2016 Heathrow Expansion Programme •Appointment of Programme Client Team in 2016 •Supply Chain Principles only at this stage – all options open? •Cascading 1 st tier principles to the 2 nd and 3 rd tiers
Network Rail • Regulated by the ORR. Currently in CP5 (2014- 2019). Output based regulation with risk of license breach; National National frameworks • Determination of £13.5bn renewals and £11bn frameworks (Regionally enhancements for CP5. A substantial increase in for works let) investment - major capacity implications; • An improving body of asset knowledge at the time of determination; Regionally Programme let and • A varied approach to procurement both by asset and managed Alliances by programme or project. Transactional to highly frameworks integrated models; • Warning signs in terms of understanding of risk in both renewals and enhancements; Project/ National programme frameworks • Capability and capacity – varied from route to route specific for services and programme to programme. contracts
National Grid Cost of • RIIO – ED1 established in 2014 moving from a delivering capital incentivised model to one based on outputs outcomes; Wider Cost of • Costs now categorised in terms of TOTEX – must benchmarking secondary be demonstrably efficient and give long term VfM; evidence deliverables • DNO’s must demonstrate business plans are cost VfM efficient and delivery long term VfM; criteria • Led to development of the “E-Hub”, a programme to improve National Grid cost data and cost awareness; Processes & tools used to Historical determine performance • Had knock on effects in terms of procurement, efficency alliances, business plan optimisation and business change processes. Cost benefit analysis
Key themes 6 learning points on procurement
Thinking beyond Cost, Time & Quality 1 – Asset Policies & Data In a TOTEX world, knowing what represents best value for money requires improved asset knowledge. Asset Contemporaneous data is a must – how well do we policies & understand O&M costs versus capital? Or asset data condition and risk? 2 – Risk & Complexity Risk & Capability Too often we expect positive outcomes without a full complexity understanding of the risks being transferred between parties. Beyond 3 – Capability cost, time Success is predicated on having the capability both & quality within the sponsor, client and supply chain organisations. Procurement is just one facet of the capability required. Time Incentives Capacity
Thinking beyond Cost, Time & Quality 4 - Time Changing your procurement strategy has profound impacts on your organisation and business – it will Asset take more than one control period to select the right policies & model and find the right partners to deliver data successfully. 5 – Market Capacity Risk & Capability The proposed delivery plan needs to reflect the complexity reality of the marketplace and market conditions. Beyond 6 - Incentives cost, time Providing tangible, realistic incentives to deliver in a TOTEX world is key. Don’t expect a particular & quality outcome if you’re incentivising a different type of behaviour. Time Incentives Capacity
What three things would help improve water industry procurement in AMP7? 1) Improving asset data and knowledge aligned to the TOTEX world (particularly during O&M) – Improve the understanding of what constitutes a VfM business case; 2) Recognise the importance of developing capability and be aware of the risk environment you are creating; 3) Procurement trends tend to be cyclical. Look outside the water sector – there’s a lot of industry knowledge and support out there…..…much of it free!
Q&A
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