Water Industry Procurement How can it be improved for AMP7? Date: - - PowerPoint PPT Presentation

Date: 20th June 2017 Location: The Rose Bowl, Leeds

Water Industry Procurement How can it be improved for AMP7?

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

• f the Infrastructure UK “Project Initiation Routemap”.

Perspectives from

• utside the water

sector

Heathrow Airport Limited

• Regulated - Heathrow operates under CAA license;
• Key regulatory measures for capital investment,

service quality, traffic forecasts and operational resilience;

• Clear need in 1999 to develop more sophisticated

approach to managing business risks of the T5 programme;

• Client organisation “up-skilled” and focused on

developing the capability of their supply chain to deliver;

• Was prepared to change and adapt post T5 with new

procurement models and strategies;

• Is now developing its procurement strategy for the

Expansion Programme (R3).

Pre 2000

• Traditional approach
• Relationships with key contractors
• Risk averse
• Thin client organisation

2000-2008: Terminal 5

• Unique business risks relating to delivery
• Directly engaged in programme delivery
• Bespoke partnering agreement (The T5 Agreement)
• Supply Chain Agreements with Tier 1-2 suppliers

Post T5

• Back to basics! A new risk environment
• More competition, greater risk transfer
• Target cost contracting
• Some flex in approach for projects such as T2 Queens

Terminal

2016 Heathrow Expansion Programme

• Appointment of Programme Client Team in 2016
• Supply Chain Principles only at this stage – all options
• pen?
• Cascading 1st tier principles to the 2nd and 3rd tiers

Network Rail

• Regulated by the ORR. Currently in CP5 (2014-

2019). Output based regulation with risk of license breach;

• Determination of £13.5bn renewals and £11bn

enhancements for CP5. A substantial increase in investment - major capacity implications;

• An improving body of asset knowledge at the time
• f determination;
• A varied approach to procurement both by asset and

by programme or project. Transactional to highly integrated models;

• Warning signs in terms of understanding of risk in

both renewals and enhancements;

• Capability and capacity – varied from route to route

and programme to programme.

National frameworks for works

National frameworks (Regionally let)

Regionally let and managed frameworks

Programme Alliances

National frameworks for services

Project/ programme specific contracts

National Grid

• RIIO – ED1 established in 2014 moving from a

capital incentivised model to one based on

• utcomes;
• Costs now categorised in terms of TOTEX – must

be demonstrably efficient and give long term VfM;

• DNO’s must demonstrate business plans are cost

efficient and delivery long term VfM;

• Led to development of the “E-Hub”, a programme

to improve National Grid cost data and cost awareness;

• Had knock on effects in terms of procurement,

alliances, business plan optimisation and business change processes.

VfM criteria

Cost of delivering

• utputs

Cost of secondary deliverables Historical performance Cost benefit analysis Processes & tools used to determine efficency Wider benchmarking evidence

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. Contemporaneous data is a must – how well do we understand O&M costs versus capital? Or asset condition and risk? 2 – Risk & Complexity Too often we expect positive outcomes without a full understanding of the risks being transferred between parties. 3 – Capability Success is predicated on having the capability both within the sponsor, client and supply chain

• rganisations. Procurement is just one facet of the

capability required.

Beyond cost, time & quality

Asset policies & data Risk & complexity Incentives Capacity Time Capability

Thinking beyond Cost, Time & Quality

4 - Time Changing your procurement strategy has profound impacts on your organisation and business – it will take more than one control period to select the right model and find the right partners to deliver successfully. 5 – Market Capacity The proposed delivery plan needs to reflect the reality of the marketplace and market conditions. 6 - Incentives Providing tangible, realistic incentives to deliver in a TOTEX world is key. Don’t expect a particular

• utcome if you’re incentivising a different type of

behaviour.

Beyond cost, time & quality

Asset policies & data Risk & complexity Incentives Capacity Time Capability

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

• utside the water sector – there’s a lot of

industry knowledge and support out there…..…much of it free!

Q&A