16 Jun How To Tackle The Dangers of Uneven Water Spend Cycles
Posted at 7:59 in Resilience by Rene Willemsen
One potential drawback of regulated investment cycles is that spending profiles are often uneven, placing ‘feast and famine‘ stresses on supply chains that are often operating on lean resources determined through competitive tendering for ‘mouth watering’ programmes of work.
As the water industry enters Year 3 of the current Asset Management Period (AMP) and attention continues to turn to the next Price Review and future funding, the majority of investment committed to in Business Plans remains outstanding. Although some companies are planning to invest up to 27% of their AMP6 programme in 2017/18 alone, the new financial year has yet to see a release of projects that have been quoted for delivery.
It is perhaps too easy to look externally for reasons in delaying the release of work – Brexit, political instability, holiday schedules – and the reality is that the ‘rollercoaster effect’ of spend profiles has been debated within the industry for many years, with companies making promises to flatten the timings of investment and work closer with the supply chain to mitigate resourcing issues. One potential solution advocated would be for the Regulator to mandate that a minimum of 15% of AMP investment be spent in every financial year, leaving a balance of 25% to be spent on a discretionary basis across the period.
The difference in AMP6 is that water companies will be judged against Outcome Delivery and that delays in project promotion potentially compromise the safe and efficient delivery of customer commitments which would ultimately impact on future regulatory funding. In previous AMPs deferred projects have been ‘carried over’ into the next cycle, effectively masking the outputs delivered. It is difficult to see the Regulator accepting this approach in PR19 and anecdotally there are already murmurings about underinvestment against promised deliverables.
The increased dependency of the water sector on contracted labour means that the issue of resource efficiency and optimum delivery has effectively been ‘outsourced’. As a result, water companies are able to promote and defer investment with relatively little negative impact on their cost base. Water contractors on the other hand are left carrying the cost of latent resources, many of whom are industry specialists with bespoke HSE accreditations and experience.
Often the rush to deliver programmes at the end of AMP periods creates competition for limited resources, opening up the spectre of short term recruitment of unqualified labour as well as the inherent HSE risks.
With this in mind, there is little wonder that Tier 1 contractor options are diminishing for water clients, many contractors opting to either work in other sectors where profiles are more defined, or take their chances on large infrastructure projects. While construction giants like Balfour Beatty identify with the rollercoaster effect and have the diversification and balance sheets to ride out the troughs, the fact remains that a growing number of contractors are simply not willing to bear the costs of latent resource during troughs of activity. This has severely limited water companies’ ability to access the labour and resources they need at the times they need it most.
As I briefly mentioned earlier, the implications of this challenge are magnified in an AMP with a specific focus on customer outcomes that demands minimal asset downtime and constant serviceability.
At Adler and Allan, we recognise this unique problem and as relative new entrants to the water market, we do not carry the legacy of cycles of underinvestment. Coupled with a heritage in 24/7/365 emergency response and decades of experience in protecting the UK’s critical infrastructure, this allows us to offer the resource flexibility and responsiveness necessary to meet water client demands. Where others are stifled by the costs of latent demand, we have the capacity to deliver leading Asset Resilience Services across the UK Utility sector. With our teams of multi-skilled, multi-disciplinary experts and operatives ready for deployment at any given time, water companies no longer have to settle for substandard alternatives to Tier 1 contractors or accept the unnecessary health and safety risks that come from unqualified labour.
Instead, water companies can focus their efforts on their assets and meeting ODIs, working with an organisation that has the technology to extend asset life by a minimum of ten years and mitigate flood damage, offer proactive preventative measures at a fraction of the cost of post-event clean ups, and guide clients toward Totex outcomes.