tier 1 contractor design and construction – adrian mercer, technical director, veolia water uk and...
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Tier 1 Contracting within the Water IndustryDr Adrian MercerTechnical Director - Veolia
UK Water Market Overview
• Regional monopolies privatised in 1989
• 12 water only companies and 10 water and Sewerage companies operating in England and Wales
• Scottish and Northern Ireland Water remain in government ownership
• 5 yearly regulatory price control period (AMP) drives industry procurement
• Increasing ownership by Infrastructure funds seeking long-term stable cash returns
WaSC AMP6 Investment
Veolia’s Experience in the Market
Key Client Drivers
• Totex• Moving from Outputs to Outcomes• Cost of Capital• Market reform• Carbon – embedded and operational• Circular economy & sustainability• Energy volatility• Shareholder returns• Resource constraints• Customer expectations• Austerity
What does that mean for the Sector?
• A real terms reduction in the cost of delivering water services• Stretching performance targets• More efficient ways of maintaining and exceeding current levels of
service• Requirement to improve the efficiency of the ‘pound in the ground’• Early engagement of the supply chain• Align performance and incentives throughout the supply chain• Many companies have separated the ‘Design’ from the
‘Construction’ phase• A rise in the role of the ‘intelligent client’
Totex, Totex, Totex….
Operation and first line
maintenance
£3.7bn
Capital Maintenance
Simple Replacement Upgrade
£12.9bn
Complex Maintenance –
Service Enhancement
£4.7bn
Operation and first line
maintenance
£4.6bn
Capex Delivery Joint VenturesO
&M
Co
ntra
cts
Changing face of Design Build
Feasibility
Optioneering
Solution Development
Design
Procurement
Construction
Commissioning
optimise, Design, Build, operate
Type of Work Available….
Capabilities Required
• Requirement to demonstrate ‘local commitment’ – SMEs• Regional presence• Evidence of resources to deliver (self delivery)• Off-site fabrication experience• Off-shoring capability• Apprenticeships and training are key• Agile workforce
Competencies Required
• Behavioural based assessment centres• ‘Select for attitude’ • Demonstrable HSEQ record• More weighting on carbon and innovation• Contractor accreditation required (Achilles, ISO, IoSH etc)• Social and ethical policies in place and practiced• Desire to know who the delivery team is
Terms & Conditions
• Clients looking to incentivise value creation rather than exploiting risk• Expectation that you have ‘skin in the game’• Guaranteed maximum price with a pain / gain mechanism is not
uncommon• Margins are low essentially designed to cover cost, profit arises from
out-performance• Incentivisation mechanisms run over the long term (5 years +)• Parent Company Guarantees / Security Bonds are increasingly
onerous• Payment terms can be up to 120 days
Takeaways