AMP periods encourage efficiency in the water sector by defining targets for water companies to strive towards in areas such as industry planning, network maintenance, the environment and customer service levels. But as AMP8 beckons, what lessons can be learned from previous AMP periods?
Consideration of Longer-Term Agreements
Each AMP period involves considerable investment with procurement frameworks often covering ambitious long-term capital infrastructure projects that drive forward a forward-thinking agenda. In support of this long-term vision, it is prudent for water companies to consider longer term agreements, in line with the maximum durations within UCR2016, to support AMP8 into AMP9.
Whilst harnessing the benefit of stability of the project, longer term agreements also enable greater investment in people, skills and plant/systems. This will naturally encourage greater efficiencies and the project will benefit from the enhanced knowledge that investment in people affords.
Standardisation of Contracts
During AMP7 there was a shift from NEC3 to NEC4 contracting documents. Whilst adoption of this has not been universal, experience from AMP7 suggests that a standardised approach makes water companies more attractive to their supply base. As water companies will be competing with other major infrastructure projects in the UK, such as HS2, for delivery of major capital projects, adopting NEC4 as standard practice will decrease the risk of vendor attractiveness in a saturated market.
Clearer Allocation of Risk
The undertakings of AMP8 will involve projects worth billions of pounds. Indeed AMP8 is expected to be the biggest AMP period to date. With the stakes so high to ensure work is completed on time and to a satisfactory level, it is important that water companies are clearer on the allocation of risk and assign it to the party best able to manage it going forward. Fundamentally, water companies need to ensure that the allocation of risk is proportionate and consistent with a market approach. Previous AMP periods suggest that historically water companies have placed too much of the risk directly onto their supply base and that a shared ownership of risk, together with incentivised commercial arrangements, may reap dividends in AMP8.
A successful AMP period requires collaboration both within the departments of the water company itself and with its Tier 1 suppliers and beyond. An openness and transparency of working will ensure that the projects can deliver to the scale required. Strong communication and collaboration ensure that projects remain on target, as visibility of a programme of work facilitates ahead-of-time resourcing, budgeting and planning and strengthens overall confidence within the pipeline.
A Simplified Procurement Process
Often the greatest challenge to a project is in the systems and processes intrinsic within an organisation. Previous AMP periods highlighted that convoluted procurement processes cost time and money, and can create reputational damage within the supply base. Simplifying the procurement process, whilst maintaining the rigour of standards within it, is key. Steps such as increasing the quality of the pre-qualification questions (PQQ), whilst reducing the number of questions within them, helps to speed up what can be a protracted process. Reducing the number of down selected bidders from PQQ to Invitation to Negotiate (ITN) encourages bidders and secures their certainty. Water companies should look to simplify the process as much as they are able, to increase internal efficiencies, maintain attractiveness to the supply base and accelerate their route to market.
Above we highlight just five steps that water companies could take that will facilitate a smoother AMP8 period. The steps identified will enhance supplier relationships, support a quicker route to market and ultimately keep the substantial capital projects (which often form the bedrock of these AMP periods), on track for greater public benefit.