tier 1 contractor design and construction – adrian mercer, technical director, veolia water uk and...

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