Is it time to dip a toe in the competitive water market?

Companies looking at competing in the competitive water market must concentrate on getting the customer experience right, says Penny Godfrey.

The recent deregulation of England’s non-domestic water market at the start of April marks a huge opportunity for both water suppliers and around 1.2 million business customers in the public and private sectors.

Until now only those companies consuming more than 5Ml of water per site have been able to choose and change their water provider. This is the first time businesses and authorities of all sizes can do so. While an open market naturally generates greater competition, and with it potential cost savings, there are also considerable procurement challenges to understand and overcome. Now is the time to prepare for the change and take advantage of new opportunities.

Scotland was the first country in the world to deregulate its water market, with the Scottish Government breaking its monopoly to initiate change. As such it set global standards and key lessons for those following its lead.

Having managed the Public Contracts Scotland portal since 2008, we have been witness to the significant change in the market first hand. The biggest impact was a much-needed improvement in customer service. Many customers switched provider regardless of price, with 26 per cent seeing a rise in the level of service they received. That said, around £65 million in customer savings have also been delivered in the past five years.

Water retailers would be well advised to invest resources in getting the customer experience right. One option might be to look at outsourcing a specialist management system that streamlines the customer service function and offers benefits in not only retaining customers but also allows the water supplier to demonstrate value and effective working practices during the procurement process.

Larger water retailers or those with the ability to bundle with other utility services will be in a better position to add value and create cost-savings for customers. Using one supplier could offer economies of scale, reducing the time and effort required to procure for each site, and perhaps allow for negotiated pricing.

As early as December last year several public sector organisations started initiating procurement processes ahead of the regulation change, with invitations to tender issued for places on frameworks and other tender opportunities, off the back of the changes. Frameworks are essentially used by organisations looking to procure large volumes of a product or service, often serving a number of customers and or projects over several years. Some frameworks may be proposed by one body, perhaps one local authority representing many more.

This eases the procurement burden on individual organisations and creates economies of scale and potential savings. In fact, the Crown Commercial Service is partnering with a number of bodies, such as the Energy Consortium, to bring the largest public sector framework agreement to the UK market and a saving of £20 million over four years.

While frameworks have huge benefits for both suppliers and buyers, there are challenges to overcome on both sides.

Buyers need to not only understand the procurement process but also understand how the water market operates. For instance, they need to ensure they know: what the indicators of high standards are; their existing and forecasted level of water demand; and what appropriate terms and conditions would be. Without having a need to procure water supply before, any knowledge gaps could prove detrimental. Incorrect drafting of the framework proposal or defining the model of usage could create limitations and inflexibilities, particularly within the public sector where it is likely these need to conform to Official Journal of the European Union regulations. Consulting advisers and getting it right in the beginning is vital.

Suppliers should bear in mind that tenders within a framework are typically awarded based on capability and capacity to deliver, however price can also be a key factor. It is also worth noting how work will be awarded. For instance, if a scoring system is in place based on the initial response to the tender, the highest-ranking supplier may be given first refusal for potential work. This could ultimately mean larger water providers are more likely to get a bigger share of the work or investment.

All is not lost for smaller firms, however. Suppliers would do well to engage with and market themselves to contracting authorities. Showcasing their products and services and having a dialogue ahead of the competition before a new opportunity is announced could prove very effective, particularly for lesser known suppliers.

Frameworks are common across the public sector because they appeal to its growing need to improve efficiencies, particularly as budgets continue to tighten. A lack of understanding of the water market and the impending changes, as well as operating within the public sector, which demands demonstration of levels of transparency and efficiency, adds to the already complex and disciplined procurement process. The beauty of transparency means that all bodies, certainly those within the public sector, must publicly announce tenders for water provision. Suppliers need to make sure they know where such announcements are made as early as possible.

If you are a supplier, the value of being signed up to a tender alerts service, and knowing where to go for guidance and support, will prove vital in knowing about opportunities, being able to react in time to meet deadlines and submitting successful bids.