Water firms must face up to supply chain concerns

Published 22 May 2024

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Water firms must face up to supply chain concerns

Water companies want to spend around £100 billion in AMP8. But the supply chain may for the first time have the upper hand to pick and choose. British Water's chief executive Lila Thompson tells Utility Week how the changing landscape could bring long overdue improvements.

The historic relationship between water companies and their supply chain partners could be compared to that between a parent and a child.

But with business plans for 2025-30 proposing a doubling of investment compared to the current asset management period (AMP) – and the wider landscape of increased infrastructure delivery – the balance of power is changing.

This transition has been witnessed at first hand by Lila Thompson, who for the past five years has led the supply chain trade body, British Water. Over this time she has seen levels of engagement between the two sides ramp up, largely driven by water companies wanting to be the “client of choice” amid the increased levels of work they need carried out.

“There will be a great deal more work happening, so it’s pretty clear there are significant opportunities in a sense for sellers to pick and choose who they work with, which they can – and are – doing,” she says.

“There has always been this parent-child relationship between water companies and the supply chain, some more so than others. The supply chain has had to meet what the water companies required in terms of price and terms without having much of a say.

“We are seeing a transition away from the parent-child relationship, much more to an adult-adult relationship.”

However, she stresses some friction points remain.

“Even with a willingness by water companies to change and do things differently, when tender documents or contracts come out they are still not in keeping with what would foster an effective eco-system of supply chain companies.”

Thompson goes on to explain that in procurement processes, suppliers receive onerous, overly time-consuming contracts that can be hundreds of pages long, with annexes.

“It’s not fit for purpose. It should be a seller’s market, but there are still things the supply chain is having to adhere to, to work collaboratively and effectively.”

Thompson accepts that there have been welcome moves across the industry to standardise contract terms but warns change is not coming fast enough.

“We have to move at pace as an industry to move things forward,” she insists.

With under 12 months to go before the start of AMP8, there is little time for a wholesale reform of processes, but Thompson hopes this “willingness to change” should see action by AMP9.

“I hope we can get to a place where there is much more dialogue between companies and the supply chain for more effective contracts, terms and ways of working,” she says. “This would ensure that AMP8 is a success.”

On a practical level, Thompson sees closer ties between water companies’ commercial, legal and risk teams as a way to improve understanding of contract terms and acceptable levels of risk for the suppliers to absorb.

British Water has worked to open this dialogue with its supply chain taskforce and committee, with feedback and input from water companies and supply partners to understand and establish what is and is not possible to improve procurement.

Ofwat warned that deliverability was its area of concern for AMP8. Thompson sees the step change as an opportunity to bring about improvements to how products and services are procured. She was assured that suppliers are ramping up in readiness.

Throughout the supply chain, contractors and suppliers have been recruiting graduates, apprentices and setting up new facilities to serve the industry. But the key things needed to deliver for AMP8 remain similar to previous AMPs: a visible pipeline of projects, consistency in terms of deadlines, terms and conditions that don’t pass down risk the supply chain can’t absorb, or are not onerous.

Planning is holding back infrastructure investment’

Thompson says the supply chain is geared up for the uptick in interest in nature-based solutions, but warns that planning needs to change – quickly – so such projects can be put in place.

“It’s all well and good to talk about nature based solutions, but unless you have the frameworks in place for them to be widely adopted then it won’t happen at pace.”

This echoes the frustrations expressed by the water companies.

“Planning is the one thing holding back infrastructure development. Loads of companies want to collaborate and work with water companies and those water companies wanting to engage equally. But unless the procurement processes of products and services creates an environment the supply chain can work with, it’s going to cause and create problems and bottlenecks.”

This, Thompson says, was another blocker to suppliers being willing and able to work effectively with the sector, sometimes causing them to turn down work, or not submit tenders.

“Water companies are aware that suppliers can pick and choose, so they are open to discussions around why it’s happening. That’s good, but it has to lead to change behind the scenes, which we are beginning to see across some companies.”

This AMP will be a massive step change in behaviours and the way equipment and solutions are procured, but despite the trepidation by some, including Ofwat, British Water sees it as a positive.

“These are things that have been talked about for years without there being any change, so this is a massive opportunity to remove some of the blockers that have hampered effective work across the industry.

“It is a great opportunity to restore trust between the supply chain and water companies to have those open conversations. We are in an environment where things have to be done differently and (we need to) think about these issues because we all have to deliver more.”

Regardless of the details that emerge in the draft determinations in June, or finals in December, the level of investment is set to be several multiples of previous asset management periods.

“There’s an overriding sense that a necessity has been reached about the need for investment in the sector. In some ways, I think ‘thank goodness’ that there’s an awakening in terms of the level of investment needed in the sector,” Thompson says.

“But at the same time there is concern about the degree of funding going towards combined storm overflows.”

This, British Water fears, could come at the cost of other areas in need of investment – particularly asset health and management, as well as water quality, the digitisation of the sector, and investing in people.

Thompson stresses that considering the age of much of the sector’s current infrastructure, asset health and management is an area that requires far greater focus.

“Environmental improvements absolutely are key,” Thompson says. “But in terms of performance of the sector overall, storm overflows aren’t the only things that need investment. Moving forward we need to get that balance and focus right.”

With a marked shift away from the parent-child dynamic, the voice of the supply chain will undoubtedly be heard louder and the sector pressures it is recognising to improve sector performance.

“Infrastructure and asset health and management should be a real priority: Asset maintenance, repairs, refurbishment as well as new assets are really important,” Thompson says. “We need to be focusing on these.”

This article first appeared in Utility Week’s Digital Edition. To read the issue in full, click here.