Main Feature
that some of the uncertainties in the water industry in the UK are actually making them look outside of the sector to other utilities and industrial and commercial works and simply walk away from the water sector completely because the work load for water is not there for them long term whilst in other sectors there is more certainty if not a guarantee of work.
This uncertainty also of course passes downstream to the equipment and materials providers who in turn do not know whether to build machines or make pipe products to meet what could potentially be an uncertain demand.
If contractors and suppliers read the situation as one to wait and see on there could be significant impact over time on the completion of projects as they have to wait for trained personnel, equipment and materials to appear, so pushing back completion dates that might in turn impact on the WaSCs planning for the spend regime over the next five years.
There is already some rumour that one WaSC (nameless again I’m afraid) is already struggling to meet its first year renovation target because its preferred contractors apparently down to its tertiary level approved list) are not yet in the position to achieve the metres in the ground that are required to be completed before the end of the tax year and this is only year one of the AMP. This could then further impact on plans for subsequent years and potentially leave an under- spend for the WaSC in question in the final year simply because the resources are not there to complete the planned workload.
The outcome of such a circumstance might be that the WaSC is either forced to accept the under-spend and potential wrath of the regulator for not reaching its commitments, something that the regulator may not look favourably upon when looking at the next pricing review prior to AMP 7, or it may have to look at bringing in contractors that may not originally have made it on to the preferred contractors lists for any variety of reasons.
Another reason why there may be a lack of information as to what the WaSCs are planning for the next five year is that huge and in the main still unknown quantity that now exists in the UK water industry, the state of the recently transferred Private sewer block.
There are those that would argue that this is a topic that should have been dropped from reporting a long time ago. However, with much of the transferred sewer network still to fully investigated by the WaSCs, despite some significant efforts by some, it still remains and barely known and mysterious quantity inn terms
of potential workload.
With much of the works undertaken on this part of the network countrywide being on a reactive basis, there is little to be found in the available information that would say directly that the currently agreed fixed spend by the WaSCs over the next five years does not include any expected spend on this sewer area.
If this spend is to be included in the ‘fixed sum’ then a significant amount of money may be required to complete reactive works in areas that have previously not been taken account of in generating the magic number of the fixed spend. Any moneys taken out of that spend to meet this area of work will automatically reduce the funds available for other what might be generally termed capital works, again impacting directly on the contracting arm of the industry possibly quite significantly.
If this is the situation does this mean that any targets whether published or internal are simply ‘wish list’ targets that will only be completed if moneys still remain available as time progresses. Or, on the other hand, is this part of the network on a separate budget that has not in itself been publicised as part of the fixed spend? Knowing the water companies preference to give out the best ‘sound bite’ sums in their publicity this is probably unlikely, so is it fair to assume that the fixed spend includes this area of work, probably yes.
So, whilst adapting to the fixed spend regime over five years does this mean that the contracting fraternity can expect to see a smoother workflow that can be more easily managed than that seen in the past? Probably not.
As much as the ideal of a fixed spend might appear to give a firm grounding on which to base operations, materials and equipment production, there is still the very strong chance that the water industry will, in the end, be profit driven and therefore will look to spend its ‘fixed’ amounts very carefully. If there appears to be a surge in the moneys spent on the newly acquired private sewer networks there is likely to be a cutting back in spend on the ‘wish list’ capital projects just in case there is an overspend above that committed in their plans.
What could be the case then is that the capital works will be put off until the last minute when it becomes more apparent that the moneys will be available and there could be the usual rush to meet the spend target over the closing twelve months of the AMP. Once again this could put the industry in the position where due to lack of work early in the AMP companies do not have staff or equipment available to meet this rush and potentially compromises may have to made to meet the final outcomes required by using contractors that may have originally met the high standards required by the WaSCs, thereby making the fixed spend target difficult to meet successfully. Let us also not forget that in circumstances of high demand and limited resource there also tends to be increase in cost as those that see an opportunity make hay whilst the sun shines.
Other factors may also influence the way the fixed spend is achieved and what work can be completed within the sum. If, although at present it seems unlikely, inflation were to ramp up significantly, this would affect the long- term value of the fixed spend so limiting the number of project that could be completed. Similarly, whilst there is little sign of this happening in current forecasts, if interest rates were to rise beyond those predicted this again could limit the value of the fixed spend amounts. Even allowing that somewhere in the system this may have been taken into account in some way or another in the ‘small print’ of the AMP agreements, movements beyond such limits would have an effect.
As well as looking at the AMP commitments purely from a financial viewpoint there would appear to be other changes afoot in some areas. Some Water Companies, whilst again there is limited if any detail available publically, seem to have reviewed how they will operate with their Tier 1
6 drain TRADER | September 2015 |
www.draintraderltd.com
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