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Taking the 'bust' out of the AMP cycle

The Cyclicality Working Group has been working away behind the scenes to eradicate the negative side of the five-yearly AMP cycles. Communication and innovation are key to the process going forward. I have been talking to the group's chair, Richard Coackley, to find out more.

The cyclicality of the AMP periods has led to uncertainty and inefficiency for contractors The cyclicality of the AMP periods has led to uncertainty and inefficiency for contractors

Need to know
  • The transition period enables water companies to bring AMP6 investment forward
  • Some water companies, such as Thames Water, already have their AMP6 Tier1 contractors in place
  • More than £20B will be spent on water and wastewater infrastructure in AMP6
  • The Cyclicality Working Group is working with all areas of the industry, Ofwat and the government.
  • The HM Treasury report, Smoothing Investment Cycles in the Water Sector, was published in July 2012

I'm at One Great George Street, Westminster ─ the home of the Institution of Civil Engineers (ICE). Inside, the building has the "wow" factor and you can't help but feel the presence of the engineering greats ─ the Stevenson brothers, Brunel, Telford to name but a few.

My guide on this quick tour, and the man I'm here to meet, is Richard Coackley, director of energy development at engineering consultant URS Infrastructure & Environment UK and a former president of ICE.

How times have changed and people now work in teams and groups. Coackley is chair of the Cyclicality Working Group tasked with eliminating the downside of the regulated AMP cycle, which has resulted in up to 40,000 job losses as well as created uncertainty and inefficiency for contractors. He firmly believes the answer lies in communication and innovation.

This is a big opportunity to change the way the industry operates in sharing forward information to increase efficiency and provide the customer with savings.

The working group was established following the Treasury / Ofwat report Smoothing Investment Cycles in the Water Sector, published in July 2012 with the aim of finding a solution to the negative impact of the five-yearly cycles in the water industry's supply chain.

In setting up the working group, Coackley wanted to represent all aspects of the water industry. "I wanted to get a real cross-section of the whole of the industry."

British Water and Water UK are key members of the group as the overall industry umbrella, also including the Treasury and Ofwat. The Drinking Water Inspectorate (DWI) and Environment Agency were brought on board to provide a long-term legislative planning understanding.

The group includes representation from large and small water companies, including Anglian Water, Southern Water, Yorkshire Water and Bristol Water, to give "a cross-section to assist us in understanding where they're coming from".

On the contractor side, Coackley considered consultant engineers as being contractors in the process as well because "they form that contractor partnership with the client". As with the consultants, he wanted contractors "to wear two hats" to represent their industry associations as well as understand the pain in the cycle.

Coackley says: "It's quite a large table of people in the group. A lot of effort was spent on making sure a really rounded group of people with commitment to change attended."

 

Transition process

The group's first job was to analyse the Treasury / Ofwat report and specifically the recommendations that were put forward.

A major positive for the group has been Ofwat's decision to allow water companies to bring forward AMP6 investment into the last year of AMP5.

Coackley explains: "The very first thing the group felt we needed to do was formally recommend Ofwat incorporate a transition process. Ofwat was receptive to the industry's recommendations, and I'm absolutely delighted that took place."

It is important to note that this is not the first time that Ofwat has tried to solve the problems associated with the AMP cycles.

The regulator has, in the past, tried to incorporate something similar to the transition period, says Coackley. "But it was fraught with financial misunderstandings and finance directors weren't able to change the five-year cyclicality.

"That's why water company representatives on the group are finance directors and asset management directors. They combine finance and asset management so we are working with senior industry representatives that make those decisions."

The draft submissions have now been made and the group feels "there's something really tangible " in that transition period. "I'm not aware of the figure but I would love to know how much it is, what it adds up to," says Coackley.

"If our clients are able to generate for the transition period some hundreds of millions of pounds brought forward from AMP6 into 2014-15 then that's great. We've done something as an industry," he says.

However, the work does not stop there, and there are several sub-groups working on different issues as they look towards the long-term.

Once Ofwat has approved the water companies' plans for the transition period and AMP6, Coackley says getting that knowledge into the supply chain will be important. British Water has been carrying out a survey for the group to establish exactly what supply chain information its members, no matter the size of company, want made available on a potential website. The results, which are currently being analysed, will establish what the website looks like, who might host it and what information is required. That will then drop down from the Treasury's National Infrastructure Plan, so you get the bigger picture.

Coackley adds that it will be important for the information to be generic in order to "drive innovation through the industry. We don't want to close innovation down by being specific and conditional".

Another sub-group has been establishing how the different areas of legislation coming through in terms of the Bathing Water Directive and some of the EA programmes can be accommodated as long-term plans that do not fit within the AMP cycle. "You get them overlapping, so again you get that continuity in the process. We've been looking at that, and we've got processes in place to understand what's going on there," says Coackley.

 

Forward information

Looking at how to get the water companies to share information with Tier1 contractors and consultants, and then pushing that through to the supply chain, is the task for another sub-group.

Coackley says this issue has arisen from concern that even though the transition period and investment may be in place, contractors need to know that is the case and that they will not have to lay off staff because they know the work will come through. "It's just forward information."

He continues: "I am actually as concerned as you are about how this will transfer through the supply chain. We don't know.

"We need to work as a total industry and make sure that human behaviour is a right to actually share as much information as possible."

What will be key is the water companies making their plans known. Coackley says: "As soon as the end of March comes through I would hope a lot more information comes forward so that the supply chain can be more confident of that money being used before AMP6. The finances are in place, the knowledge is in place, people like Thames Water and others have already appointed their Tier1s and are working on that package."

As Coackley said at the start, this is a big opportunity to change the way the industry operates in sharing forward information to increase efficiency and provide the customer with savings.

Topic: AMP Cycle
Tags: infrastructure , engineering , ice , energy , AMP6 , AMP5 , water companies , capital investment

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