Contracts in the water sector should share risk and reward fairly © David Goddard/Getty Images
Contracts in the water sector should share risk and reward fairly © David Goddard/Getty Images

Transactional relationships a problem for water sector

12 December 2019

Procurement processes in the UK water sector must deliver sustainable margins to ensure a stable, resilient supply chain that can invest in skills and innovation, according to a report.

The report, by Balfour Beatty and Energy & Utilities Skills Partnership, said greater certainty is needed to ensure the supply chain will invest in research and development.

Contracts should share risk and reward fairly, rather than traditional procurement routes which see the supply chain bear the risk and the client take the reward.

Nick Ellins, chief executive at Energy & Utility Skills, said the “days of assuming that if one key supplier steps away or closes down... another will be around the corner” are over.

The report said businesses are already beginning to refuse to bid for certain contracts because of the poor commercial terms being offered.

“These are important commercial partners operating highly competitive businesses in a European and global infrastructure environment that is courting them with multiple contract choices,” Ellins said. “It is incumbent on policy makers, regulators and the water companies to recognise their vital contribution and involve them closely to help mitigate their sense of risk and sustainability.”

The report said in the post-Carillion era contractor-owning groups are reflecting carefully on the attraction of the water sector.

This has left the water industry fighting for its share of talent to deliver leakage strategies, metering, maintenance and other core functions often as energy, rail, telecoms and the wider construction industry are seeking the same people at similar pay grades.

“It’s been a simple problem to fix for many years... but for some reason the responsible authorities are simply unable to work together to see that fresh drinking water, sanitation, power, heat, light and other essential services are mission critical for the whole UK,” said Ellins.

He said that main contractors already know that each company will end up calling on its supply chain to fill the gaps as regulatory and political circumstances change.

“Had it been planned, and contractors involved from the start, the solutions would already be rolling out in to the market place,” he added.

The report said while there were exceptions, the current relationship between some water companies and the supply chain was often transactional and adversarial.

“There can be no investment if contracts are characterised by a short-term outlook,” it said.

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