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How AMP6 will change the way contractors work

With the transition to the water industry’s AMP6 round of spending now fully under way, contractors and clients are working on new approaches to offer ‘more for less’.

The first four asset management plan (AMP) periods were notable for a focus on building new wastewater facilities such as treatment works to meet tough regulatory requirements under EU environmental laws.

But with AMP5, the foundation was laid for a shift away from fulfilling legislative obligations.

During the last five years, the water industry has seen an increasing focus on the customer.

Incentives set by regulator Ofwat are now more geared towards the consumer than ever before.

So what challenges will this create for both clients and contractors working on schemes under AMP6?


Most clients have now named their preferred partnerships for the forthcoming tranches of work.

Balfour Beatty Utility Solutions is one of the largest players across the programme, having been engaged to carry out AMP6 work for four major clients.

These include Yorkshire Water and its £1bn programme, with Balfour having worked with the client on every AMP since 1994.

The company estimates that its involvement on the framework will be worth around £70m.

Balfour has also won a place on United Utilities’ £1.5bn framework, working in joint venture with MWH.

Winners on AMP6 frameworks by number of places won

Mott MacDonald Bentley, operating under the JV name MMB, also won places on four frameworks.

It too secured a spot on United Utilities’ framework, and also boasts a place on Welsh Water’s £1.5bn programme.

Major contractors heavily involved in AMP6 work include Skanska, which will work with Thames Water, Welsh Water and Anglian Water; and Morrison Utility Services, which is set to work for Anglian, Southern, Thames and Yorkshire Water.

Throughout AMP6, water companies are forecasting major expenditure on both water and wastewater.

Thames Water leads the way with a forecast total expenditure of just over £7bn on both water and wastewater between 2015 and 2020.

United Utilities is forecasting a spend of £5.2bn over the same period, while Anglian Water will invest £4.1bn and Yorkshire Water £3.4bn on water and wastewater, according to documents submitted to Ofwat.

Under previous AMPs, new orders in the water industry hit an average of £223m per quarter, according to the Office for National Statistics, peaking at just over £1bn in Q1 2012.

What more for less looks like

While the work won on AMP6 is worth billions to the construction industry, there will be a new set of challenges for contractors working under the frameworks – doing “more for less”, according to Mott MacDonald water divisional manager David Thomas.

“I think we’re going to have to help the water companies deliver within the money that’s been made available to them by Ofwat and help them outperform those different types of incentives,” he says.

“Although there are rewards for outperforming them, there are serious penalties for not achieving them.”

Mr Thomas emphasises that the major shift between AMP5 and AMP6 is that the incentives have changed concerning capital expenditure, operating expenditure and total expenditure.

Ofwat has changed its rules to allow a comparison of water companies on their total expenditure, rather than considering capital and operating expenditure separately.

This aims to address a perceived spending bias towards capital expenditure, rather than operating.

“For construction, AMP6 is about how to become more productive”

Simon Bimpson, EC Harris

Cost-effectiveness, productivity and efficiency are now key if clients are to hit their service incentive mechanism (SIM) targets, says EC Harris head of utilities Simon Bimpson.

“For construction, it’s about how to become more productive,” he says.

“When you look at that in a capital delivery world around productivity – how do we do things quicker – and better?

“That’s another challenge which is different to where we were in AMP5.”

Water wastewater totex 2015-20_Ofwat

Source: Ofwat

The question of how contractors can become more innovative and efficient is now at the forefront of AMP6.

“Water, wastewater and sewage treatment plants are under ever increasing pressure,” says Glenigan utilities expert Caroline Lockyer.

“The outfalls and pipelines are under constant use, delivery review is constant and performance management is always under the spotlight.”

The AMPs have become more “transparent and effective” over time, she adds.

But what measures do contractors need to take to make sure they can exceed clients’ – and indeed the regulator’s – expectations?

BIM and offfsite offer advantage

Offsite manufacturing and using design for manufacture and assembly (DFMA) alongside building information modelling are some of the main ways contractors are looking to maximise efficiency.

These methods were not frequently used during previous AMPs and will form a critical part of cost-efficiency savings throughout AMP6 and beyond, according to Mr Thomas.

“It’s definitely the start of a new era for BIM modelling in AMP programmes,” he says.

“We’re very keen on offsite manufacturing, underpinned by using BIM as an approach.

“What you’re looking at is a design where two-thirds of the things that will end up on site are manufactured off site.”

Mr Thomas stresses that cost savings do not come through offsite manufacturing on its own, but through the time savings offsite can give contractors.

“It’s a programme benefit to contractors with large site set-ups; getting on site quicker is the way to deliver the job more cheaply,” he explains.

“It’s the start of a new era for BIM modelling in AMP programmes”

David Thomas, Mott MacDonald

Mr Bimpson agrees that offsite manufacture has a major role to play in making AMP work more efficient and cost-effective, and highlights the need for modularisation to drive time savings.

“[Offsite manufacture] is coming more to the forefront now, and we need to be thinking about standardisation and modular in what we do,” he says.

“Historically, a lot of the solutions have been bespoke.

“The way to get productivity is repetition – so we need to start modularising if we want to go down that route.”

There are also significant safety benefits to using materials manufactured offsite, while offsite quality controls reduce defects, Mr Thomas adds.

Workload consequences

As work associated with AMP6 begins to shift offsite, what impact will this have on subcontractors’ workloads?

Subcontractors are frequently used on AMP works by main framework winners.

But with more and more work being done away from a traditional onsite environment, there is a danger around how quickly subcontractors can adapt to make sure they can provide a full range of services to main contractors.

“It does impact subcontractors’ work on site in a way,” Mr Thomas says.

“For example, if you have a pumping station where we’ve managed to not only build the shell of the pumping station, but also put the pumps and the electrics in it [offsite], the need for subcontractors on site to put all that together is diminished.”

“We can’t stifle the workload of tier three and four contractors”

Simon Bimpson, EC Harris

But he adds that a fall in work on site does not mean work is not available.

“It’s a different way of doing things – not necessarily a diminishing of overall effort, just a changing approach,” he adds.

But Mr Bimpson is unsure whether offsite manufacturing has yet reached the point where it is providing a real, measurable boost to productivity.

“The question’s still out there to be answered: is offsite manufacture going to bring the step-change in productivity or not?” he says.

“I think that’s yet to be determined.”

Water and sewerage new orders 2010-14_ONS

Source: ONS

But he emphasises that there is a real opportunity for subcontractors and companies further down the supply chain to demonstrate “genuine innovation”.

“Again, around the supply chain, what clients are looking for is innovation – and we traditionally see that in tier three and tier four of the supply chain,” he says.

“We can’t stifle the workload of tier three and four contractors.”

Collaboration challenge

So if clients are now looking for contractors to be more innovative, does that spell a different way of working for AMP6 compared with AMP5?

Previous incentives were much more commercially minded, with CAPEX being tied directly into service incentive mechanisms – meaning much of clients and contractors’ focus was on capital expenditure.

For some clients “you were given a price, and that’s the price you had to do it for”, according to one contractor.

Water clients are generally recognised as taking a more collaborative view, helping drive down total expenditure.

Mr Thomas says: “In AMP5, the challenge was to make sure you got your scope right and you stayed on the right side of the contract - and on time,” he says.

“It’s a different challenge in AMP6 - but it’s a challenge shared with the clients rather than one that’s arms-length from them.”

In AMP6, both clients and contractors will be looking at ways to decrease the total expenditure, with offsite manufacturing being part of that.

And Mr Bimpson argues that there are other key measures contractors and clients should be taking to maximise efficiency and productivity.

“The challenges on AMP6 are shared with clients rather than arms-length from them”

David Thomas, Mott MacDonald

“One of the big things that will drive efficiency is ‘big data’ – being able to get the correct data in the right place at the right time to give decision-makers the key information they need,” he says.

“That goes all the way through the supply chain.”

Mr Bimpson adds that high-level collaboration on data collection is needed to make sure clients can reap the full benefits of big data.

“Collaborating around assets, asset performance, what the current condition is of any asset – taking that and looking at different solutions to get the best outcome is how you maximise productivity,” he says.

And with the new service incentive mechanisms and TOTEX targets that are now in place, Mr Thomas says collaboration is the “only way” that clients can now work with contractors.

“It’s very hard work – but I’d much rather be part of hard work where you’re working together to common aims rather than just protecting your own interests,” he says.

Contractor transparency

There is one final major change between AMP5 and AMP6 that may have an impact on contractors.

With the new AMP6 incentives increasingly turning towards being focused on water companies’ customers, contractors will need to be more transparent in how they work and the way they interact with the public, according to one industry expert.

Previously, much of the direct customer interaction in terms of road diversions, hoardings and community engagement was done by the clients.

But under AMP6 and its new collaborative approach, this will be shared between clients and contractors.

Sharing this responsibility could, in principle, mean extra costs, the source says.

Yet the collaborative approach is the only way of making sure the customer gets the best possible outcome, Mr Thomas argues.

“You’ve got to work hard at it, but if in the end this equals better service for the [water companies’] customers, and the water companies get a reasonable return out of it – [collaboration] gives us the best chance of achieving that,” he says.

The new customer focus – and the collaboration that will drive it – is what will set AMP6 apart from previous periods, Mr Bimpson says.

“Ultimately we are looking for a reduction in the customer’s bills.

“To meet that, how does the industry become more productive?”

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