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Utility contractors cornered as Anglian and Wessex introduce new 'pain share' procurement process Water clients put squeeze on profits

ANGLIAN and Wessex Water are the latest major clients to introduce new procurement methods that could prove costly to utility contractors working under partnering deals.

The firms are following the lead of Thames Water and gas pipeline operator Transco with the introduction of 'pain share' procurement.

Details of who pays for cost overruns on a project are set in stone in the new contracts.

Anglian and Wessex Water are proposing that liability for extra costs will fall 70 per cent on the contractor and30 per cent on the client for the first 2 per cent of any cost over-run.

After that the contractor will bear all further costs.

But if a contractor completes a job below the projected target cost, the difference would be shared betweencontractor and client under the part of the deal known as 'gain share'.

One contracting source said: 'The prices tendered are not what the contractor gets any more.

'In the past a contractor might have been able to load a particular rate and get away with it. The contractor can't make these sorts of excessive profits any more, but in return we are rewarded with the stability of a five-year deal.'

The new deals are based on the Institution of CivilEngineers' Green Book reimbursable contract.

Utilities firms have traditionally used measured term contracts and a schedule of rates.

Anglian Water plans to launch the new contract in April when it appoints its three new term-maintenance contractors on the £450 million upgrade of its clean water system.

The region is currently divided into four areas - Fenland, Lindsey, Ruthhanford and Norfolk/Suffolk - maintained by Alhco, Morrison, Pipeline Contractors and May Gurney respectively.

But to place tighter controls on costs, Anglian is paring back its pool of contractors by amalgamating the Fenland area with the other three.

As a result, one of the current incumbent firms will lose out on a £150 million contract spread over five years.

Tenders for the deals went in towards the end of last year and appointments are imminent.

Clients are introducing their own specially tailored version of the pain share contracts.

Thames Water's version will be tested on its term-maintenance contracts due to start in April. These have just been awarded to Gleeson, Laing and Costain. Under the new terms contractors will have a percentage of their overheads withheld if they go over-budget.

See Leader page 10