Water firms' "aggressive" business style turns suppliers off sector

Current “aggressive procurement approaches” are turning infrastructure contractors off the water sector and putting under threat much-needed development in UK water networks according to a report by contractor Balfour Beatty.

In its “thought leadership white paper”, Two sides of a coin, Balfour Beatty said supply chain resilience required “new contracting models and an understanding that traditional, aggressive procurement approaches have damaged the supply chain.” It added: “Failing to address these issues will hold the industry back and put at risk the delivery of the network customer’s needs and deserve at a price they can afford.”

It went on to say tier 1 contractors were choosing not to bid for contracts because “the poor commercial terms being offered are unsustainable. If this becomes a trend, we believe it will become a problem for the water sector.”

In a foreword to the report, chief executive of Energy and Utility Skills, Nick Ellins, warned that major contractors “are not obliged to operate in the water market, and are at liberty to leave or adjust their risk premia, should other sectors or countries prove to offer lower risk, better returns or be more viable in the long-term.”

Balfour Beatty warned also that unsustainable business models were generating uncertainty which was impeding research. “Greater certainty is needed before the supply chain will invest in research, development and innovation,” it cautioned.

Among its key points, the Tier 1 contractor said, typically contracts apportioned the risk onto suppliers and passed the rewards to the water company. “Contracts which share risk and reward fairly are more likely to provide an environment in which innovation can flourish”

It said there was “currently little effective collaboration” between water companies on key challenges including ageing assets and leakage. “This is something which should be addressed,” Balfour Beatty urged.

Welcoming the report, chief executive at supply chain association, British Water, Lila Thompson, said: “For some time many of our members have had particular concerns about procurement processes. More flexibility among water companies during tendering, with a bigger focus on desired outcome rather than on cost or a specific solution, would benefit all parties.

“As AMP7 approaches, we are keen to see a business culture change, not only towards more collaboration, but fairer commercial terms and risk-sharing contracts.”