Can suppliers make the totex dream come true?

Keith Hayward of Hydro International.

Keith Hayward of Hydro International’s European Wastewater Division reflects on efforts to move towards an outcome-focused approach to meeting water industry goals

With AMP6 off the starting blocks, is the water industry truly prepared to change hearts and minds in a new ‘totex’ culture? Will we begin to see a seamless supply chain and an end to those boom and bust cycles that are so counterproductive and costly? It seems the jury is still out: Our industry must climb some big mountains to truly embrace approaches that favour through-life asset investment and maintenance, not just for the next five years, but on into AMP7 and 8.
To successfully rewrite the asset investment paradigm and get maximum operating value from our water and wastewater infrastructure we need to begin by recognising that capital project procurement and innovation are two sides of the same ‘totex’ coin.
The UK water industry is still viewed as being well behind the curve on both fronts when compared to other industries. I’m a relative newcomer to the water industry, but even after three years seeing life from the perspective of an equipment supplier in a regulated industry, I am still surprised by the barriers we encounter when it comes to getting totex innovations on the table for discussion.

Barriers to innovation
Many suppliers I talk to have similar experiences; no less the water company procurement teams we work with who are often equally frustrated by structures and practices that are no longer fit for purpose. For example, one senior UK procurement executive in a UK utility was very supportive of including Hydro’s innovative ZickertTM Rotating Sludge Scraper onto a framework for sludge scrapers on circular settlement tanks. The problem was that pre-qualification questionnaire for the framework called for half-bridge scrapers.
Despite the fact that the product’s advantages were well-received, as it was not a half-bridge, we were knocked out of the process at pre-qualification. The absurdity of this unintentional block is that the product’s main advantage is that it is bridgeless. By being bridgeless it achieves operating efficiencies that are better than bridge technologies.
The procurement department advised me to go back to the technical team to discuss the rotating scraper with them. Descending into a supply chain rewrite of Catch 22, the message here was: ‘we can only look at it if it’s already on a framework’ – which of course it is not, because it is a new product.
The advent of total expenditure (totex) investment decisions was intended to deliver a culture-shift in procurement, as capital and operational investment was examined in the round. As this experience illustrates, bizarrely it is now harder to get acceptance for incremental improvements to an established product on an existing framework specification, than it would be to introduce a completely new concept.

Effective procurement saves money
Ofwat’s new outcomes-based incentives and costing structures will eventually shift investment to a totex model. It has to, if the regulator is to reap from those core objectives of ‘cost to the consumer’ and sustainability.
To create a truly competitive environment and efficient industry, water companies need to find ways of encouraging technology that improves the operating capability and efficiency of equipment from suppliers.
So, an equally important part of the supply-chain challenge is how to introduce project evaluation, costing and contracting models that can deliver totex benefits. Even when the intention from a water company is to achieve through-life value, in reality contractors working to a water company budget usually have little choice than to award a project with the lowest capital cost.
If an asset has higher upfront investment, but delivers better operating value over the whole of its life, it ticks the totex box. At the moment, such a product could still stand a high chance of being rejected. Capital investment considerations should be able to take full account of the impact innovative equipment could have in terms of operating efficiency, energy usage, and lifetime service –and not just of in terms of that piece of equipment itself – but of its impact on the whole works.

Hydro is introducing the HeadCell grit removal system to the UK

Planned service and maintenance
It makes perfect sense to ask suppliers to sell their equipment with, for example, an extended 25-year warranty, linked to a preventative service and maintenance programme – and for the utility to budget accordingly over the long-term. Combined capital and operating solutions ensure the best outcomes in terms of technology chosen, longevity of equipment, energy consumption and consumer benefit. Such an approach would encourage development and the use of more efficient products with extended lives and lower energy use.
Historically, asset managers have often been tempted to take the short-term view, opting for reactive repair and replace. With the shift to totex, for the first time, water companies have a direct incentive to optimise the operating performance of equipment, extend the life of assets and improve plant and process efficiency. Studies show that there is no shortage of opportunities for water utilities to reap the financial rewards of efficient operations and maintenance.
Generally speaking, water and wastewater treatment sites in the UK show a woeful lack of planned maintenance. The totex challenge means that this is no longer a financially acceptable way to operate – and the regulators are on the case.
OEM equipment suppliers are well placed to offer a tailored service to meet operators’ needs, covering regular inspections, spares replacement and training whether the requirement is for a specific piece of equipment, or for multiple sites or a region.

Outcomes-based approach
It hardly needs stating that the most progressive, efficient and innovative water companies in AMP6 and AMP7 will be those that can capture the best equipment and service solutions from the supply chain. To achieve this they need to engage not only with their Tier 1 contractors and consultants, but also with their equipment suppliers.
It would be a tragedy for the whole industry if innovative suppliers saw a disincentive to invest in research and development in the water industry, especially where the aim is to deliver enhanced through-life performance. There is no question of that happening in Hydro at the moment, but it does take time and persuasion for companies like us to get new ideas and solutions accepted, as we redouble our efforts to find ways to overcome some of the barriers.
So, it is high time for our industry to better exploit the symbiotic relationships between all stakeholders – including manufacturers, service and maintenance suppliers, contractors, consultants and the water companies themselves.
The problems of cyclicality focused on the visibility of upcoming work through the supply chain. Now that argument is won, we should be working together on true integration – all to the ultimate benefit of the consumer.
Is it time for a cross-industry working review of procurement and innovation with the objective of saving costs for the industry (and its consumers) and support the drive towards a lower carbon water industry? Ultimately, it would also encourage better technologies, save jobs and keep key skills within the industry.