The ten steps to totex
Finding solutions that can repair the disconnects between capital expenditure (capex) and operational expenditure (opex) and between operators’ intentions and the reality of running a wastewater treatment plant ought to be a priority for any forward-thinking water and wastewater operator, or indeed for the industry as a whole.
In the UK, the strictures of regulation, and particular of the five-year Asset Management Planning (AMP) cycle present additional challenges. Although there have been attempts to smooth the investment cycles, progress has been slow and the industry is frequently chided for its inertia and risk-averse culture. In particular, the cycle arguably provides a built-in ‘feast and famine’ mechanism for contractors to keep pushing for lowest capex, no matter whether this produces the best whole life cost-to-performance benefits.
Recent media reports have suggested that the move to ODIs and totex may also have been a distraction from addressing ‘boom and bust’. Surely, if totex is about balancing the best risks and rewards across the whole life of assets, then it should help to smooth UK investment cycles?
To find the best solutions, the water industry could look to other parts of industry and the public sector to find best practice solutions for Whole Life Costing and collaborative supply chain management.
So what are the areas of focus to achieve the incremental steps needed to make totex culture and practice becomes the norm? My suggested top ten is based on a UK perspective, but nevertheless should have resonance in all countries experiencing similar operating challenges.
Innovation can target the totex outcomes that can be delivered through supply chain partnership. We need to encourage operators to be willing to be first; willing to try out new technologies and processes to gain advantage.
2. Industry Standards
Industry design standards for the equipment that runs key processes must be able to respond quickly to reflect what the newest and best technologies can achieve. We should be nimbler in updating standards to reflect best practice and review any that have not changed for many years.
More ‘joined-up’ procurement practices, in the UK water industry particularly, are needed to facilitate a totex investment in equipment and related maintenance and services, based on the predicted whole-life process performance. This requires a better communication that crosses traditional water company demarcations. It will also require cross-industry consultation.
4. Best value costing models
Adopting effective procurement cost models that consider best value, rather than lowest cost, is a relatively straightforward and incremental “quick win” that does not necessarily require major organisational change.
5. Innovative contracting
Choosing best value should also be the basis for more innovative contract arrangements between suppliers, contractors and even operators that could share the risks and rewards of the through-life operation of equipment or systems.
6. Supply Chain Collaboration
Manufacturers and service suppliers offer expert equipment and operating knowledge. Finding new and more collaborative ways of working between the supply chain, contractors and water companies could promote a more integrated approach to whole-life water asset management. Models such as the BS11000 certification, as used in other contracting sectors, could help to promote best practice.
7. Building Information Modelling (BIM)
Wider adoption of BIM supports a holistic view of the management of water assets and processes. BIM could help to integrate regulatory submissions, water company asset planning and supply chain collaboration. It is now a well-proven approach and widely adopted in other areas of public sector infrastructure development. Sharing data via BIM models of water assets would support decisions for best through-life process performance, efficiency and operating savings.
With improvements in communication and sensing technologies, the water industry will use instrumentation and software more widely to collect data and provide evidence to justify totex investments based on Whole Life Cost impacts.
9. Equipment Standardisation
Greater standardization in the way equipment is specified, packaged and tendered is a sure-fire way of achieving efficiencies. This is true for individual water companies, as well as across the industry. Not only would this encourage an infrastructure based on best practice, such standardisation could also remove the costly inefficiencies of repeated framework negotiations for equipment suppliers.
Doing more to tackle the artificial market conditions generated by cyclicality in the UK would support better totex outcomes, because there will be less pressure to isolate investment into five year periods. Smoothing out boom and bust cycles will take away in-built incentives for contractors to push for lowest price over best value.
Keith Hayward, Hydro International