Patience, preparation and planning
Jason Horner discusses de-risking the black art of utility procurement
Procuring services for large construction projects, whether it’s water, gas, electricity, heating/cooling or voice/data/video services, is a delicately balanced process. Often projects require the removal or alteration of existing utility services as part of an early or enabling works contract before new services can be installed, which needs to be done according to a clearly defined series of activities. Getting the process wrong can be costly and lead to long delays.
It is fair to say that most developers, contractors, engineering and M&E practices are now aware of the wider utility connections marketplace; a supposed panacea where accredited contractors are appointed as nominated sub-contractors to design and install water, gas and electricity services, which are then adopted by utility companies. In this setup, developers don’t often deal with utility companies directl except when they purchase the completed utility networks from the developer, significantly reducing their financial contribution.
The independent utility connections marketplace is not quite as progressive. Yes, Lloyds Accredited single and multi-utility contractors can design and install new utility networks; yes, these single and multi-utility contractors can, to a small degree, get involved in wider design team co-ordination; yes, these contractors are typically more flexible in the programming of works; and yes, these utility contractors can typically offer – through the adopting network operator – a capital contribution toward the cost of the new infrastructure.
However, as in all aspects of our businesses, there are different products available for different types of project and the same can be said for utilities and infrastructure procurement. You need to find the right one.
For example, a large commercial project such as the extension of a major retail destination such as Intu’s Lakeside, would significantly benefit from the early engagement of a Lloyds-accredited single or multi-utility design and build contractor because of the likelihood of having to integrate substations, switchrooms and meter rooms into the architect’s vision. The network operator will also ultimately have to adopt plant and agree non-standard leases for substations and switchrooms. The procurement of a suitable service provider should start as soon as the developer or principle contractor has a concept design in place to ensure that the detail design of plant rooms and containment systems is right first time.
Alternatively, the delivery of new water, gas, electricity and fibre connections on large multi-phase urban extension projects typically delivered by a consortia of volume house-builders, will invariably benefit from the early development of a utilities strategy. This is partly because Utilities Planning Statements are becoming mandatory but, more importantly, because a robust commercial framework is required to deliver primary infrastructure and secure water and electricity capacity early, whilst being sufficiently flexible to detail the secondary infrastructure so it is fit for the future. This commercial framework can only be robust if the big picture and long-term strategy are fully understood.
In this regard, Hilson Moran can provisionally agree a capital clawback mechanism for clients, which will allow a principal developer to fund primary infrastructure and be credited each time a secondary developer benefits from this primary infrastructure investment. Although this is now clearly defined in electricity regulation Hilson Moran is currently in dialogue with a water undertaker and has agreed in principle a process which will achieve the same outcome for investments in new on and off-site water network reinforcement.
Multi-phase urban extensions are also complicated because multi-utility companies or contractors are arguably not good at undertaking design activities within an ongoing iterative process of highway, sewerage, SUDS and landscape design, and do not typically capture the emerging telecommunications network design. Similarly, a multi-utility contractor may not be best placed to deliver tender drawings or land-sale drawings for each new parcel of development. It is therefore likely that a utilities co-ordination role needs to be provided by the client to make sure the process runs smoothly.
Developments that combine the two scenarios above, i.e. dense mixed-use development or major regeneration projects such as ABP’s Royal Albert Dock, are likely to be at risk from both new connection activities (remote network reinforcement and/ or off-site network extensions) and diversions associated with existing utilities apparatus; both underground and above ground.
These projects are located on land where there is a myriad of existing underground services, many of which are often unverified. Some can be terminated outside the site boundary, but meter removal and the physical termination of service pipes are often separate activities such that demolition cannot start until up to 20 weeks after vacant possession. Some of these sites also contain electricity substations and other networked assets that need to be moved off-site, or worse still have to be moved to a temporary location to facilitate demolition. By the time services are diverted to house a temporary substation, demolition works may be up to 40 weeks from vacant possession.
In these cases, the primary risks are associated with existing services, and the developer must therefore deal with the traditional utility companies to mitigate these risks. Sometimes diversion works and new connections are conjoined – an existing substation diverted to a new standalone or building-integrated location in order to provide additional capacity for new connections. This means that the new connection activities also need to be procured via the traditional incumbent utility undertakers, thus reducing the value of more innovative procurement methods.
That said, this doesn’t mean there are no options for innovative infrastructure procurement. Some of the developments described above contain one or more large plant rooms that can lead to opportunities to talk to both independent gas network operators and particularly independent gas meter operators. These organisations can design, build and manage the installation of new gas networks, service pipes, meters and meter rigs. Both network and meter operators may still contribute capital based on the revenues derived from operating gas networks or gas meter(s).
There are also opportunities to procure the services of a Lloyds-accredited single, dual or multi-lay utility contractor to design, build and manage the adoption of new infrastructure in a proactive, flexible and commercially advantageous manner. Real commercial benefit will only be delivered if utility connections providers are engaged as part of a well-considered procurement process that includes a robust Employers’ Requirement. It needs to capture provisional terms of engagement, the wider utilities strategy, concept drawings, a detailed specification, a flexible commercial framework to capture capital costs, improved cash flow options, the maximisation of capital contributions, and importantly clarity of all design resource inputs, and fully detailed project management and construction supervision resources.
While procurement can be a risky process with significant implications for project delivery and costs, if all options are carefully considered and the process is well planned, risk can be mitigated and opportunities for greater commercial value can be harnessed. Patience, preparation and planning are the key.
Jason Horner is Head of Infrastructure Services at Hilson Moran. Hilson Moran is a leading, international multi-disciplinary engineering consultancy. It applies the latest design techniques, technology and innovation to its work in the design, procurement, occupation and operation of buildings. The firm’s expertise spans new-build, fit-out and refurbishment in the public and private sectors. Projects include some of the world’s most innovative and iconic buildings, including 30 St Mary’s Axe and 20 Fenchurch Street in London, Ordnance Survey’s HQ in Southampton and the North Yas Island masterplan in Abu Dhabi.
For more information, please see www.hilsonmoran.com