The DWMP blog – Episode 23. Paying for DWMPs

This is the latest in a series of blogs discussing the development of Drainage and Wastewater Management Plans (DWMPs).?If you haven’t already seen the earlier episodes in this series, they are all here (https://tinyurl.com/MartinOsborneArticles) I suggest that you start from Episode 1 (https://tinyurl.com/DWMP-blog).

This episode considers how we should pay for the studies to deliver a DWMP in such a way that it incentivises good outcomes.

Current practice

Current practice for carrying out studies to develop a DWMP or for other sewerage and drainage studies is generally for them to be carried out by consultants rather than by the water companies themselves.?Some water companies do carry out some or all of the studies in-house, but they are generally arranged as if the in-house team was an arm’s length consultant.

Work is allocated to consultants based on their technical capability and their price.

There are two slightly different methods.?In one the consultants will be pre-qualified based on demonstrating a threshold technical track record and then bid competitively with the cheapest price winning.?In the other the technical capability and price are both scored and the best combined score wins.?In both cases there is an incentive to keep prices low and therefore an incentive to deliver the study with the minimum amount of cheap resources.

What is wrong with that?

There are several things wrong with that approach.

1 The amount of work involved in delivering a good study is unpredictable

• Adjusting the model to correctly represent the real world is a process as long as a piece of string
• Finding the best combination of investment options to resolve current or future problems is an iterative process that can take as long as it takes (See Episode 7 of the blog).

So, the winning bid is likely to have allowed for the minimum reasonable amount of time for these tasks and cross their fingers that it will be enough.

2 The winning bid will achieve its winning price by maximising the use of cheap, junior (and therefore inexperienced) staff and minimised the use of more expensive staff.?This is a great learning opportunity for the junior staff, but may not deliver the best outcomes.

3 Computer resources (hardware, software and in particular optimisers) are not cheap and so the workplan will be structured to minimise the number of model simulations to keep this cost down.

All of these lead to a temptation to accept something that is “good enough” rather than delivering the best outcome for customers, society and the environment.

There is a well-known graph of the opportunity and cost of adding value to a project at different points in the project timeline.?This shows that the greatest opportunity and the minimum cost to add value is in the early planning stages of a project when the strategy and scope are being defined.?Spending more money at this time will save money in the long term.??

This early planning stage is exactly where DWMPs sit.?Their purpose is to look forward in time and identify the risks that are coming down the track and develop the best strategies for dealing with them.?So, spending more money on DWMP studies will give long term savings.?Planning studies are seen as an operational cost and are ring fenced in an OPEX budget while the project delivery is from a separate CAPEX budget. ?It is as if the word TOTEX had never been invented.

Is there a better way?

There is a strong justification for the present approach in that it provides reassurance that the study team are not overcharging for their work.?However, I would suggest that if you think that the modelling team are trying to rip you off, then you have probably employed the wrong team.?What the water company really wants is the best value outcome from the study; not an outcome constrained by cost limitations.?

It would be useful if we could value the uncertainty at each stage of the study.

At this stage there is x% uncertainty in the accuracy of the outcome and therefore ￡yk uncertainty in the long-term value.?We could reduce that by spending an extra ￡z now.

We potentially have approaches to this.?For verification of the model, we could identify percentage uncertainty in flows and extrapolate from that to percentage uncertainty in flooding and discharge and therefore in capital schemes.

It is more difficult for assessing the potential saving by investigating further investment options but we could extrapolate the cost reduction shown to each iteration of options to estimate how much more saving is available.

We could then justify the extra investment in the study that is likely to show good value.

But can we manage to move from a model based on a paymaster and servant relationship to a truly collaborative relationship where the cost of the study is whatever it takes to delivery best value for customers, society and the environment.