Water Industry - Scottish Government Investment Group - Committed List performance progress report: quarter one 2023-2024

2. Executive Summary

2.1 Progress with Investment

Scottish Water’s (SW’s) investment programme is one of the largest infrastructure programmes in Scotland – delivering the vital assets that enable us to maintain and improve the water and wastewater services people depend on every day - and supporting growth and development to ensure that communities can flourish. Scotland’s communities can only flourish with the fit-for purpose infrastructure – above ground cities, towns and villages need our below ground pipes and our treatment works to be future proof.

At the end of Q1 2023/24 tier 2 planned investment was £190m, made up of planned repair and refurbishment (£135m), enhancement (including flooding) (£35m), growth (£23m) and support (-£3m)^[1]. It includes £13m invested on the delivery of projects that were planned to be completed in the previous period. Note that these figures are in out-turn prices and a comparison with 2017/18 prices will be made in the Q4 2023/24 report as was done in 2022/23.

We continue to deliver year on year growth in investment through our people and partners and by continuing to transform, innovate and work with communities and customers.

2.2 Progress with Delivery Against Forecasts

Investment needs are identified and then a balanced investment programme is created which will contribute to meeting objectives set out by Ministers for the regulatory period. Once these needs are developed, associated investment projects and programmes of work are created and are committed to. Updates are then given to IPPDG via the ‘Progress to Committed List’ report. The ‘Committed List’ is therefore updated dynamically and forecasts for delivery are included.

The Indicator of Progress of Overall Delivery (IPOD) provides a high-level measurement of Scottish Water’s progress in delivering the Committed List for projects over £1m. It assesses the progress of these investment projects monitored across 3 delivery gates combining this information to give an overall score with the intention of gaining and implementing learning and monitoring delivery. The overall capital programme is considered ‘on track’ if IPOD is within the target range.

The IPOD indicator currently sits at 651 points, against a target range of 632 to 751 points. For the 3 delivery gates, progress is:

• Start On Site – 168 points against a target range of 137 to 180
• Acceptance - 246 points against a target range of 260 to 291
• Financial Completion - 237 points against a target range of 235 to 280 points

It is evident from this that the ‘Acceptance’ milestone remains outside the target range, but encouragingly performance has stabilised and is expected to move to an improving trend. 15 projects that have not yet had acceptance signed off are now substantially complete and are forecasting acceptance in Q2, with a further 7 forecasting acceptance in Q3.

An example would be IR18 Allowance - Tarbert WTW, where the primary scope was installation of a new MIEX (Magnetic Ion Exchange) plant to address the THM issues at site. Hydraulic issues led to a solution to manufacture a new larger diameter outfall pipe, which caused the milestone to be delayed. All work is now complete, with Acceptance achieved in Q2.

It is important that when committing to the delivery of a project we balance the likelihood of delay due to risks against setting an over cautious target with the potential to lose focus on the need to drive delivery.

On the SR15 completion programme the most significant issue to overcome is with 5 projects that are yet to start on site. These have all been subject to revised optioneering and scope definition. The new IPPF process mitigates similar issues occurring in this period as projects are only added to the Committed List after conclusion of optioneering.

Bilateral meetings are in place with both DWQR and SEPA where projects of specific interest to these stakeholders and SR15 completion projects are reviewed to give detailed updates on progress on projects.

In addition to forecast delivery dates, Scottish Water monitor actual costs at financial completion compared with forecasts at the time of commitment. We aim for being within +/- 5%, and like IPOD there is a focus on gaining and implementing learning. At the end of Q1 2023/24 the IFAC indicator is outside the target range at -6% but we are forecasting to be back within the range by the end of the year.

2.3 Ongoing Delivery Risks: What are they? How do we mitigate them and how do we continue to learn?

Scottish Water continue to monitor and endeavour to mitigate the 3 broad categories of risks that may impact our forecasts:

• Third Party Risk - Potential delays due to third-party issues. Mitigated through our prepare process and close relationships with third parties.
• Construction Risk - Unforeseen delays from allowable events or poor performance on site. Mitigated by collaborative working with our delivery partners.
• Construction Market Conditions – Mitigated through project planning.

A detailed summary of the risks associated with construction market conditions was given in the Q4 2022/23 report. Volatility still exists in the market in relation to the price and availability of materials and commodities e.g., key materials such as microchips and electrical components. Our delivery teams continue to mitigate by resequencing of project design, planning and procurement to cater for fluctuating prices and materials shortages.

A key emerging risk to delivery is the demand for experienced resource in Scotland – both Scottish Water and their delivery partners have experienced a loss of key resource to other sectors who offer greater reward packages.

Lessons Learned from live and completed projects continue to be taken and common themes and key learnings are validated, collated and best practice shared in the form of improvements to our Risk/Design libraries and targeted toolbox talks.

2.4 Customer Benefits

A key discussion topic at DAG has been in relation to what improvements to reporting are needed to be able to monitor outputs and outcomes for customers from projects delivered on the Committed List. At a high-level, customer benefits from Investment are identified as part of the assessment of investment needs. Each need is linked to either a Ministerial Objective or asset management policy (Management Approach), and therefore projects added to the Committed List are known to deliver these needs.

It is recognised that further work is required to produce reporting that includes monitoring of outputs and outcomes. As a step towards this, at the DAG meeting for year-end 2022/23, it was agreed that a Short Life Task Group (SLTG) would be created with a focus on agreeing a common definition and relationship between of outputs, outcomes, and benefits.

2.5 Conclusions

The IPPDG is invited to note that:

• At the end of Q1 2023/24 tier 2 planned investment was £190m, made up of planned repair and refurbishment (£135m), enhancement (including flooding) (£35m), growth (£23m) and support (-£3m)^[2]. It includes £13m invested on the delivery of projects that were planned to be completed in the previous period.
• The IPOD indicator is on track at 651 points, against a target range of 632 to 751 points. The current forecast shows that the IPOD indicator will remain within target range for the rest of the year.
• The ‘Acceptance’ milestone remains outside the target range, but encouragingly performance has stabilised and is expected to move to an improving trend. Where appropriate, and if necessary, temporary mitigation is put in place to maintain service.