Water Industry - Scottish Government Investment Group - Committed List performance progress report: quarter two 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. Every community in Scotland, be it a town, city or village depends on our pipes and treatment works to deliver essential services.

At the end of Q2 2023/24, we have invested £395m on Tier 2 projects and sub-programmes This investment includes £67m of enhancement (including flooding), £27m of SR15 Completion, £41m of growth, £5m of support and £255m in asset replacement, planned repair and refurbishment. Responsive repair and refurbishment expenditure was £109m which takes the total investment to £504m. These investment levels are on track to deliver in line with our Delivery Plan^[1] forecast of between £855m to £995m. 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.

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

2.2 Progress with Delivery Against Forecasts

Investment needs are identified and then a balanced programme is created through considered prioritisation, 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 IG 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 £1.0m. 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 on target at 721 points, against a target range of 690 to 810 points. For the 3 delivery gates, progress is:

• Start On Site – 195 points against a target range of 158 to 206
• Acceptance – 269 points against a target range of 272 to 311
• Financial Completion – 257 points against a target range of 260 to 293 points

The performance of projects starting on site remains strong and well within the target range. There has been improved performance during this quarter with the ‘Acceptance’ milestone resulting in being 3 points short of the target range from 14 short last quarter. It is forecast to recover in Q3 and remain in the target range to year end.

The financial completion milestone has moved out of target range this quarter. The performance of this milestone is linked to the Acceptance milestone and is therefore, based on the improving performance of projects gaining Acceptance and focus on expediting the commercial aspects of the projects in timely manner it is anticipated to return to be within target range by year end.

An example project in Wellgate, Lanark. This flooding project is in the centre of Lanark and reached acceptance (G100) in Q2, allowing 3 internal and 4 external properties to be removed from the flooding register. The project constructed an off-line storage shaft in the Wellgate car park, using an innovative flushing system which allows a shallower depth of construction and carbon saving. The project was one of many projects delayed due to the worldwide supply shortage of semi-conductors. The project required careful planning with the local community and businesses. Learning taken from this project includes keeping track of global resource supplies of commonly used kit and procuring such items early in the lifecycle of the project.

Before committing to the delivery of a project we carefully consider the balance of the likelihood of delay due to risks compared with setting an over cautious target that may to lose the focus and need to drive delivery. We continue to identify learnings that can be used for future projects.

On the SR15 completion programme further action is being taken through deep dives on every project to identify opportunities to expedite the projects and utilise the ‘fresh eyes’ of the new Director of Capital Investment at Scottish Water. However, it is acknowledged that the remaining projects are proving to be the most challenging and the Investment Planning and Prioritisation Framework (IPPF) mitigates similar issues occurring in this period as projects are only added to the Committed List after conclusion of optioneering.

Regular bilateral meetings are held with DWQR and SEPA where projects of specific interest to these stakeholders including SR15 completion projects are reviewed to give detailed updates on progress on projects and answer any queries.

Scottish Water monitors actual costs at financial completion compared with forecasts at the time of commitment. The target range is between +/- 5%. We continually look for opportunities for gaining and implementing learning to feed into future projects. At the end of Q2 2023/24 the IFAC indicator is outside the target range at -7.3%. This is due to the outturn cost of projects achieving G110 in the previous 12 months being lower than that agreed at commitment. The forecast is for this measure 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. The risks being faced continued in Q2, and our delivery teams continue to mitigate by resequencing of project design, planning and procurement to cater for fluctuating prices and materials shortages.

The risks and impacts related to the demand for experienced resource in Scotland continues with both Scottish Water and the delivery partners experiencing losses of key resource to other sectors who offer greater reward packages. Exploration into possible mitigation actions is underway including a cross partner approach to attraction of skills to our sector.

Alongside the key learnings that we use to inform how we deliver future projects and programmes; we have a number of initiatives underway focussed on transforming the efficiency of delivery teams to get onto and off site. These initiatives include standardising designs, use of design libraries, use of designs that maximise off-site fabrication, leaning governance, leaning processes and future opportunities for automation which should drive increased capacity and improved productivity of the delivery teams.

2.4 Customer Benefits

A key discussion topic at DAG (currently IG) 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.

The Short Life Task Group (SLTG) that was established on the back of the DAG meeting for year-end 2022/23, with a focus on agreeing a common definition and relationship between of outputs, outcomes and benefits met in September. Further work will be undertaken in November with WICS to agree common definitions of outputs and outcomes.

It is recognised that further work is required to produce reporting that includes monitoring of outputs and outcomes (see paper IGWG 18-02 “Outputs and Outcomes update” presented at November WG meeting.

2.5 Conclusions

The IG is invited to note that:

• At the end of Q2 2023/24 investment levels are on track to deliver in line with our Delivery Plan forecast of between £885m to £995m. At the end of Q2 we had invested £395m on Tier 2 projects and sub-programmes. (please note we have added this to the main body of the report as well).
• The overall IPOD indicator is within the target range of 690 to 810 points at 721 points and our forecast shows that the IPOD indicator will remain within target range for the rest of the year.
• There are two areas where the IPOD is outside of the range - these are G100 (Acceptance) and G110 (Financial Completion).
• On the “Acceptance” milestone we are 3 points outside of the range. This has been primarily driven by the wastewater portfolio where a number of projects have been impacted by the realisation of construction risks, third party issues and additional scope requirements.
• On the Financial Completion milestone we are 13 points below the target range. Again this has been primarily driven by the wastewater portfolio where a number of projects have impacted by the realisation of construction risks, third party issues and additional scope requirements.
• An area of concern is the SR15 completion programme where 108 projects (62 “delayed projects” and 46 “Planned projects”) have been delivered against a Q2 forecast of 138 projects (84 “delayed projects” and 54 “Planned projects”). This has been due to a combination of changes in scope and third party challenges.