Scottish Government Investment Group Progress Report on Performance Against the Committed List for Quarter 3 2023/24

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 Q3 2023/24, we have invested £589m on Tier 2 projects and sub-programmes. This investment includes £106m of enhancement (including flooding), £38m of SR15 Completion, £57m of growth, -£8m of support and £397m in asset replacement, planned repair and refurbishment. Responsive repair and refurbishment expenditure was £177m which takes the total investment to £766m. These investment levels are on track to deliver in line with our Delivery Plan 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 787, against a target range of 757 to 872 points. For the 3 delivery gates, progress is:

• Start On Site – 219 points against a target range of 186 to 230 points
• Acceptance - 291 points against a target range of 291 to 333 points
• Financial Completion - 277 points against a target range of 280 to 309 points

The performance of projects starting on site remains strong and well within the target range. The performance of the 'Acceptance' milestone continues to improve and has returned to be within target range albeit at the lower threshold. It is forecast to continue to recover in Q4 and remain in the target range to year end.

The financial completion milestone has remained 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.

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, deep dives on every project have been undertaken and opportunities identified to be explored to see where we can advance the projects to meeting the SR15 commitments sooner. 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. It is noted that the meeting with SEPA in Q3 did not happen.

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 Q3 2023/24 the IFAC indicator continues to be outside the target range at -9.1%. 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 will be given in the Q4 2023/24 report. The risks being faced continued in Q3, and our delivery teams remain focused on the mitigation actions including resequencing of project design, planning and procurement to cater for fluctuating prices and materials shortages.

Specific mitigation actions involving a cross partner approach have been identified to address the risks and impacts related to the demand for experienced resource in Scotland that continues. Both Scottish Water and their delivery partners are experiencing losses of key resource to other sectors (mostly the energy sector) who offer greater reward packages.

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

In November, the Short Life Task Group (SLTG) agreed the definitions of outputs and outcomes with WICS, as well as agreeing a number of other measurable terms that will allow for effective reporting of the impact of investment at different levels (including definitions of service outcomes and service sub-outcomes) and which provide a bridge between measurable outputs and the high-level outcomes definition.

In addition, Scottish Water has recently produced an interim investment baseline for further discussion with WICS, which sets out investments by Management Approach (MA), together with the outputs resulting from each investment. This is the first time this output information has been provided and the investment baseline is still being developed in a number of respects, including:

• The next iteration of the baseline will be structured by asset category, rather than SW MA;
• The outputs information continues to be refined and improved to ensure accuracy, relevance and comparability across the investment programme.

The aim is for Scottish Water and WICS to agree an appropriate investment baseline template by March 2024, with this template then used to report performance as part of the AR24 process.

2.5 Conclusions

The IG is invited to note that at the end of Q3 2023/24:

• The overall IPOD indicator is within the target range of 757 to 872 points at 787 points and our forecast shows that the IPOD indicator will remain within target range for the rest of the year.
• G100 (Acceptance) has returned to be within target range of 291 to 333 points.
• There is one area where the IPOD is outside of the target range - G110 (Financial Completion). We are 3 points below the target range for this milestone. 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.
• The SR15 completion programme remains a concern, where 109 projects (63 "delayed projects" and 46 "Planned projects") have been delivered against a Q3 forecast of 139 projects (84 "delayed projects" and 55 "Planned projects"). This performance has been due to a combination of changes in scope and third-party challenges on already complex projects.