United Utilities

Procurement policy
Engineering services are provided by Montgomery Watson Harza, which liaises with the company's Process Design Group to help ensure that signature design and asset standardisation is obtained. To rationalise the supply chain of strategic equipment, the water company has entered into 42 term contracts for the design, supply and installation of key equipment, secured through the use of e-commerce reverse auctions. The water company has secured framework agreements with three regional contractors. Tender target costs are negotiated for each contract entered into under framework agreements, and contractors are encouraged to minimise actual costs through the use of a "pain/gain" mechanism, which will apportion savings/excesses to the tender target cost in accordance with the agreed formula.

Current and future projects
United Utilities is one of the largest utility investors in the UK. The company's major business is water, and this dominates investment. According to the most recent Ofwat data, United Utilities invested close to £410m in clean and wastewater in 2001/02, compared with £375m in the previous year. Infrastructure renewals, which deal with the capital maintenance of underground assets and are included in total capital expenditure data, totalled £81m in 2001/02, down from £92m in the previous year. Overall, water investment was split 50:50 between clean water and wastewater.

In setting North West Water's charges for the period April 2000 to March 2005, Ofwat forecast that the company would need to invest an average of £603m a year (May 1999 prices) or more than £3bn in total. Allowing for increased efficiency, the company expects to invest £2.4bn, or nearly £500m a year over the five-year period. However, as United Utilities invested only £750m in the first two years of the current review period, it will have to sharply increase water investment for the remaining four years. In broad terms this suggests that investment will have to rise to about £600m for each of the next three years. In the six months to September 2002, United Utilities invested £239m in its water services assets. Construction is currently under way on 90 sites, and this will rise to 480 in 2003/04 due to an increase in sewer overflow projects.

Essential information
United Utilities is split into four divisions: licensed multi-utility operations; asset management services; customer management outsourcing and telecommunications. Multi-utility operations include water and electricity distribution. Investment in the latter totalled about £100m in 2001/02. Asset management services is a major growth area for the company. Turnover almost doubled to £286m in 2001/02. Activities include the development of renewable energy sources, asset management and meter connections. The group has recently won a string of meter connection contracts with Welsh Water, TXU and British Gas. Elsewhere, the group plans to increase its renewable energy portfolio to 200 MW over the next five years. Projects include off- and on-shore wind power (80 MW at Scarweather Sands, South Wales), as well as landfill gas.