ADELAIDE SERVICES ALLIANCE

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1 ADELAIDE SERVICES ALLIANCE Annelise Avril 1, Mark Gobbie 2 1. Allwater, Adelaide, SA, Australia 2. SA Water, Adelaide, SA, Australia ABSTRACT In October 2009 the State Government endorsed a new outsourced services alliance contract model for the operations and maintenance of metropolitan Adelaide s water and wastewater systems. The new arrangements commenced at the expiry of the previous management services contract in mid This paper reflects on the performance of the Adelaide Services Alliance during its first three and a half years of operation to examine whether the original objectives of this model have been realised. In particular the paper examines the benefits realised for the customer and client as well as providing a forward look as to where the alliance is heading in the coming years. INTRODUCTION SA Water is responsible for delivering water and wastewater services to over 1.2 million residents in Adelaide s metropolitan area. In October SA Water undertook an exhaustive procurement process to select a successful proponent to partner with in a 10-year services alliance contract to operate and maintain its metropolitan Adelaide water, wastewater and recycled water systems. In February 2011, Allwater, a joint venture between Transfield Services, Suez Environnement and Degremont was announced as the successful proponent, and the Adelaide Services Alliance was formed (refer logo in Figure 1). Figure 1: Adelaide Services Alliance logo In addition to introducing a new form of operations and maintenance contract, SA Water took the opportunity to modify the scope of works applying in the previous contract. This involved insourcing some functions common to its metropolitan and regional operations such as strategic asset management and the Customer Service Centre, as well as letting a separate relationship-style contract for the delivery of the mid-sized metropolitan capital works projects. All the new arrangements commenced on 1 July 2011 and have been running successfully for just over three and a half years. Payment is based on reimbursement of all direct costs including a pre-agreed profit margin, plus a pre-agreed lump sum for corporate overheads. The same margin applies whether the work being done if operating or capital expenditure. The services fees (margin plus corporate overhead) are at risk if the net sum of the incentives is negative. METHODOLOGY Original objectives Alliance contracts have been widely and successfully used across Australia for many years, particularly for large, complex construction projects. The concept is for the client and its alliance partner or partners to work collaboratively, utilising the best skills and resources of each partner, under a shared risk and reward arrangement. It is not however a model that has been widely adopted in operations and maintenance service contracts nor in South Australia generally. SA Water s only previous experience with alliancing was with the CityGreen Alliance that successfully delivered the $76m Glenelg to Adelaide Recycled Water Scheme in After an Australia-wide examination of many service delivery models, the outsourced alliance option with revised scope was chosen on the basis it would provide: Best value customer service through a onestop-shop for all general, billing and service queries and priority based field service response to faults Joint management of operations to ensure alignment of commercial and performance goals and utilisation of strengths from each partner organisation.

2 Flexibility to manage future business directions and priorities, such as economic regulation and other water industry reforms Improved asset management through the separation of maintenance and capital works delivery, to encourage optimal life cycling costing Managing the customer interface was particularly important to SA Water, who was about to embark on a strategic customer driven agenda. At the time SA Water were more interested in seeking added value from its alliance partner than pure cost savings, though this is changing with greater pressure now on service affordability. The contract was of sufficient size to be attractive to the large multi-national water service providers. The provision of international expertise was an important aim in the previous contract and remained so with the alliance contract. The collaborative nature of the alliance was expected to make collaboration and knowledge transfer easier. Particular areas of interest for SA Water were treatment plant optimisation and computerised work management systems. The joint management arrangements afforded by the alliance model was particularly appealing to SA Water, as a means of ensuring greater influence on key operational and risk mitigation initiatives, as well as investment priorities. These arrangements apply both at the strategic and tactical level. The Alliance Leadership Team made up of Senior Executives from all the alliance partners, operate like a board of management, providing direction and governance to the Allwater Management Team. They have extensive financial and administrative delegations to ensure prompt, consensus-based decision making. The Allwater Management Team also comprises representatives from all partner organisations, with selection being based on a best for alliance basis. The alliance model allows for SA Water employees to be seconded to Allwater in any position. Initially secondments were used to fill important governance roles in finance and water quality management. Now this has been expanded to provide development opportunities for treatment engineers and project coordinators. It was also foreseen that the alliance model would assist in the joint development and delivery of research and innovation projects. SA Water already had established links with local universities and research organisations and was keen to draw on the extensive research capability of an international company such as Suez Environnement. Since its conception the alliance model has generated considerable interest from both interstate and overseas utilities looking to find an alternative to a traditional hard-dollar contract. After visiting Adelaide they were much better placed to assess whether they had the necessary size of operation, management commitment and political environment needed for alliances to be successful. Contract Procurement The alliance contract was procured using an initial call for Expressions of Interest, followed by an extensive Request for Proposal (RFP) phase with two shortlisted proponents. Selection was then based on which proponent provided the greater value in terms of technical capability, management team compatibility and commercial alignment. Assessment was conducted throughout the sixteen week RFP phase though assessor observations at a series of interactive workshops, presentations and a scenario exercise. A key element of the process was the joint development of the Alliance Agreement and associated supporting documentation by the commercial teams from SA Water and both proponents. This meant at the end of the RFP a contract acceptable to all parties was largely ready for signoff. The normal contentious areas of liability, performance targets and incentive arrangements were agreed to by both Proponents during the RFP phase, leaving only a few of the minor exhibits to finalise following selection of the successful proponent. The other benefit of such an interactive RFP process was that SA Water had ample opportunity to get to know and assess the performance of the proposed management team members from both proponents, giving greater confidence in the final selection. Operating in an alliance requires a different approach from both client and partner, so ensuring the managers involved display good alliancing behaviour, particularly under pressure is paramount to ensuring a successful contract. DISCUSSION AND RESULT ANALYSIS Benefits to the customer and community (a) Customer relations Bringing the customer contact function back inhouse was a key objective of the alliance contract, highlighted by the commencement of a 24/7 Customer Service Centre. Customer surveys have consistently rated the level of satisfaction of the Service Centre at the upper end of the benchmark range of 80% - 89%, with calls being promptly answered by local staff being particularly valued. The Allwater field crews have consistently rated in

3 the best practice range of 90% or more for their onsite fault repair work. The one area that has not always met the benchmark range is timeliness to attend faults. The flexibility in the contract has enabled performance targets in this area to be strengthened in Year 3 of the contract. Allwater and SA Water are working closely together to improve response times through effective management of backlogs, accurate prioritisation of jobs and active management of customer expectations at the time the fault is reported. With the change in the contract, the opportunity was taken to centralise all on-air media contact within SA Water. This was done to ensure consistency of message and avoid public confusion of the ownership of assets. Allwater assists the SA Water media team with the provision of timely operational information on incidents and briefing notes for Ministerial use. (b) Service provision Another of the objectives of the alliance model was to combine local SA Water knowledge with the international expertise of the Alliance partners to find smart, tailored solutions to improving the quality and efficiency of the service delivered to SA Water s metropolitan customers. A good example of this approach is a recent proposal from Allwater to modulate the water pressure at night in some targeted areas of the network to reduce the frequency of burst mains. The correlation of pressure and burst frequency is well documented and has been used elsewhere by Degremont as an alternative mitigation strategy to expensive pipe replacement. Concerned lowering pressures overnight might not be well received by customers, SA Water tested this idea with focus groups during their 2014 customer engagement program and received resounding support. The feasibility study is now complete with implementation scheduled to commence in Adelaide is often faced with particularly challenging raw water quality and the alliance model has enabled Allwater to draw on the expertise of its international parent companies to come to Adelaide to assist local operators optimise the existing water treatment plants. Such actions have seen reduction in turbidity levels at all plants and in some cases chemical dose rates as well, thus improving water quality for customers and lowering operating costs (refer Figure 3). Figure 3: Turbidity level improvement at Myponga Water Treatment Plant SA Water has a regulatory long term target to reduce nitrogen discharge to the Gulf, based on the Adelaide Coastal Water s Study. A purely capital investment solution to meet this target will be prohibitively expensive, so operational improvements and additional reuse are two strategies SA Water is keen to pursue to avoid undue pressure on future water prices. Allwater has also worked closely with SA Water on several joint exercises to reduce the nitrogen load in effluent discharged from the wastewater treatment plants at Bolivar, Glenelg and Christies Beach to Gulf St Vincent, providing environmental benefits to the community (refer Figure 4). Figure 4: Reduction in Nitrogen load to the Gulf from Bolivar Wastewater Treatment Plant With the same aim in mind, Allwater has conducted a joint pilot project at the Bolivar Wastewater Treatment Plant, based on an existing technology developed by Parent Company, Degremont called Cleargreen. This process uses a specific type of biomass (Anamox bacteria), which converts Ammonia into gaseous Nitrogen with limited need for oxygen, one of the main drivers of power use at treatment plants. SA Water was already working with its local research partners on a similar process and was able to utilise their experience on the project. The outcomes of this ground breaking work are expected to lead to a full scale plant offering

4 considerable savings in aeration and lower Nitrogen loads to the Gulf. Benefits to the Client (a) Contract Flexibility One of the key drivers in changing its contract model was to provide flexibility to readily adapt to changes in business environment. The contract was written with this in mind by providing broad authority to the Alliance Leadership Team to vary the contract in the event of service change needs, new legislation or regulatory requirements. This authority extends to changes in scope and performance framework, with only changes to the main agreement and the payment schedule needing to be referred to the Chief Executives of the Alliance Partners for approval. A recent example of this was a need to accelerate the existing tank cleaning program in Adelaide to meet an identified water quality need raised by Allwater and take advantage of aligning the cleaning with a SA Water asset inspection initiative. A business case was prepared by Allwater and submitted to the Alliance Leadership Team for approval of the additional budget which allowed the project to be quickly initiated and the savings and water quality benefits realised. The contract has an extensive set of performance measures, to cover the business as usual services. In addition to this there are a set of stretch targets, which carry positive incentives for their achievement. At the start of each financial year the Alliance Leadership Team determines which measures will apply, based on business need at the time. For example, when an improvement in the satisfaction of metropolitan business customers was identified through SA Water s quarterly customer surveys a new value add target was introduced to incentivise its achievement, as it was acknowledged extra effort and resources would be needed. An example of the alliance contract accommodating a changing business need came with the introduction of Major Hazard Facility (MHF) legislation as part of the new Work Health and Safety Act, The alliance contract was able to be easily amended to accommodate the new responsibilities for both SA Water as the MHF licence holder and Allwater as the Site Operator. Allwater also assisted SA Water with the preparation of the Safety Case for one of the determined MHF sites. (b) Energy and Chemical savings Two major cost inputs to the operation and maintenance of the Adelaide systems are power and chemicals. In the previous contract, both were excluded from the scope and paid directly by SA Water to avoid paying margin. The downside with this was it reduced the incentive for the contract partner to reduce the use of both through process optimisation, product substitution, retendering or on-site generation. Allwater has adopted all four of these strategies with considerable success. With the help of technical experts from the Parent companies, process improvements have been made at all the major treatment plants. Chemicals such as molasses have been replaced with lower cost, liquid sugar. The main treatment chemicals are purchased collectively with SA Water and its regional treatment plant operator to obtain bulk buying discounts. Capital investment by SA Water in gas engines has also assisted in increasing onsite power generation and thereby lessening the need for imported power. Finally one of the alliance research and innovation projects on co-digestion power generation at Glenelg Wastewater Treatment Plant has exceeded all expectations. With input from SA Water s Trade waste group, liquid waste from local food industries were used to boost the production of biogas. The plant now over 85% self-sufficient for all its energy needs (refer Figure 4 below). Power (MWH/month) GLENELG WWTP POWER USAGE GENERATION Power Imported Ausgrid Actual Power Generated onsite by Natural Gas Power Generated onsite by Biogas % Power Generated with Biogas % Power Generated with Biogas YTD Actual % Target of Power generated with Biogas Figure 4: Increase in power generation at Glenelg Wastewater Treatment Plant Such cooperative initiatives have been made possible by the partnering nature and shared risk/reward mechanism of the alliance contract. (c) Safety Safety is a major focus area for both Allwater and SA Water. Allwater has achieved an enviable record of no lost time injuries since March Both organisations share ideas on how to make their respective worksites even safer. Two Allwater initiatives that SA Water is currently considering are engaging a physiotherapist to visit worksites regularly and installing an Integrated Vehicle Management System in its vehicle fleet. Allwater Onsite Generation (%)

5 has found the former has greatly reduced the incidence of employees on restricted work duties, while the latter has been effective in improving lone worker safety and driver behaviour. Such sharing of ideas is made easier by the alliance model, where all input is reimbursed and access to each other s worksites is easier. (d) Asset Management The objective of separating strategic asset management, operations and capital works delivery has been achieved, though not without its challenges. The priorities of each group are quite different and managing the interfaces requires special attention. Never-the-less SA Water s capital works delivery partner, PMP Solutions has performed well, gaining national recognition for their program management work. SA Water has also engaged one of Allwater s parent companies, Degremont to assist them review their preventive maintenance programs based on asset criticality. Initial indications from two trial sites show substantial savings will be realised from the approach. SA Water now intends to extend the criticality assessments to all metropolitan and regional areas during 2015, with the aim of having new preventive maintenance schedules ready in Finally the objective of shared management structures leading to beneficial investment decisions has been evidenced recently with the decision to develop a new work scheduling and dispatching system. The alliance contract will allow a new system to be jointly developed for eventual use by both Allwater and SA Water s regional employees. Without the metro work volumes the project could not be justified on the regional work alone. (e) Transparency SA Water has a clear objective in finding a contract model that provided transparency not only with financial data but also performance data. This is currently done largely through the interfacing of Allwater s financial and works management systems with SA Water s corporate systems. The new work management system will be developed to run on SA Water s corporate work management system, which Allwater will be able to interface with, allowing Allwater to cease use of its electronic dispatching system. All work order information is held within SA Water s corporate systems, providing timely information to the Customer Service Centre on fault status and to asset managers on maintenance histories CONCLUSION After three years of operation the Alliance is now delivering the level of customer service expected by the utility regulator. The contract itself has proved flexible, with any changes in scope or service level being able to be effected quickly through consensus decision making. Delivery of the midsized capital works projects has improved and a criticality based asset maintenance program is being jointly developed. While there have been a number of changes in management personnel from all Alliance Partners, the relationship has continued to be strong throughout, largely due to the structures in place and the selection of replacements suited to working in an alliance. Annual health of relationship surveys are conducted to check the level of alignment between the Allwater s and SA Water s managers. The vision for the future is to see spontaneous collaboration between Allwater and SA Water beyond the scope of usual business collaboration, Just some of the opportunities include energy management, maintenance optimisation and service provision across the boundary with SA Water s regional operations group. One such avenue for collaboration is through Suez Environnement s worldwide InnoTech program. Allwater was recently successful in securing funding for a research project on the assessment of sediment deposition in drinking water networks in Adelaide. The project is being led by SA Water scientists and will help to better target pipe cleaning activities. For customers, the drivers will continue to be affordability and service provision. SA Water is developing its digital strategy which will revolutionise customer engagement as well as jointly developing with Allwater a new work management system for their field workforces. Allwater has also provided input into SA Water s next Regulatory Business Plan, as well as assisting with business development opportunities in the water maintenance and biosolids space. Service affordability is of increasing importance and finding further ways of incentivising for cost reduction will be an area of focus this year. ACKNOWLEDGMENT This paper was prepared with assistance from members of the Metropolitan Adelaide Services Delivery Project team, who procured the Alliance Contract.

6 REFERENCES Business case for the Metroplitan Adelaide Service Delivery Project, 2009, SA Water. Stories of our Succes, Value for Money Report , Allwater.

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