Building bridges: alliancing deals need to be nurtured

Morrison chief executive Charles Morrison tells Janet Wood what it's going to take to deliver success on the ground in 2010-15.

Even before the final determinations for electricity network operators water companies came out, Charles Morrison, chief executive of Morrison Utility Services, says his company was a hive of activity planning for 2010-15. The company, bound up entirely in the utilities business, had been briefed by prospective customers on their expectations and was already working on framework contracts for the next period.

Morrison says the big tenders take six months. And for utilities now it is not just about price, or the number of holes dug and wires or pipes laid. It is about the capability to deliver safety and compliance. Many work programmes are delivered through alliance or partnership contracts. Says Morrison: "If that sounds like it is a nice cosy relationship, it's not. It's sometimes tougher [than old-style contracts]. It is a privilege to be in a long-term framework. You don't want to abuse that privilege - we have to continue to reinvest in it. If any client or contractor thinks it will run itself, they are absolutely wrong."

Team management

He elaborates that it is not just a case of setting up a team and letting it run. "Each year you have to calibrate it. It has to have a good commercial edge. It's not good for us or for the client if it doesn't. You need to maintain a relationship, but don't get too cosy." In some cases that means Morrison Utility Services and its clients have created a virtual business, driven as if it was a joint venture company. "We have a steering committee which acts like a board and that's where the creative tension is," Morrison explains.

He says that what is really helpful for a company like his in partnership working is long-term visibility - ideally, up to a year in advance. He explains: "We have developed - as other contractors have - migration plans on where we want to be. Where can we attack and get efficiency. Take trenchless working: if the client isn't designing for trenchless technology, you can't benefit from it."

Innovation by coalition

Regulators and utilities may call for innovation, but Morrison says that innovation has to emerge from the partnership. "Where does innovation come from? Look at Yorkshire Water. The starting point is the coalition and we have bedded that down now. We are waiting for next year's budget, which is a step on from the determination. We have got guys working with them on the step-change plans. They are asking how we can deliver the outputs - the work that has to be done - for the price. It might be co-locating, it might be that we don't have two sets of IT systems. We have an integrated team. Then we ask, why should Morrison Utility Services provide plant and equipment when the client has that in their yard?"

Morrison adds that efficiencies can come from anywhere. "There isn't one silver bullet. It's all the time trying to find efficiencies, where you get more for less."

Utility focus

According to the chief, his company's position as a pure-play utilities contractor means it is very invested in its clients. "If we were different, we might have 35 clients. In fact, we have 12 or 13. That's what keeps me awake at nights. We try not to lose our clients. If we do, these are all five-year spend programmes and it means you are out of the thinking and it's very difficult to come back. [Utilities] are developing their ideas all the time and they will do that with the existing supply chain. We try to develop additional services as well as the main contract."

Morrison has also seen big changes in working practices, thanks to the streetworks permitting and noticing that resulted from the Traffic Management Act (TMA).
"Two or three years ago work would come in and it would be reactive," He says. "But also you could flex it. With TMA that's denied to you. It is forcing clients and us to be more organised. They have to start engineering works in advance. We have to allow a three-month lead-in to get noticing in and approvals."

He can't see signs yet of co-ordinating work across utilities. Client spending plans and work profiles are planned over a few years, he says, and it is too much to expect them to talk to each other. In any case, "streetworks need local authority approval and they don't want water and gas ripping up the streets at the same time".

Private equity owner

Eighteen months after Morrison Utility Services was sold by AWG to private equity groups Cognetas and Englefield Capital, Morrison thinks he has a good working relationship with the new owners, although he admits he had concerns when the sale first went ahead.

"You can't underestimate the strength of the AWG balance sheet," he says. "And there is a perception in private equity that every penny is a prisoner, but I can honestly say that I've not found that the case so far." To his relief. "If you are on a long-term contract you have got to invest in it - in terms of training, plant and equipment. I was genuinely concerned about the private equity guys, that they would stop the reinvestment. But we were encouraged to increase our capital expenditure. True, they challenged us on costs, but in areas they pushed us to spend. They really get to know your business and try to expand it."

Impact of recession

With big utility spend programmes, most of Morrison Utility Services' business has been relatively unscathed by the recession. The exception has been the new connections business. Morrison explains: "We did have a multi-utility business, doing new connections into housing developments. But at the moment ... we have had to cut that back. A lot of the developers shut up shop overnight. The banks stopped the money coming through and a lot of the housing developments that were geared up, or even started, were just mothballed.

"So where we have connections businesses, for example for Thames Water or National Grid, we have moved them over to alternative work. Where it was exclusively in the housing market we have had to cut back. We estimate we have lost up to 10 per cent of our turnover due to the decline."

He says that utilities' spending programmes could be cut because of the effect of a negative retail price index. In that case: "We are not in the business of maintaining resource levels that are inefficient for the client spend. This is where it all comes back to clients recognising that they should give us long-term visibility and realism over what to expect so that we can optimise the use of our most precious resource: our people."

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