Response to the Infrastructure UK peer review of flood and coastal risk management November 2015

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Overview

Defra and the Environment Agency welcome the recommendations of the Infrastructure UK peer review of flood and coastal risk management (the peer review). As a result of the peer review’s support for changes to the asset management programme, the Environment Agency will accelerate existing improvement plans.

The Environment Agency estimates that implementing its efficiency plan and the peer review’s recommendations will create efficiencies of 15% by April 2021 compared to 2014 to 2015. Savings will be seen from 2016 to 2017 onwards and there will be a real terms saving of £25 million a year from April 2021. Addressing the recommendations will require investment of around £22 million over 5 years.

The Environment Agency has estimated some of the efficiencies since many of the projects required to implement the recommendations do not yet have fully developed business cases. Individual project benefits will be provided as each project’s business case is developed.

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Contents Response to the Infrastructure UK peer review of flood and coastal risk management ......... 1

Environment Agency's vision for asset management ................................................................ 5

Transformation Programme ......................................................................................................... 5

Understanding assets .................................................................................................................. 5

Managing work ............................................................................................................................ 5

Investing in the right places ......................................................................................................... 6

Optimising investment ................................................................................................................. 6

Making best use of investment .................................................................................................... 6

Context ........................................................................................................................................ 6

Response to recommendations A and B ..................................................................................... 7

Summary ..................................................................................................................................... 7

Customer involvement ................................................................................................................. 7

Setting a minimum standard for involvement in flood and coastal risk management (FCRM) .................................... 7

Improving communication of the maintenance programme online.............................................................................. 8

Improved involvement since the 2013 to 2014 winter floods ...................................................................................... 8

Customer legitimacy .................................................................................................................... 9

Funding allocation ....................................................................................................................... 9

Service incentive mechanism ...................................................................................................... 9

Accountability .............................................................................................................................. 9

Working with Regional Flood and Coastal Committees (RFCCs) ................................................ 9

Properties benefiting from maintenance measure (KPI965) ....................................................... 10

Response to recommendation C ............................................................................................... 10

Summary ................................................................................................................................... 10

Improving governance across the capital investment programme ............................................. 10

Achieving asset management accreditation (ISO 55000) .......................................................... 11

Response to recommendation D ............................................................................................... 12

Summary ................................................................................................................................... 12

Establishing an asset management action plan ......................................................................... 12

Creating asset management capacity - phase 2 (CAMC2) ........................................................ 13

Finance systems ....................................................................................................................... 13

Long-term investment scenarios (LTIS) ..................................................................................... 13

Data standards - Business Information Modelling (BIM) ............................................................ 14

Timeline for BIM ....................................................................................................................................................... 14

Response to recommendations E, F and G .............................................................................. 14

Summary ................................................................................................................................... 14

Accelerating phase 3 of CAMC .................................................................................................. 15

CAMC3 timeline........................................................................................................................................................ 16

Risk assessment level ............................................................................................................... 16

Central analytical and modelling ................................................................................................ 16

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Whole-life asset investment ....................................................................................................... 16

Response to recommendation H ............................................................................................... 17

Summary ................................................................................................................................... 17

Current supply chain model ....................................................................................................... 17

Better use of the supply chain ................................................................................................... 18

Long-term maintenance settlement ........................................................................................... 18

Response to recommendation I ................................................................................................. 19

Summary ................................................................................................................................... 19

Partnership funding review ........................................................................................................ 19

Simplifying the grant approvals process (grant web portal) ........................................................ 19

Supporting risk management authorities (RMAs) with CAMC3 .................................................. 20

RMA capacity building ............................................................................................................... 20

Response to recommendation J ................................................................................................ 20

Summary ................................................................................................................................... 20

Conveyance KPI ........................................................................................................................ 20

Dredging locations ..................................................................................................................... 21

Channel maintenance handbook ............................................................................................... 21

Response to recommendation K ............................................................................................... 21

Summary ................................................................................................................................... 21

Dealing with third party asset guidance ..................................................................................... 22

Low-risk uneconomic assets ...................................................................................................... 22

Asset management efficiency plan ............................................................................................ 22

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Explanation of efficiencies ......................................................................................................... 25

Appendix 1 .................................................................................................................................. 29

Recommendations in full ........................................................................................................... 29

Table 2 - Efficiency based on £176m revenue funding

YearTotal to

2021

Source Activity/project 15/16 16/17 17/18 18/19 19/20 20/21 20/21

AM Programme CAMC2 0.00 1.00 3.00 5.00 5.00 5.00 19.00

AM programme Carbon saving 0.10 0.15 0.20 0.25 0.25 0.25 1.20

AM Programme CMMS on the cloud 0.04 0.11 0.18 0.25 0.32 0.39 1.29

AM programme Ops managers efficiency plan 1.10 2.20 3.30 4.40 5.50 6.60 23.10

AM programme Effectiveness (protocol) 0.05 0.15 0.35 0.75 1.25 1.75 4.30

AM programme asset inspection ipad app* 0.20 0.40 0.40 0.40 0.40 0.40 2.20

AM programme Joint T98/PSRA inspections* 0.01 0.20 0.20 0.20 0.20 0.20 1.01

Operations National Fleet Services 0.25 0.50 0.75 1.00 1.25 1.50 5.25

AM programme CAMC3 - allocation 0.00 0.00 1.00 2.00 3.00 4.00 10.00

Peer review CAMC3 - modelling 0.00 0.00 0.00 0.00 1.00 2.00 3.00

Peer review CAMC 3 - optimisation 0.00 0.00 0.00 0.00 0.00 1.00 1.00

Peer review ISO 55000 0.00 0.00 0.10 0.20 0.50 0.50 1.30

Peer review Better use of supply chain 0.20 0.50 1.00 1.50 2.00 2.30 7.50

Total in year efficiency 1.95 5.21 10.48 15.95 20.67 25.89 80.15

Culmulative in year efficiency £M 1.95 7.16 17.64 33.59 54.26 80.15

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Environment Agency's vision for asset management Transformation Programme The Environment Agency is transforming how it manages its assets. It is moving from paper-based working and a ‘find and fix’ approach to a proactive, ‘predict and prevent’ approach using digital systems. To do this, the organisation needs better information about how different assets work together as a system, along with historical condition data, so that it can make reliable predictions. It will achieve this through the Creating Asset Management Capacity (CAMC) programme. When CAMC is complete, Environment Agency staff will be able to access asset level data and target the most appropriate work to the right place. Getting asset management work right first time will save money and improve the flood risk management service. By 2021 the Environment Agency will be at the forefront of asset management. By implementing the recommendations of the peer review it will bring asset management up to the highest standards, meet asset condition targets and save around 15% (£26 million) a year from 2021 and have achieved around £80 million worth of efficiencies

The Environment Agency will improve the safety and security of people and property protected by flood risk assets. The organisation wants to be more confident when it makes investment decisions, carrying out work in the most critical places and keeping England's flood risk assets in good working order. To make sure this happens, it wants to improve its asset management capabilities by better understanding what assets it has, how they perform and what it needs to do to keep them working well.

Understanding assets Asset data is complex and diverse and it is difficult to make it easily accessible to Environment Agency staff and others. The Environment Agency recognises the opportunity that developments in information mobility, mobile technologies and analytics solutions offer. These systems will also provide greater insight into asset degradation, the effectiveness of past work and predicted future actions. Knowing more about assets means the Environment Agency will focus investment where it will be most effective. It will increase knowledge of assets by improving the data recorded and information systems. It will continue to encourage others to manage their assets to the same standards so that there is no weak link in the lines of defence.

Managing work Phase 2 of the Creating Asset Management Capacity programme (CAMC2) will improve the organisation's approach to planning maintenance work, generating work schedules and recording work done to an asset. The Environment Agency’s central planning team will be able to generate work orders to assets and request when the work is needed by. The team will be able to track progress and record the time and costs of the work. They will know when the work is complete and the final condition of the asset. Fewer people will be managing the work, which will be easier to track and report on. The Environment Agency has already reduced its staff by 180, so this capability is urgently required to support the current workforce.

Managing work centrally will allow the Environment Agency to react more quickly during flooding or to respond to an environment incident. Using field technology such as tablets, it will be able to instruct and record work activities, allowing it to better target work where it is needed.

CAMC2 will also establish the Environment Agency’s efficiency baseline, from which future efficiencies and progress in achieving the 15% savings will be measured. CAMC2 will produce a national maintenance programme based on the same work standards and work activities across the country, ensuring consistency of maintenance service. The Environment Agency will improve data sets such as height and crest level of defences. This will improve risk mapping in the National

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Flood Risk Assessment tool (NAFRA), which, in turn, will improve assessment of flood risk benefit used in prioritising maintenance work.

Investing in the right places CAMC2 will replace the current approach to maintenance where the Environment Agency considers the identified and minimum needs of asset systems. Currently the organisation funds all systems’ minimum needs and those identified needs of the highest cost benefit ratio where possible. Using CAMC2 the Environment Agency will fund maintenance at asset rather than system level and provide higher maintenance standards to assets with greatest risk and benefit. This will make sure that it allocates both capital and revenue funding to the most critical assets, protecting the greatest number of people and property.

Optimising investment Phase 3 of the Creating Asset Management Capacity programme (CAMC3) will introduce a simplified approach to capital allocation for the Environment Agency and other risk management authorities. The Environment Agency will optimise its investment programmes using multi criteria techniques and financial modelling. This will include considering factors such as properties protected, benefit cost and partnership funding to identify the most beneficial schemes and prioritise these in a programme. CAMC3 will enable scenario modelling to compare different funding options, changes in criteria and different outcomes. This will allow the Environment Agency to accommodate changes in funding and planning with minimal impact on outcomes and with fewer staff.

Making best use of investment Flood risk management is not just a task for the Environment Agency. Local authorities, internal drainage boards (IDBs) and the public contribute.

The Environment Agency will use public service co-operation agreements (PSCAs) more widely to share maintenance work between risk management authorities, resulting in savings to both parties. It will make better use of suppliers for maintenance and incident response. It will also use framework contractors more to carry out incident response activities such as closing floodgates, clearing watercourses and trash screens, sandbagging defences and erecting temporary defences.

Context The Environment Agency has permissive powers to manage flood and coastal defences with a value of £24 billion and supervise assets worth a further £10 billion across England. The average benefit to cost ratio of maintaining these assets is around 15:1. The Environment Agency's maintenance review document 'Technical and legal background to asset maintenance' shows how the overall benefit cost of asset maintenance has been derived. Investing in asset maintenance makes sure assets operate when they are needed, reduces asset deterioration, extends asset life, and reduces flood risk to people, property, businesses, infrastructure, and agricultural land. In 2014 to 2015 the work of the Environment Agency and other risk management authorities saved the economy £1.95 billion in flood damage costs.

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Response to recommendations A and B Recommendation A - Improve customer legitimacy and deliver an outcomes focus Recommendation B - Improve customer legitimacy within programme prioritisation

Summary The Environment Agency agrees with the need for more customer involvement in decision making and will liaise with and involve communities more, particularly on changes to maintenance programmes and the local impacts of those changes. At present, the Environment Agency consults on maintenance plans with non-government organisations, IDBs and the public before publishing the plans on the GOV.UK website. It is carrying out public opinion surveys to determine how effective its current work with communities is. It will use the results of the surveys to determine how to improve consultation with the public and others in the future. The Environment Agency will continue to publish its plans online and make them easier to follow so that people can readily find the location they are interested in, what work is planned and when it will be done. A longer term funding settlement would enable the Environment Agency to develop longer term maintenance plans. This would improve liaison with customers and give greater confidence in the Environment Agency's ability to implement the plans.

Improved customer liaison will allow the Environment Agency to:

• inform others of the maintenance plans; manage expectations about what maintenance can and can’t be done; and make maintenance decisions clearer

• identify if it needs to make changes to the proposed programme (for example, the timing of maintenance work)

• involve others to identify possible opportunities for efficiency, improved cost effectiveness and a more coordinated approach with other organisations

Greater involvement will also highlight opportunities for local communities, the public, landowners or partner organisations such as IDBs to carry out work where the Environment Agency plans to reduce or stop maintenance. The Environment Agency’s river maintenance pilots in 9 locations explored opportunities to let landowners carry out maintenance. The findings will inform the incorporation of flood defence consents into the environmental permitting regime later in 2015.

Customer involvement

Setting a minimum standard for involvement in flood and coastal risk management (FCRM) The Environment Agency’s proposed minimum approach to involvement is that all its Areas must involve important interested groups in the annual flood and coastal risk management (FCRM) maintenance programme. Each Area should hold a face to face meeting (during September, October or November) with the main interested groups to inform them of the maintenance programme, discuss any changes needed and look for opportunities to coordinate maintenance work. As a minimum, the Environment Agency will liaise with IDBs (where these exist), groups that have expressed concerns and that have a significant interest in the maintenance programme, and Regional Flood and Coastal Committees (RFCCs) who consent the programme.

The Environment Agency work with Natural England, where consent for work is needed. Area teams also involve other risk management authorities, particularly lead local flood authorities, in the maintenance programme. Areas will present a report on the maintenance programme to their RFCC each January.

Environment Agency Areas will also consider (subject to the interest and concerns of local interested groups) district and parish councils; National Farmers' Union (NFU) and Country and

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Land Association representatives; representatives from fisheries and angling trusts; the Royal Society for the Protection of Birds (RSPB); Wildlife Trusts; and the Canal and River Trust. Areas will explore ways to involve landowners indirectly through these groups.

Improving communication of the maintenance programme online The Environment Agency will improve how it communicates the maintenance programme on GOV.UK to make the language and presentation more accessible. CAMC2 will improve data quality on the maintenance programme, sharing a more detailed and accurate picture in a consistent way that is more meaningful to the public. The Environment Agency will make sure it develops CAMC2 to provide national efficiencies and improve communications, for example, by creating a user friendly national map showing annual maintenance programmes.

Improved involvement since the 2013 to 2014 winter floods Maintenance of watercourses became high profile through the media coverage of the winter floods of 2013 to 2014. As a result, the Environment Agency has committed to improve how it liaises with and involves partners and communities on watercourse maintenance. It will involve others in making decisions about and carrying out maintenance activities, giving communities confidence that public money is being spent wisely.

One of the Environment Agency's main goals is for people and communities to be better prepared for and able to take action to manage their flood risk. The organisation will help communities and partners understand their role and responsibilities and the role and responsibilities of others. For example, it will improve its advice on resilience measures by updating and publishing guidance documents for self-help on GOV.UK. This will help people and communities understand how they can get involved and take action to protect themselves more the risk of flooding.

During 2014 to 2015, the Environment Agency carried out a number of initiatives to better understand the evidence from staff and external groups, as well as testing new approaches. These initiatives included:

A joint river maintenance project with Defra looking at 9 pilot locations to inform maintenance regulation through the environmental permitting regime and improve involvement with landowners and communities.

• A desk-top study in consultation with partners including internal drainage boards to identify 1,700 potential locations where dredging could improve river flows. A further review of these sites is being carried out to understand more about the potential flood risk and environmental benefits.

• A market research based project including Environment Agency staff and external interested groups to better understand current involvement in flood and coastal risk management maintenance and what is and isn’t working.

• Involving internal drainage boards on precept funded programmes and determining the level of general drainage charge for the agricultural maintenance programme in the Anglian committees.

• Setting up public sector cooperation agreements with internal drainage boards (IDBs) and other risk management authorities to use resources effectively and efficiently to carry out maintenance activities. To date, the Environment Agency has agreements in place with 22 IDBs, with a further 31 agreed in principle.

• Planning to implement the effectiveness programme in 2016. National Environment Agency teams will lead this programme that will help manage and better plan resources for involving and supporting communities where the maintenance protocol is being applied.

• Field services benchmarking. This work has focused on reviewing the management information the Environment Agency currently has and what it needs in the future to effectively measure field services activity.

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Customer legitimacy Defra and the Environment Agency note the use of public consultation, and in particular, customer challenge groups, in the water industry to gain support for business plans and gauge willingness to pay. Defra and the Environment Agency will encourage RFCCs to consider how they can use the views of local communities in making decisions about funding raised locally, particularly local levy. This will need to be balanced with a clear rationale for central government funding, which will be allocated to maximise the benefits at a national level.

The Environment Agency publishes its commitments in its corporate plan and scorecard:

https://www.gov.uk/government/publications/environment-agency-corporate-plan-2014-to-2016

which it reviews each year. The scorecard currently includes a measure of percentage of assets maintained at target condition. Defra will agree and establish a new risk based measure of its expectations for the Environment Agency’s asset management in line with the recommendation in the peer review.

The Environment Agency routinely carries out public opinion surveys after significant flooding. The surveys capture the views and experience of people who were flooded and their assessment of the performance of the Environment Agency and other Category 1 responders1. Surveys include questions to determine public opinion on maintenance and flood protection. The Environment Agency will use the responses to inform future involvement and maintenance practice from 2016.

Funding allocation The Environment Agency allocates maintenance funding based on a benefit cost ratio of a flood risk system. This is done centrally through a national allocation team using national criteria. This ensures that funding is distributed to the Areas in the most cost effective way possible, is in accordance with HM Treasury Green Book guidance and provides fair and transparent allocation based on risk and value for money. Defra and the Environment Agency believe that this is the right approach as it is consistent across the country, avoids local bias and achieves the best overall return on public investment.

Service incentive mechanism While Defra and the Environment Agency note that the service incentive mechanism is useful for monitoring water company customer satisfaction, as this focuses on telephone and other interactions between customers and water companies, they believe that public opinion surveys are the best way to gauge local community satisfaction with the Environment Agency.

Accountability Defra is accountable for how floods funding is spent and is held to account by the National Audit Office, the Environment, Food and Rural Affairs (Efra) Committee and the Public Accounts Committee. Communities, through local flood action groups, are able to influence local choices through Regional Flood and Coastal Committees. The Environment Agency takes local choices and other local preferences into account when developing the national programme.

Working with Regional Flood and Coastal Committees (RFCCs) RFCCs are an important link to the wider community in their areas. They bring together representatives of lead local flood authorities (LLFAs) and independent members to plan flood risk management in each region, consent to Environment Agency investment programmes and to provide a link between the Environment Agency, LLFAs and local communities.

1 A category 1 responder is defined in the Civil Contingencies Act 2004 and includes local authorities, emergency services and the Environment Agency

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Defra and the Environment Agency continue to work with RFCCs to make decision making clearer. Defra will ask representatives of the water industry to explain how they use customer challenge groups to RFCC chairs, so that they can consider using similar community forums. The Environment Agency is discussing with RFCCs how local representation could be improved through Committees and whether there is scope for more transparency and public accessibility to Committee proceedings. Some suggested improvements include:

• allowing RFCCs to develop a web based community of practice, where the RFCC, the public and partners can liaise on particular issues, exchange ideas and gauge local opinion, encouraging liaison and interaction with public and partners;

• giving clear identities/brands for RFCCs where people know who they are and what their role is allowing involvement with the public where comments/questions/concerns could be raised with the Committee to consider and respond to.

Properties benefiting from maintenance measure (KPI965) Following a piloting exercise, undertaken during 2015, the Environment Agency will introduce an outcomes focused measure of risk (KPI965) during 2016 to 2017. KPI965 takes into account the potential damage, as a result of an asset's condition, to residential property, non-residential property, major roads, railways, arable land and grassland. The Environment Agency currently use KPI965 as an operational measure for assessing the risk associated with asset failure. It is in the process of developing another KPI to measure channel conveyance. When complete, this measure will enable comparison of the benefits of work on defences and structures and the benefits of channel conveyance work. This will improve evidence for investment decisions on assets and channels and help develop future coherent watercourse maintenance plans.

Response to recommendation C Recommendation C - Improve governance and accountability Summary The Environment Agency is clarifying accountability for the FCERM investment programme and has introduced the 5 case HM Treasury business case model for all major projects and programme management. This applies to projects within the capital programme, the majority of which include repairs or replacement of existing assets.

The Environment Agency will pursue ISO 55000 and aim to achieve accreditation by April 2017. This will help to improve clarity in governance and help support the introduction of Building Information Modelling (BIM) standards.

Work on these initiatives has already begun. By improving governance and accountability and introducing ISO 55000, the Environment Agency estimates that it will make an annual efficiency saving of up to £0.5 million a year by 2021 and a total saving of £1.3 million between now and 2021.

Improving governance across the capital investment programme The Environment Agency will make capital programme governance and accountability clearer and work with Defra to simplify the approvals and governance of major projects. To do this, the Environment Agency is carrying out the following activities:

• a national project assurance service, which went live on 1 December 2014, covering the role of project assurance boards (PABs) that is radically simplified

• simplifying the PAB assurance process, which includes aiming to complete assurance in 2 to 4 weeks and provide clear assurance to nominated scheme of delegation approving officers.

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• simplifying the FCERM appraisal guidance and supplementary appraisal guidance notes and making them more accessible

• using the HM Treasury 5 case model for major projects - the Environment Agency is extending this best practice approach to all projects, standardising business case documentation to be consistent with the rest of government. Major projects already follow the 5 case model and full implementation across the capital programme is expected by the end of the year

• reinforcing the use of the short-form application for risk management authority projects up to £250,000, simplifying the assurance processes for smaller projects

There are some modest efficiency savings from these pieces of work, with an average annual saving of around £300,000. By simplifying the processes, taking a risk-based approach and simplifying project assurance and approval, the Environment Agency will spend less time managing project approvals and more time on implementing projects. The Environment Agency estimates that 150 projects (based on a typical programme in 2013 to 2014) progress through formal approvals processes each year, with an average saving of 10 days per project.

Achieving asset management accreditation (ISO 55000) The Environment Agency carried out an assessment of performance against ISO 55000 in 2013. The results showed that it needed to develop asset management further before it could gain accreditation. Since then, the organisation's development plan has included the recommendations from the peer review and other improvements required to meet the standard. The Environment Agency believes that by implementing the current plan and the recommendations of the peer review that it would be able to achieve accreditation within 2 years.

The Environment Agency has allowed for the costs of achieving accreditation within its business plans for the next 2 years. These are mainly staff costs in the region of £100,000 (£50,000 a year for 2 years) and will yield a modest saving of around £200,000 a year.

Achieving accreditation will increase the status of the Environment Agency as a professional asset management organisation, bringing it in line with other infrastructure operators such as Network Rail, Transport for London and the Highways Agency. ISO 55000 accreditation will also help introduce standardised processes, with clear accountability and responsibility for implementing them. This will increase awareness of how everyone contributes to the organisational goals and will help:

• improve clarity of accountability (the line of sight) through the organisation

embed a risk-based approach to managing assets

improve long-term asset maintenance and replacement planning

improve value for money and statutory compliance, giving interested groups more confidence

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Response to recommendation D Recommendation D - Improve asset management datasets Summary The Environment Agency needs to improve the quality of asset data. To achieve this, the organisation is introducing an asset data improvement plan to focus on improving and collecting the most critical asset data.

It aims to have 90% of these data requirements completed for the highest risk assets by April 2017 and 100% completed by April 2018. The process will depend on future systems such as CAMC2 and CAMC3, which will enable improved data storage and access.

CAMC2 will be key to capturing and using future data and will become operational from April 2016. CAMC2 has an approved business case, which identifies significant savings totalling around £8.8 million a year. Some efficiency has already been claimed as part of the recent reorganisation within the Environment Agency. The remaining efficiencies amount to around £5 million a year from 2017 and include the benefits of improving asset data. The CAMC2 efficiency plan shows that the 2 main areas of efficiency will be reduced whole life cost of maintenance (reduced rates for doing work), with a saving of £3 million a year, and improved investment decision in maintenance (better targeting of where the Environment Agency carries out maintenance work), with a saving of £2 million a year.

This means that the total savings from implementing recommendation D are £5 million a year by 2021 and a total of £19 million by 2021.

Establishing an asset management action plan The Environment Agency will make asset information widely available and clearer to support decision making. Supported by national modelling systems, the organisation will continue to develop an asset focused approach, using asset performance as an important factor influencing investment. It is developing a data improvement training programme for staff so that they understand the need to continually monitor and improve data and keep records up to date with the latest information.

In the long term the Environment Agency will ensure data quality through the Building Information Modelling (BIM) programme, which will define standards and determine future information handling systems, resources and processes.

Some asset data improvements are underway through the State of the Nation work This work includes capturing recent flood outlines, updating the flood map and capturing specific asset information such as crest height, which is essential for flood risk modelling.There is a backlog of such data which is being captured centrally and made available to update national processes. A longer term plan for improving and ensuring asset data quality is underway through the CAMC2 project, including a focus on data and information skills and system needs.

The medium-term asset data improvement plan will identify important asset datasets and work to improve the quantity and quality of asset data. Important data that is needed to improve assets includes height of defences, repair history, condition history, asset owner and asset maintainer. Future data requirements will include maintenance/repair costs, asset performance measurements, serviceability metrics, flood impact history and records of near misses.

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Creating asset management capacity - phase 2 (CAMC2) The Environment Agency has a detailed business case2 for CAMC2, which shows significant revenue and capital expenditure efficiencies of £8.8 million a year by 2016, when the system and business change is fully embedded. Some savings have already been made by reducing the number of asset management and field team staff by 180 as part of the FCRM review. For this reason, the Environment Agency has not included all the benefits from CAMC 2 in the projected efficiency savings realised by implementing the recommendations of this review.

The Environment Agency relies on implementing CAMC2 for the long-term sustainability of its organisational structure and the resources committed to work planning and management. It is currently operating with higher risk, and diverting staff from other activities (such as withdrawing from maintaining some assets, supporting the operations efficiency plan and keeping asset records up to date) to support maintenance planning, while waiting for CAMC2 improvements to be implemented.

CAMC2 will provide a work management system. This will provide centrally generated work orders for field staff to carry out asset inspection and repairs. It will also allow field staff to record in the field their work, which assets they have worked on and the time itaken to complete the work. As well as saving time, this information will allow improvements in estimating costs, which will improve planning using recorded evidence. As asset information improves, it will enable better prediction of asset performance, allowing asset interventions before failure occurs. This will reduce the risk of asset failures during flood events. CAMC2 will also provide a significant data management capability. Current Environment Agency systems are limited in the data they hold and access to that data is also restricted. CAMC2 is designed to hold significantly more asset information, essential to support business processes. For example, if records show significant repeated repair of a particular type of floodgate, the Environment Agency may decide that the floodgate is the wrong design and replace it rather than continue to maintain and repair it. The long-term future benefits of this are reduced spend on asset repair and reduced flood risk from asset failure. These benefits will be realised in approximately 3 to 5 years once the asset data is good enough to support this type of decision making.

Finance systems The Environment Agency has upgraded its Integrated Business Information System (IBIS) finance system as part of the integration of finance IT across government. The new system includes the capability to manage multiple funding streams for FCRM projects. Further integration with the finance system will be possible through the introduction of CAMC3. The Environment Agency is also developing a grant web portal in response to feedback from the partnership funding evaluation, which identified improvements to the approval and payment processes. The grant web portal will simplify the grant application process, removing the paper based system allowing grant application and award through the internet and allow tracking of the process by Environment Agency finance systems.

Long-term investment scenarios (LTIS) The Environment Agency’s long-term investment scenarios (LTIS) study was published alongside the 6-year capital investment plan early in 2015. LTIS was produced to provide a long-term estimate of future investment in flood risk based on various future climate and funding scenarios. There are some short-term estimations in LTIS, which are based on the capital funding available in the Environment Agency's 6-year capital investment plan. LTIS uses the estimated state of flood and coastal erosion risk management (FCERM) assets at the end of the 6-year programme as the starting point for the long-term scenarios. Moderate changes in maintenance funding over the next 6 years, as estimated by Environment Agency efficiency plans, and the impact of this on asset condition are within the scenarios assessed in LTIS.

Creating asset management capacity (CAMC), Phase 2 full business case, version 4.0, Environment Agency, January 2013

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Data standards - Business Information Modelling (BIM) The Environment Agency is introducing Business Information Modelling (BIM) standards. This will provide more consistent information needed to manage projects and support asset management decisions. Using BIM the Environment Agency will, for example, move from the current system of storing asset maintenance instructions in manuals to having maintenance instructions on tablets in the field. BIM will also help the Environment Agency in its quest for PAS 55/ISO 55000 accreditation.

Timeline for BIM The Environment Agency has introduced BIM standards into supplier framework documents and developed high level processes to align project and asset management practices to BIM and GSL.

Plans are in place for the roll out of BIM, which include:

• April 2015 to April 2018 - Review current standards and minimum technical requirements.

• From April 2015 - Procure BIM driven projects and introduce the use of digital plan of works on all new projects and those going into detailed design.

• From April 2015 - Expand and enhance data management and modelling capability within projects and asset management.

Response to recommendations E, F and G Recommendation E - Develop asset analytical and modelling capability Recommendation F - Develop risk-based programme optimisation capability

Recommendation G - Optimise on the basis of whole-life cost and benefits

Summary The Environment Agency is planning, through the Creating Asset Management Capacity (CAMC) programme, to improve data quality and IT supporting systems. This recommendation encourages acceleration of CAMC2 and bringing forward work on CAMC3. The Environment Agency has considered accelerating Phase 2 but, as CAMC2 is in progress, with already ambitious implementation dates linked to commercial arrangements with IT suppliers, it cannot introduce CAMC 2 sooner without unacceptable risk to the business. CAMC2 will continue to be implemented as a matter of priority.

CAMC3 is a major business change programme that will help address recommendations E, F and G. As well as improving data quality CAMC3 will help provide a capability for allocation (capital and revenue), scenario modelling, and analysis and programme optimisation. In response to the review, the Environment Agency has brought forward plans for CAMC3 and will work towards a business case approval early in 2016, enabling system procurement during 2016and the use of some system components such as allocation from 2017.

CAMC3 will allow the Environment Agency to consider different scenarios for implementing both the capital and maintenance programmes, which will help identify the most effective programmes to minimise costs and maximise outcomes. CAMC3 will also help identify the optimum balance of capital and maintenance to support the Environment Agency's asset base. By using factors such as asset lifespan and deterioration rates, the Environment Agency will be able to plan asset replacements and major asset repairs before failure occurs. Such interventions will reduce the risk of flooding from asset failure and the additional costs of emergency asset repair.

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Estimated efficiencies from CAMC3 are £7 million a year by 2021, with benefits realised from 2017 when CAMC3 will be used for capital and maintenance allocation. Total efficiencies are estimated at £14 million by 2021.

The £7 million annual efficiencies will be achieved by the following:

• Centralising programming teams into a national service and providing a combined programming service, reducing the number of people involved in this activity as well as making the processes more efficient. Estimates show a saving of about £0.5 million a year.

• Optimisation will enable the right balance between capital and revenue investment in the FCERM asset base. For every pound invested in maintenance, there is a return of around £15 and for capital investment there is a return of £8. By achieving the right balance in capital and maintenance funding a greater return on overall investment can be achieved with more efficiency. Estimates show that the Environment Agency could achieve around £3 million benefit from optimisation each year.

• Targeting investment allows the Environment Agency to direct funding at the most cost beneficial assets (currently done at a system level which is not as targeted). The Environment Agency will prioritise asset repair or replacement by knowing the assets with the greatest benefit cost ratio and by investing in these to optimise benefits. Estimates show around £2 million benefit each year.

• By understanding asset performance better (knowing when assets might fail and therefore when they might need repairing or replacing), the Environment Agency can plan and carry out work in a more measured way before assets fail rather than through inefficient emergency works. Assuming a 20% saving per project on 5 failures a year at an average cost of £1.5 million each, the Environment Agency estimates around £1.5 million benefit from this approach each year.

Accelerating phase 3 of CAMC The Environment Agency will accelerate CAMC3, running concurrently with CAMC2 for a time, and aims to have CAMC3 operational and realising the full benefits by 2018. Where possible, it will implement some aspects of the system during 2017 in order to realise benefits earlier. CAMC2 will provide business processes and IT support to carry out asset maintenance work more efficiently. CAMC3 will introduce business processes and IT systems to support capital and revenue allocation and manage the capital and maintenance programmes. Phase 3 will also include improvements, based upon operational experience, to the Asset Information Management System (AIMS) or asset inventory, planning systems and future proofing the IT infrastructure that supports asset management.

The main areas of work supported by CAMC3 will be:

• the transition of risk and data between operational asset management and capital projects, for example, the handover and assurance between scheme and operations when works are completed

• managing partnership funding contributions, for example, tracking financial contributions and contributions 'in kind' for maintenance

• tracking and reporting scheme metrics, for example, project and programme level outcomes, milestones, efficiencies, operational and embedded carbon, financial accounting and whole life operational cost savings

• tracking project gateway processes and the assurance and the approvals between gateways

• the process, tools and support for main project roles such as senior user, project sponsor, project executive and project manager

• tools and support for schemes implemented by local authorities and IDBs

• storing, transmitting and managing important asset data and information

• financial and outcome modelling and scenarios, for example, assessing the impacts of changes in funding on outcomes

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• analysis and optimisation tools to help with achieving the right balance between capital and maintenance investment on assets

CAMC3 timeline

Key Project Milestones Date

Evaluation of current IT and business processes to support future process and agreement of scope

Complete

Strategic outline case Jan 2016

Outline business case. April 2016

Final business case. October 2016

Implementation Jan 2017 – December 2017

Risk assessment level The Environment Agency currently uses an asset system risk matrix to target investment in asset maintenance. To improve investment decision making and targeting, it plans to focus on individual assets, identifying the most critical assets within a system. Once asset risk is known it will enable targeted maintenance and investment to the most critical assets. Identifying low risk assets will help develop a programme for reducing maintenance or of encouraging others to maintain assets. The asset system approach for maintenance planning and scheduling will be retained.

Central analytical and modelling The Environment Agency’s recent reorganisation and ongoing investment in IT systems will enable a single central programming team to carry out analysis and modelling to support local decision making. This programming team, working with local project teams will manage programme risk, programme contingency and ensure programme optimisation using the tools provided through the CAMC3 programme.

Whole-life asset investment The Environment Agency will continue to invest in assets based on their whole-life benefit costs. At present it does this using system asset management plans (SAMPS), which include estimates of future asset maintenance costs and replacement costs. These costs are estimated locally and there is no national cost data to help consistent estimating. CAMC2 will be able to generate future maintenance and replacement costs based on unit rates and historic costs, providing more consistent and reliable cost estimations.

The overall costs of maintaining the Environment Agency asset base remains more or less stable. This is because approximately 70% of the capital programme replaces existing assets. As these ageing and inefficient assets are replaced with newer assets, their maintenance needs are reduced, which counters any additional maintenance costs from newly built assets. New asset design is also subject to passive design principles, which reduces or removes the need to operate an asset, helping to reduce whole life costs.

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Response to recommendation H Recommendation H - Develop contractual partnerships Summary The Environment Agency spends around 50% of its total operating costs with third parties to achieve business objectives. This includes routine maintenance work, incident response, asset refurbishment, and supplying supporting labour plant and materials. This model is very similar to that operated by many large private sector organisations. The Environment Agency already uses the supply chain to support routine maintenance work, for example, the majority of mechanical and electrical instrumentation and control assets (MEICA) work is provided by external contractors.

In order to provide a reliable and effective incident response capability, the Environment Agency has made a business decision to retain an intelligent client capability and a core workforce. Outside of incidents this workforce maintains the organisation's flood risk assets. The Environment Agency uses the supply chain and partners to supplement this resource in both incidents and asset maintenance. This core workforce decreased from 1357 in 2005 to 1076 in 2012, supplemented by 319 (23%) from contractors, consultants and the wider business. The size and make up of this resource is regularly reviewed and adjusted accordingly to continue to provide further efficiencies, while maintaining a critical incident response service level and intelligent client capability.

Of the £171 million spent on asset maintenance last year (2014 to 2015), the Environment Agency spent approximately £68 million (40%) on contract costs, of which around £40 million was on maintenance work provided by its supply chain partners.

The Infrastructure UK route-map recommendations also suggested that the Environment Agency could use its supply chain more efficiently. The Environment Agency will implement these recommendations, reviewing existing supplier contracts to establish the scope for increasing the use of the supply chain. Where there are clear benefits and the risks are acceptable, the Environment Agency will use the supply chain more to support emergency response. This may include, for example, operating floodgates, clearing blockages or laying sandbags under the direction of the Environment Agency's command structure.

With the support of a longer term revenue settlement, the Environment Agency estimates that by 2021 it could make a saving of £2.3 million a year and a total of £7.5 million by using the supply chain on maintenance contracts and incident response more efficiently.

The organisation estimates that it would save around £0.5 million a year on its £30 million a year maintenance contracts; a saving of around 1.5%. It could negotiate these savings by offering 3 to 5 year contracts instead of single year contracts.

Current supply chain model The Environment Agency has 25 geographic operational teams based in 16 operational areas, with another supporting the Thames barrier, whose main role is to operate and maintain flood risk assets and respond to flood incidents.

The organisation uses national frameworks to procure plant and small tools. These contracts are supplemented by more local contracts where greater flexibility is required, mainly in flood risk locations such as market towns that may not be served as well through major suppliers. This approach reduces transportation costs, carbon emissions and supports local contractors and the government targets on using small and medium-sized businesses (SMEs). While some ad hoc local arrangements using local suppliers at short notice do take place, the Environment Agency has national frameworks in place for supplying aggregates and sandbags around the clock to meet incident response demands.

The scale of the procured services depends very much on the annual asset maintenance funding secured in a given year and the challenges the Environment Agency deals with in incident

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response. Incident response is a 24/7 business and therefore in a major event more supply chain partner resource is used to supplement the Environment Agency's own resource in order to maintain the level of response.

In 2013 directors agreed that the Environment Agency workforce would meet 100% response needs for river flooding together with 50% of coastal flooding needs for the first day of the incident. This meets about 80% of the Environment Agency's overall short-term incident needs, with the remaining 20% supported by contractors and the wider business.

The Environment Agency already uses the supply chain extensively in the flood recovery stage, and has further provisions in place for supply partners to support during incidents. For example, the supply chain was very much part of the successful integrated team approach that allowed £135 million of recovery works to be carried out efficiently following the flooding during the winter of 2013 to 2014, ensuring communities were protected by autumn 2014.

Better use of the supply chain If longer term funding was more certain, for example for the next 3 to 5 years, the Environment Agency would be able to enter into partnership contracts for more than 1 year at a time and include work that is less frequent. This would build working relationships and trust, which would be essential if contractors were to support incident response.

The Environment Agency has developed the Water and Environment Management (WEM) framework to support the implementation of the capital programme and other programmes of work such as the organisation's environment programme and water management programme. The Environment Agency will seek to use suppliers within this framework to carry out more maintenance work and consider the possibility of these suppliers supporting incident response. For example, in the winter 2013 to 2014 floods contractors were used to supply pumps, transport, plant and provide supplies such as sandbags and aggregates. These were arranged locally using local suppliers at short notice. Since the nature of incidents is unpredictable, ideally longer term contracts with suppliers would guarantee a certain amount of work and enable more competitive rates.

Potential efficiencies can be made by forward planning over longer time periods and by sharing plans with partners and the supply chain. Where possible, the Environment Agency will work with other operating partners alongside internal staff to operate as a single team.

Long-term maintenance settlement The peer review recommended a longer term settlement for maintenance funding. The Environment Agency supports this, as it would provide greater stability in maintenance planning and believes there are many benefits and efficiencies from this approach

A long-term funding settlement for maintenance would bring about efficiency savings. In total the long-term settlement contributes about £8.5 million to the efficiency plan and would provide a range of benefits such as:

• Certainty for the supply chain would enable longer term contracts with suppliers. This certainty will allow suppliers to plan and invest to improve efficiency. They will be able to offer greater cost savings and innovation and reflect this in their rates.

• Certainty for communities – When liaising with communities there is uncertainty of maintenance funding from 1 year to the next. This means that there is a need to repeatedly liaise with communities and interested groups each time funding is confirmed. This also reduces the opportunities and incentive for communities to plan and carry out work themselves where funding is uncertain. Although a longer term settlement would not guarantee funding, it would give some reassurance and allow maintenance plans to be developed with greater certainty, reducing the amount of consultation required on those plans.

• Reduced administrative burden – the current funding arrangement requires an annual cycle of maintenance assessment and funding allocation. A longer term settlement will reduce the amount of analysis and allocation required each year as plans become more stable.

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• Reduced volatility – annual funding requires funding to be spent in a particular year. Work cannot be confirmed until budgets are confirmed at the start of the year. This can produce an uneven spending profile, with less spend in the first quarter and increased spend in the final quarter. This also reduces the ability to re-programme work when floods occur, particularly later in the year. Allowing flexibility across financial years will enable a smoother programme of works and allow better management of in year changes such as impacts on maintenance programmes resulting from poor weather and flooding.

Response to recommendation I Recommendation I - Improve procedures and processes for capital delivery associated with partnership funding. Summary The Environment Agency will implement the recommendations of the recent Defra review to improve current processes to simplify the partnership funding (PF) approach. This work mainly aims to improve the process and experience of grant aid applications by other risk management authorities.

Partnership funding review Following the publication of Defra's Partnership Funding Evaluation in April 2014, Defra and the Environment Agency have set up a joint programme of improvements to address concerns raised. The programme includes making it simpler to apply for grant-in-aid funding, providing refreshed and additional appraisal guidance, and developing ways of managing changes in capital funding allocations to help identify and agree funding partnerships with greater confidence.

The Environment Agency is also establishing systems to capture and report contributions to the flood and coastal erosion risk management (FCERM) programme, including contributions in-kind and contributions to projects led by other risk management authorities. This will show the true costs of providing FCRM and the proportion received in contributions.

The Environment Agency has adopted a standardised framework for contracting with contributors. Partnership Funding contracts clearly state that the Environment Agency is not obliged to carry out future maintenance and retains permissive powers to carry out maintenance in accordance with funding available and assessment of priorities. Other risk management authorities apply similar conditions when agreeing contributions with others.

One reason for reported bottlenecks in the development of partnership funding projects is the need for risk management authorities to develop dependable funding partnerships before projects may proceed. The Environment Agency is working with local authorities and Local Enterprise Partnerships (LEPs) to make sure risk management authorities make the best use of this opportunity to promote projects that would otherwise not be funded.

The Partnership Funding policy allows different arrangements for future maintenance to be agreed locally in different circumstances. Local public and private sector organisations accept responsibility for the future maintenance of new or improved flood defence assets in some locations. While this may lead to a more diverse landscape of maintenance responsibilities across England, there is no evidence it has become more confusing.

Simplifying the grant approvals process (grant web portal) The Environment Agency is replacing the existing paper based grant application process with a grant web portal. This will allow grant applications to be completed and submitted through a simple, easy to use web browser. The portal will also allow risk management authorities and Environment Agency staff to monitor the status of their projects as they progress through the various approval stages. The grant web portal addresses a number of criticisms and comments

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raised by Defra and many partners about the existing process. The main benefits expected from the project include:

• improved, simpler user experience for partners completing the annual grant allocation process, addressing complaints about the current approach

• partners spend less time completing the allocation process, support needed from area staff significantly reduced

• more automated approach to developing the annual programme for national staff, reducing staff hours spent on the task

• by linking with existing systems, reduces the manual effort in uploading details to those systems - benefits area staff, national allocation and programming, finance and partnership funding teams

The Environment Agency aims to have the system running by April 2016 followed by a short period of training.

Supporting risk management authorities (RMAs) with CAMC3 Within CAMC3 the Environment Agency will link the grant web portal to the national programme to provide a single data entry point for schemes on the programme. Risk management authorities will be able to update their submissions with the latest scheme information, making sure the programme is as up to date as possible and data is handled only once.

RMA capacity building The Environment Agency is reintroducing training workshops for risk management authorities to build capacity. The aim is to share learning and experience on leading flood risk topics. The Environment Agency will use the workshops to introduce any new initiatives such as the improvements to the partnership funding process and receive feedback to identify further opportunities for improvement.

Response to recommendation J Recommendation J - Improve conveyance processes Summary Conveyance management is a major part of maintenance activities. The Environment Agency is constantly improving understanding of this work. It will introduce a conveyance operational key performance indicator (KPI) measure in 2016, liaise more with partners and the public, produce a list of locations where dredging is considered cost effective, and publish a channel management handbook to help understand the benefits of dredging.

Conveyance KPI The Environment Agency’s current KPI965 measures the effectiveness of defences and structures and MEICA assets against households at risk and wider benefits of land and infrastructure. The organisation has developed a conveyance KPI965 to measure the benefits of dredging and other conveyance maintenance work. It is currently testing this measure through 2015 and 2016 to become operational for 2016 to 2017.

The new measure will allow the Environment Agency to compare the benefits of channel work against other maintenance activities and therefore prioritise what maintenance it should carry out and where. This approach will allow investment to be targeted where it is most effective in reducing flood risk.

The Environment Agency takes a whole-life cost approach to channel maintenance and considers flood risk management benefits of conveyance works. To keep river channels flowing freely they

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must be cleared repeatedly. The frequency of this work can vary from several times a year to once every 2 or 3 years. The works and costs must be considered over many years in order to determine whether the work is cost beneficial or not.

There are 2 main benefits from channel maintenance: land drainage and reducing flood risk. The Environment Agency focuses on flood risk benefits in channel clearance work, but will work with Defra to consider how land drainage can be taken into account in investment planning.

Dredging locations The Environment Agency and internal drainage boards (IDBs) have identified 1500 possible locations on main rivers across England where dredging could benefit flood risk management. These locations are being assessed to determine where conveyance work is technically feasible, cost effective and not harmful to the environment, and to build a national picture of dredging. This will allow the Environment Agency to allocate funding to areas on a cost benefit and environmental impact basis, avoiding uneconomic dredging and damage to the environment.

The Environment Agency will work more closely with the Association of Drainage Authorities (ADA) and IDBs to share resources. This will help carry out dredging more efficiently, and potentially allow more dredging. Plans for 2015 to 2016 show that the Environment Agency can justify dredging works, on flood risk management grounds, at about 450 of the 1500 locations. It is possible that in some locations, where there are joint benefits of land drainage and flood risk, the Environment Agency and IDBs could carry out work together. IDBs, landowners and other local community groups may decide to carry out work at some of the other locations where there are significant land drainage benefits. The Environment Agency has shared a list of locations with IDBs who have taken this into account in their maintenance plans for 2015 and 2016.

Channel maintenance handbook The Environment Agency has published the 'Channel Management Handbook'. This handbook provides advice and guidance on the benefits of channel management, practical methods for assessing benefits, channel maintenance practices, and other helpful instructions for operating authorities. The handbook is supported by local authorities and the ADA as a tool that will help encourage a consistent and clear approach to channel management and give a definitive account of the benefits and impacts of dredging. The Environment Agency will use the learning gained from developing the handbook and the dredging programme to improve communications with interested groups and the public.

Response to recommendation K Recommendation K - Clarify the role on third party assets Summary The Environment Agency will review guidance on how and when public funds are used to support third party asset owners that provide flood and coastal risk management benefits on main rivers, tidal estuaries and the coast.

The Environment Agency’s current approach to dealing with third party asset owners is well documented. Local pressures often result in the organisation carrying out repairs itself rather than pursuing the asset owner for the repair. The Environment Agency is developing supporting guidance to advise how to deal with third party asset owners where the asset is in poor condition. The guidance will also address how third party assets are incorporated into schemes where they offer the greatest value for money and how to manage the risks.

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Dealing with third party asset guidance Using third party assets within asset systems provides good value for money since the Environment Agency can use existing powers to make sure assets are fit for purpose. The organisation measures the condition of its own and third party assets through performance measure KP1962. Evidence shows that the condition of third party asset in all 3 categories of system consequence is similar to the condition of Environment Agency assets. This shows that the current approach of incorporating third party assets and liaising with third party owners to continue to maintain their assets is effective.

There is a need to make sure that third party assets are managed and repaired and incorporated within schemes consistently across all Areas. To address this, the Environment Agency has reviewed its current approach and re-issued third party asset guidance to maintenance and capital delivery staff. This will help when considering how to respond to for example, a failing third party asset where the owner does not know how to incorporate a third party asset into a new scheme. A standard approach will make sure that areas deal with third party assets owners in a consistent way. The approach will also ensure consistency in how to consider the risks, benefits, and whole-life costs of incorporating third party assets into schemes.

Low-risk uneconomic assets The Environment Agency is reviewing the benefits of maintaining assets in low-risk systems. Some of the low-risk assets are not economic to maintain and, therefore, receive little or no maintenance. Where it is in the landowner's interest to continue to maintain these assets, the Environment Agency has developed an approach that will allow landowners to carry out their own maintenance. The approach is captured in the Environment Agency’s maintenance protocol and the organisation is developing a programme of locations across the country where the protocol might apply. The programme is being discussed with Defra, to agree the pace and priority for action before liaising with affected landowners.

Asset management efficiency plan By 2021 the Environment Agency will be at the forefront of asset management. By implementing the recommendations of the Infrastructure UK review it will take asset management up to the highest standards, meet asset condition targets and save around 15% (£26 million) a year by 2021 and have achieved around £80 million of revenue efficiencies.

There is an 'invest to save' requirement of around £22 million over the Spending Review 2015 (SR15) period as the table below shows. The investment requires £10 million of capital and £12 million revenue funding and the efficiencies identified are all revenue.

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Efficiencies will be realised from 2016 to 2017 onwards and there will be a real terms saving of £26 million a year from April 2021.

Benefits come from a number of related projects. The Environment Agency has estimated many of the efficiencies, as some of the projects required to implement the Worsfold recommendations3, such as CAMC3, do not yet have developed business cases. The Environment Agency will provide individual project benefits as it develops each project’s business case.

The efficiencies from this programme of activity are detailed in the table below.

3 Environment Agency, Flood and Coastal Risk Management (FCRM) maintenance review,IUK Client working group – peer review, September 2014

Table 1 Invest to save funding £M. Breakdown by year and rev/cap

Project 15/16 16/17 17/18 18/19 19/20 20/21

Total to

2021

CAMC2 0

Carbon saving 0

CMMS on the cloud (Rev) 0.5 0 0 0 0 0.5

Ops managers efficiency plan (Rev) 0.1 0.1 0.1 0.1 0.1 0.1 0.6

Effectiveness (protocol) (Rev) 0.5 0.6 0.6 0.6 0.6 0.6 3.5

National Fleet Services 0

CAMC3 (cap) 0.5 2.5 3 1 0 0 7

CAMC3 (rev) 0.5 0.5 1 1 3

Data improvements (Rev) 0.15 0.15 0.15 0 0 0 0.45

Modelling and analysis (cap) 0.5 1 0 0 1.5

Modelling and analysis (rev) 0.5 1 1.5

Programme optimisation (cap) 0.5 1 1.5

Programme optimisation (rev) 0.5 1 1.5

ISO 55000 (Rev) 0.2 0.2 0 0 0 0 0.4

Better use of supply chain (Rev) 0.2 0.2 0.2 0 0 0 0.6

Total in year costs £M 2.2 4.8 6.1 4.7 1.7 2.7 22.1

cumulative costs £M 2.2 6.9 13.0 17.7 19.4 22.1

Total in year costs £M (revenue) 1.7 2.3 2.6 2.7 1.2 1.7 12.1

cumulative costs £M (revenue) 1.7 3.9 6.5 9.2 10.4 12.1

Total in year costs £M (capital) 0.5 2.5 3.5 2.0 0.5 1.0 10.0

included in current programme

included in current programme

included in current programme

Table 2 - Efficiency based on £176m revenue funding

YearTotal to

2021

Source Activity/project 15/16 16/17 17/18 18/19 19/20 20/21 20/21

AM Programme CAMC2 0.00 1.00 3.00 5.00 5.00 5.00 19.00

AM programme Carbon saving 0.10 0.15 0.20 0.25 0.25 0.25 1.20

AM Programme CMMS on the cloud 0.04 0.11 0.18 0.25 0.32 0.39 1.29

AM programme Ops managers efficiency plan 1.10 2.20 3.30 4.40 5.50 6.60 23.10

AM programme Effectiveness (protocol) 0.05 0.15 0.35 0.75 1.25 1.75 4.30

AM programme asset inspection ipad app* 0.20 0.40 0.40 0.40 0.40 0.40 2.20

AM programme Joint T98/PSRA inspections* 0.01 0.20 0.20 0.20 0.20 0.20 1.01

Operations National Fleet Services 0.25 0.50 0.75 1.00 1.25 1.50 5.25

AM programme CAMC3 - allocation 0.00 0.00 1.00 2.00 3.00 4.00 10.00

Peer review CAMC3 - modelling 0.00 0.00 0.00 0.00 1.00 2.00 3.00

Peer review CAMC 3 - optimisation 0.00 0.00 0.00 0.00 0.00 1.00 1.00

Peer review ISO 55000 0.00 0.00 0.10 0.20 0.50 0.50 1.30

Peer review Better use of supply chain 0.20 0.50 1.00 1.50 2.00 2.30 7.50

Total in year efficiency 1.95 5.21 10.48 15.95 20.67 25.89 80.15

Culmulative in year efficiency £M 1.95 7.16 17.64 33.59 54.26 80.15

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The above efficiency programme assumes that the Environment Agency will have a 6-year revenue settlement. The impact of not having a long-term revenue settlement on the efficiency programme will be a reduction of around £8.5 million to 2021. A detailed breakdown of this is shown in the table below.

Table 3: Estimated impact of long-term settlement on efficiencies

Activity/project Total to 2021 £m

LTS %

Without LTS £m

How does LTS benefit this efficiency

CAMC2 5.00 35.00 3.25 Ability to set and commit to future annual programmes and issue to contract/repeat work, materials, training, tools and familiarity of task.

Carbon saving 0.25 25.00 0.19 Optimised travel and plant selection.

CMMS on the cloud 0.39 40.00 0.23 Ability to set and commit to future annual programmes and issue to contract/repeat work, materials, training, tools and familiarity of task. MEICA work is 85% contracted out - work guarantees will give saving.

Ops managers efficiency plan

6.60 25.00 4.95 Long-term resource planning and incentives to invest to save on fast payback.

Effectiveness (protocol)

1.75 30.00 1.23 Significant benefit - reduced consultation and improved incentives.

Asset inspection iPad app

0.40 20.00 0.32 Training externals for contracting out some inspection work for tree loping.

Joint T98/PSRA inspections*

0.20 20.00 0.16 Training externals for contracting out some inspection work for demand loping.

National Fleet Services

1.50 30.00 1.05 Long-term certainty over plant needs.

CAMC3 - allocation 4.00 30.00 2.80 Capital and revenue programmes aligned - reduced annual allocation costs.

CAMC3 - modelling 2.00 20.00 1.60 Stable models across the programme period, enabling refinement and investment savings.

CAMC 3 - optimisation

1.00 20.00 0.80 Easier translation of optimised outputs into programmes.

ISO 55000 0.50 20.00 0.40 Stabilises the programmes, enabling more focus on consistency.

Better use of supply chain

2.30 80.00 0.46

Higher value orders and more consistent workload for contractors; use of contractors for peak loping of incident response.

Total in year efficiency £m

25.89

17.44 Overall efficiencies reduced by £8.5 million a year.

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Explanation of efficiencies 1. Creating asset management capacity - phase 2 (CAMC2)

CAMC 2 will introduce new ways of working to reduce the cost and improve the effectiveness of maintenance. Savings are achieved through better IT support and best practice working methods, including the use of tablet technology in the field. It will enable better targeting of investment on the most high risk assets, reduced costs by using technology, improved management reports and better information to liaise with communities.

For example, when CAMC2 is implemented a work planner will be able to select standard maintenance requirements for each asset and build those requirements into a maintenance plan. This will mean that it will be much easier to generate maintenance plans. All planners across the country will also be using the same standards for the same types of assets, ensuring maintenance practices are consistent. Work scheduling will be generated electronically, which means that work requests can be given directly to field teams through such devices as tablets. Work can also be recorded on these devices, showing who did the work, how long it took and how much it cost. This will enable much more efficient use of field teams as well as improved records of costs, work and asset condition.

The Environment Agency does not need any additional invest to save costs during SR15. It estimates £5 million worth of savings a year by 2021, with total savings of £19 million by 2021. The availability of a long-term stable maintenance settlement adds significantly to the benefits and is included within the projected savings.

2. Carbon saving

The Environment Agency is reducing carbon emissions from operational and mechanical and electrical instrumentation and control assets (MEICA) assets. This is part of the organisation's aim to reduce whole-life costs and carbon emissions on its operational plant. Savings arise from more efficient plant operation, such as more energy efficient control panels, replacing worn pumps with more efficient pumps and reducing pump running times, all of which lead to reduced fuel and electricity costs and carbon emissions.

As well as reducing its carbon footprint by 33% since 2006 to 2007, the Environment Agency has an ambition to reduce carbon by a further 7% by 2020.This will also reduce running costs by at least £250,000 a year. It will reduce its carbon footprint even further and reduce operating costs as it implements a £15 million capital funded pumping station refurbishment programme on 65 pumping stations. Where a pumping station has been refurbished, it is likely to provide additional savings of around 10% of its running costs because of the installation of more efficient control equipment and pumps. The Environment Agency has not yet estimated this additional saving. No additional invest to save costs is required (costs are included in existing capital and revenue scheme budgets), but savings of £250,000 a year are estimated by 2020. This gives a total saving of £1.2 million by 2021.

3. CMMS on the cloud

As part of improving data quality and access to data, the Environment Agency is moving its MEICA asset tool, Computerised Maintenance Management Software (CMMS), on to 'the cloud' making data accessible to all devices from any location. CMMS is the Environment Agency's MEICA asset management system, which records details of mechanical and electrical assets and supports maintenance work processes. Savings arise from reduced support costs to the organisation's IT support contractor by using cloud hosted software instead of traditional Environment Agency hosted network. This eliminates costs for network integration and testing, which can also be time consuming. Cloud hosted software allows fully flexible work management by removing a paper-based work request process. Moving to an IT enabled exchange of information will both improve productivity and reduce data handling errors. It also provides a more reliable service, no network issues, and allows increased access.

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There is a single 'invest to save' cost of £500,000, but this gives an annual saving of around £400,000 a year and a total saving of £1.29 million by 2021. There are also other efficiencies such as saving 10,000 sheets of paper a year and significant benefits in terms of incident response.

4. Operations managers - maintenance efficiency programme

Environment Agency Area operations managers have identified 280 cost saving efficiency initiatives. The initiatives come from continuous improvement and sharing best practice and include ideas such as using the most effective plant, packaging work with contractors, better ways of working and using better materials.

For example, the Environment Agency is standardising temporary defences. By having the same temporary defences across the country, the organisation can exchange the defences in different areas without needing to carry out extra training. They can interconnect, giving a potentially longer defence line, and support and maintenance costs will be reduced, as there will be a single supplier support contract.

The Environment Agency is also rationalising procurement of commonly used materials and consumables such as aggregates, sandbags and timber. By having fewer suppliers with larger contracts, it can negotiate better rates, have more consistency of quality and be in a better position to negotiate emergency supplies for incident response. These savings would benefit even further from a stable long-term maintenance settlement where longer term contracts could be negotiated.

Implementing this programme will cost £600,000 and yield around £6.6 million a year and over £23 million worth of total efficiencies by 2021.

5. Effectiveness programme (protocol)

The Environment Agency will make significant changes in levels of maintenance or discontinue maintenance entirely on some low-risk, uneconomic assets. It has identified 93 asset systems that have a low benefit cost ratio and will use these to identify assets for withdrawing or reducing maintenance. For example, in the Lyth Valley in Cumbria the Environment Agency has been working with the Association of Drainage Authorities (ADA) and local communities over the last few years to establish a local drainage body to manage land drainage in the area and maintain the local pumping stations. In the Isle of Axholme in the Midlands there are many pumping stations and watercourses that are used both for land drainage and flood defence. Demaining the watercourse so that the drainage boards can maintain the pumps and watercourses is a possible solution. On the River Swale in Yorkshire the Environment Agency is working with the NFU and local landowners to agree who is best placed to manage flood banks protecting agricultural land that are no longer a priority for the Environment Agency. Cases like these are complex and require lengthy negotiations to ensure amicable solutions, which is both costly and time consuming for the Environment Agency.

Savings can be made however, as a direct result of stopping or significantly reducing maintenance on these low-risk or uneconomic systems. The cost of implementing the programme is estimated at about £3.5 million and it will provide a £1.75 million a year saving and a total £4.3 million of savings by 2021. This is a longer term investment providing significant payback when considered over a 10-year period.

6. Asset inspection using iPad app

The Environment Agency estimates savings of about £500,000 a year by having asset inspections recorded on tablets devices. These efficiencies come from being able to capture field information directly into an application on a tablet such as an iPad. Field data, such as asset inspections, can then be readily shared with other asset management tools, so that repairs or further inspections can be carried out more efficiently. This would mean the condition of assets could be better understood, field staff used more efficiently and information shared more effectively. It would also provide an accurate asset inspection log, removing the risk of missing asset inspections.

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Costs are included within the CAMC2 programme and this will give £400,000 a year savings and a total efficiency of £2.2 million by 2021.

7. Joint T98/PSRA inspections

The Environment Agency is combining asset inspections, also known as T98 inspections, with public safety risk assessments (PSRA) and other inspections such as tree work on embankments, invasive weed control, screen replacement on outfalls and vermin damage. This would reduce the number of site visits by inspectors and ensure a more comprehensive inspection programme.

Inspectors would be able to visit a number of sites in a day, carrying out different inspections on each site or, if needed, several different inspections on a single site. With its well trained and equipped inspectors, the Environment Agency will cover more inspections with fewer people. It will also capture the inspection results electronically, improving data quality and removing double handling of data.

Costs are included within the CAMC2 programme and this will give £200,000 a year savings and a total efficiency of just over £1 million by 2021.

8. National fleet services

The Environment Agency has a capital replacement programme for all ageing fleet vehicles. Having newer vehicles will reduce rental rates due to more efficient fuel consumption and lower servicing costs. The organisation is also introducing a new central hire desk, making it easier to hire and track vehicles. This will allow greater vehicle usage, which will mean fewer pool vehicles. It will also be installing telematics (similar to a black box concept) to all vehicles. This records vehicle speed, braking and accelerations and other measures to encourage safer and more efficient driving.

Early estimates show a potential saving of £1.5 million a year, with a total efficiency of £5.25 million by 2021.

9. Creating asset management capacity - phase 3 (CAMC3)

CAMC3 is critical to addressing many of the recommendations and efficiencies identified in the Ofwat peer review.

Phase 3 will provide improved ways of working and new tools to help with allocation, programming and project management. For example, when a project manager updates project progress and project spend, this information automatically updates the programme, which, in turn, updates investment plans. The Environment Agency will be able to run ‘what if’ scenarios on its programmes to test different funding allocations against different outcomes. It will be able to group projects into packages based on geography, asset type or any other criteria it wishes to see how the supply chain can best support its programmes. It will be able to receive new asset requirements for Areas through the pipeline programme, provide those new or replacement assets and hand them back the Area with all the associated information for managing them in the future.

• Allocation and programming - Through Phase 3 the Environment Agency will introduce a simplified approach to capital allocation for itself and other risk management authorities. By centralising programming teams into a national service and providing a combined programming service, the organisation will reduce the number of people involved in this activity as well as making the processes more efficient. Improved programming will allow investment to be better targeted at the most cost beneficial assets (the Environment Agency currently does this at a system level which is not as targeted). The Environment Agency will prioritise asset repair or replacement by knowing the assets with the greatest benefit cost ratio.

• Modelling - CAMC3 will allow the Environment Agency to consider different scenarios for implementing the capital and maintenance programmes, which will help identify the best programme to minimise costs and maximise outcomes.

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• Optimisation - this will allow the Environment Agency to get the right balance between capital and revenue investment in its asset base. By using factors such as asset lifespan and deterioration rates, the organisation will be able to plan asset replacements and major asset repairs. It will be able to plan to intervene before assets fail and, therefore, reduce the risk of flooding from asset failure and the costs of emergency asset repair.

CAMC3 will require an invest to save of about £16 million over 6 years. Estimated efficiencies from CAMC3 are £7 million a year and a total of £14 million by 2021, although benefits are possible from 2017 when CAMC3 can be used for capital and maintenance allocation.

10. Achieving asset management accreditation (ISO 55000)

The Environment Agency is pursuing ISO 55000 accreditation and plans to achieve it by April 2017. This will help to improve clarity in governance and help support the introduction of Building information Modelling (BIM) standards as well as offering benefits in terms of effectiveness and efficiency.

By simplifying the processes, taking a risk-based approach and making project assurance and approvals easier, the Environment Agency will spend less time managing project approvals and more time on implementing projects.

The Environment Agency will invest to save about £400,000 to achieve accreditation. There are some modest efficiency savings amounting to about £0.5 million a year and a total efficiency saving of £1.3 million by 2021.

11. Better use of the supply chain

The Environment Agency uses the supply chain to support asset maintenance work, for example, the majority of MEICA work is provided by external contractors. It also uses it on an ad-hoc basis for incident response. With longer term certainty over future revenue funding, the Environment Agency would use the supply chain more for improved maintenance delivery and operational efficiency.

Efficiencies would be achieved by:

• improved forward planning over longer time periods, making better use of resources

• lower cost contracts with suppliers due to longer term contracts

• less consultation on maintenance plans, since the Environment Agency will have a more stable plan with less change

With the support of a longer term revenue settlement and an investment of £600,000, the Environment Agency estimates an annual saving of £2.3 million and a total benefit of £7.5 million by 2021 by using the supply chain on maintenance contracts and incident response more efficiently.

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Appendix 1 Recommendations in full

Recommendation Description Addresses

observations

A

Improve customer legitimacy and deliver an outcomes focus

Defra and the Environment Agency should consider the issue of customer legitimacy for Flood Defence and Coastal risk management. The expectations of communities impacted by flooding and the role and obligations of the Environment Agency do not appear to be in alignment. Investment decisions around the maintenance of existing flood assets are not as transparent as those associated with the creation or enhancement of new flood defences.

Consideration should be given to the benefits and tools applied within the water sector and how these could be best utilised to improve customer legitimacy.

These should include;

• An increased clarity of expectations of what the Government expects the Environment Agency to deliver by way of clear high level obligation statements and outcomes.

• Application of community forums, including consideration of how Regional Flood and Coastal Committees (RFCCs) could be used for this purpose.

• The role of outcomes, performance commitments and delivery incentives.

• Enhanced communications to clarify the Environment Agency's role of flood risk management to the beneficiaries of the FCRM programme.

Addresses observations 1, 3, 4, 6, 7

B

Improve customer legitimacy within programme prioritisation

Defra and the Environment Agency should consider the issue of customer legitimacy for Flood Defence and Coastal risk management and the extent to which public consultation should influence prioritisation.

This could include the potential application of customer preference approaches within the programme prioritisation; for example WTP/WTA data adapted for activities that are funded by Government.

Addresses observations 5, 8

C

Improve governance and

The Environment Agency should be clear about the ownership and accountability of the investment programme between RFCCs, the Environment Agency, senior management, Board approvals and

Addresses observations 2, 9, 10, 11, 13, 14

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accountability signoffs; improving governance and accountability across the FCRM programme for expenditure, outputs and outcomes. Line of sight between the strategic Long Term Investment Strategy (LTIS) outcomes through to Environment Agency standards and procedures should also be improved.

The review supports the Environment Agency’s desire to undertake PAS 55/ISO 55000 accreditation for the processes and procedures within the FCRM programme, such an accreditation will provide the vehicle for governance improvements and provide third party accreditation that processes are robust and maintained.

D

Improve asset management datasets

The Environment Agency should significantly improve both the quantum and quality of its asset management data and information. It should do this through targeted improvement programmes, new systems and processes (ie CAMC2), reviewing the effectiveness of existing systems and determining how well they support the asset management processes (ie financial systems).

In particular focus should be placed on;

• targeted improvements to asset inventory datasets (such as date of construction etc)

• recording construction material (where not known)

• performance information on the assets

• maintenance and repair activities and associated costs

• timely information on flooding events and near misses

• overtopping, collapses and rodent infestations

• the development of serviceability metrics

• operational costs of asset management activities and interventions.

The review recognises the improvements recently made on AIMS and CAMC2 and is supportive of the continued development of these datasets.

Addresses observations 2, 15, 16, 19, 20, 21, 22, 23

E

Develop asset analytical and modelling capability

The Environment Agency should develop a centralised analytic and modelling capability to enhance the asset knowledge of the organisation and to drive efficiencies in the targeting of asset interventions.

We will achieve this by applying historic performance data and asset information to identify asset behaviour of specific cohorts of assets and to use this knowledge to target focused asset interventions. Such resources would have skills in analytic data mining, GIS and deterioration modelling. Engineering expertise would also be used as part of effective solution engineering in order to establish innovative, economic and efficient

Addresses observations 2, 17, 24, 26

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interventions applied through a risk based framework. This capability would be at the heart of both targeted asset interventions and efficiencies in the short term and would also support the long term future forecasting capability of the asset base.

The Environment Agency is already undergoing significant changes which will support this recommendation.

F

Develop risk based programme optimisation capability

The Environment Agency should develop a risk based centralised programme optimisation capability with dedicated systems and resources capable of supporting economic and efficient asset interventions and future forecasting capability. This should be developed alongside a review of how the investment programme governance and reporting with stakeholders will be improved. The programme optimisation should be developed for yearly, three yearly, six yearly and the Long Term Investment Strategy horizons and there should be a clear line of sight between these programmes.

There should be a clearer treatment of contingency within the programme. A centrally managed contingency budget will provide greater flexibility for programme management rather than individual schemes including all risks sums.

Addresses observations 2, 12, 18, 28, 29

G

Optimise on the basis of whole life cost and benefits

The Environment Agency should look to consider the development of the optimisation of the FCRM programme on whole life cost and benefits, to inform budget setting and programme planning

Addresses observation 2, 27, 28

H

Develop contractual partnerships

The Environment Agency should consider the role that framework partnerships will have within the delivery of a holistic whole life cost and benefits FCRM programme.

Long term delivery partners with incentives aligned to outcomes and delivered efficiencies are commonplace amongst the water sector, the benefits of these relationships cannot be underestimated and they are a key player in delivering a dynamic and innovative investment programme.

The manner in which operating and capital partners will deliver economic and efficient interventions alongside internal staff and how these resources could be deployed as a single team during emergency responses should be given careful consideration. Forward pipeline visibility of the FCRM programme of at least two years (preferably 3 years) will support the delivery of efficiencies as the supply chain will be able to plan more effectively.

Greater continuity of long term planning and funding through the six year programme will also support

Addresses observations 25, 32

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these long term partnerships.

I

Improve procedures and processes for capital delivery associated with partnership funding.

The review recognises the benefits that partnership funding delivers to the overall FCRM programme. DEFRA and the Environment Agency should improve the process and procedures around capital delivery associated with partnership funding. The primary purpose would be to alleviate perceived bottlenecks in the delivery programme and establish how the partnership funding approach can be balanced with programme contingency in order to maintain an efficient delivery process. Procedural and process improvements should be sought to mitigate where the approach either distorts economic delivery decisions or creates delivery inefficiencies.

Addresses observation 30

J

Improve conveyance processes

The Environment Agency should ensure there are clear operational procedures and conveyance management processes associated with rivers and watercourses. The Environment Agency should develop an understanding of the data, cost and benefits and should establish a clear decision process and risk based whole life cost for dredging and watercourse management. This should reflect the economic whole life costs associated with flood risk management. Further public engagement should be undertaken to establish conveyance as an appropriate tool within FCRM.

Addresses observation 31

K

Clarify the role on 3rd Party Assets

Defra and the Environment Agency should review the role of the Environment Agency with regard to 3rd Party assets in order to clarify the responsibilities, processes and procedures in use. In particular how the Environment Agency's permissive powers should be applied in order to provide protection to the system of assets for high risk communities. The EA do not expect any significant efficiencies to be derived from this work although it should reduce the risk of third party asses failure in the future.

Addresses observation 33

Years