National Grid to spend '£10bn' on network upgrade

National Grid is preparing a major extension of its upgrade programme in a move that will open up billions of pounds of construction work. 

The utility, which currently spends about £3bn a year on construction projects, is hoping to attract contractors and consultants outside its current partnering arrangements to compete for the work, and is considering both one-off tenders and new partnerships. 

The move comes amid continuing concern from contractors over whether existing frameworks can hold in the current economic climate. This week it also emerged that the Ministry of Defence (MoD) is looking to re-tender almost £2.5bn of work now split between five contractors in a bid to cut construction costs (see below).

Sources close to National Grid say work covered by new deals could be worth as much as £10bn, rising to £20bn with associated spending.  

Michael Dyke, UK head of construction at National Grid, said: “We already have some very successful alliances [with industry firms] which we will continue to optimise but we also recognise that some major works may be best delivered outside these arrangements.” 

Dyke said the upgrade extension was necessary to “meet the energy challenges for UK plc”. He would not be drawn on the amount of work involved, but said: “It’s fair to say there are significant new schemes on the horizon that could carry price tags over our current spend.” 

We recognise that some major works may be best delivered outside alliances

Michael Dyke, National Grid

Dyke said the work would relate to upgrading the transmission network to make sure it is “well and truly capable of meeting the demands of the push for onshore and offshore renewables,” as well as supporting new nuclear investments, high-voltage direct current links and carbon capture and storage.

It is understood that several large contractors have had talks with National Grid. Dyke said: “We need to build on our existing partnerships, and I would like to see a widening of that base. We need more than one dimension.” 

National Grid currently has 10 deals with firms, known as alliances, for its upgrades to the gas and electricity networks in the UK. The firms include Balfour Beatty and Amec.

Meanwhile, the MoD has confirmed it is set to go out to the market to re-tender a swath of work that is handled by a range of contractors including Babcock DynCorp, Bovis Lend Lease, Carillion and Interserve.

The MoD’s property arm, Defence Estates, has until now let its work to contractors through a “prime contracting” system, whereby one contractor takes all the work for seven years in a given geographical area. As well as five regional prime contracts worth between £400 and £750m each over the period, it also has programmes for the renovation of forces housing.

The MoD has admitted that the system of contracting is under review, and it is looking at whether it wants to move to a framework approach or more traditional contracting arrangements.

Contractors need to demonstrate the efficiency of working in frameworks

Don Ward

A spokesperson for the MoD said it would go out to market on its Next Generation Estates Contracts (NGEC) programme in mid to late 2010, asking for expressions of interest and pre-qualification questionnaires. New contracts will be awarded in 2012.

The spokesperson said: “NGEC will be based on a number of basic principles and practices, including collaborative partnering, supply chain incentives and innovation, and through-life management.”

It is thought that a number of the current prime contracts expire in 2010.

The latest news on re-tendered work comes as Constructing Excellence prepares to publish a guide for clients next week, extolling the benefits of collaborative working.

Don Ward, chief executive of Constructing Excellence, said: “Contractors need to demonstrate proof of the substantial efficiency improvements that working in a framework has given – otherwise you can’t really blame the supply side for asking for better value.”