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Funding secured for 25km London supersewer 14 July 2015

Peter Kenyon, TunnelTalk

A consortium of four major institutions will finance London’s Thames Tideway Tunnel through construction. Selection of Bazalgette Tunnel Limited – comprising funds managed by Allianz, Amber Infrastructure Group, Dalmore Capital and DIF – follows a year-long process under which current owner Thames Water targeted 94 potential strategic partners to deliver the £4.2 billion mega-project.

Thames Water has spent £840 million of its customers’ money taking the 25km CSO tunnel project through land purchase, tunnel design, planning permission and construction procurement. It will now transfer ownership to its selected Infrastructure Provider (IP).

Thames Tunnel contracts total £1.76 billion 26 Aug 2015
Thames Water News Release

The newly appointed Infrastructure Provider that will build and finance the Thames Tideway CSO mega-project (Bazalgette Tunnel Ltd) confirms award of the three major tunnel excavation projects.

For the first time the value of the winning bids is revealed. The 6.95km-long West Tunnel between Acton and the Carnwath shaft is awarded to the Bam Nuttall/Morgan Sindall/Balfour Beatty (BMB) JV for £416 million.

The 12.7km Central tunnels between the Carnwath Road and Kirtling Street shafts (5km), and Kirtling Street and Chambers Wharf shafts (7.68km) are awarded to the Ferrovial Agroman/Laing O’Rourke (FLO) JV for a contract sum of £746 million.

The 5.53km-long East Tunnel between Chambers Wharf and Abbey Mills Pumping Station is awarded to the Costain/Vinci/Bachy Solentache (CVB) JV for a contract sum of £605 million.

That puts the total cost of the tunnelling portion of the project at £1.76 billion (out of a total project cost of £4.2 billion) – a figure that is closer to Thames Water’s pre-procurement low estimate of £1.4 billion than to its high estimate of £2.35 billion.

Stephen Fox, Bam Nuttal Chief Executive, said: “We are delighted to have been awarded this prestigious contract during our 150th anniversary year. We look forward to delivering a successful project for Bazelgette Tunnel Limited, which will benefit Londoners as it will bring life to the River Thames for many years to come.”

The innovative IP financing and delivery model was developed by Thames Water in conjunction with the UK Government and the UK water regulator Ofwat in an effort to “balance the interests of customers, investors and taxpayers in delivering a successful [project] outcome.”

Only two consortia were shortlisted for the final round of bidding, with the rival bid headed by Canadian fund manager Borealis. Thames Water moved quickly to dismiss claims that it had failed to receive enough bids to ensure that best value financing could be delivered.

Hannah Shroot for Thames Water told TunnelTalk: “The procurement for the IP was run by Thames Water under the Utilities Contracts Regulations (UCR) 2006 using the negotiated procedure that assumes successive stages and whittles down selection at certain points in the process. The requirement under the UCR is to invite sufficient bidders to ensure ‘adequate competition’.

“There is no requirement in the UCR to invite a given number of organisations to negotiate,” Shroot added. “This is notably different to the requirements of the Public Contracts Regulations that apply to central and local government where there is a requirement that no less than three organisations are invited to negotiate, or if less than three organisations, sufficient numbers to ensure ‘genuine competition’.

“However, and notwithstanding the procurement law requirement in relation to bidder numbers, the procurement for the IP has been an extremely competitive process. The Bazalgette bid represented the best value for money for customers, however details of the Invitation to Negotiate and evaluation criteria used to assess bids are all confidential.”

Thames Tideway tunnel construction lots
Thames Tideway tunnel construction lots

Shroot told TunnelTalk that 94 financial and strategic investors were actively approached by Thames Water shortly after the announcement last year (2014) that the new IP method would be used to fund and deliver the project through construction and completion. This process resulted in 45 “face-to-face meetings/calls with interested parties.”

Following Expressions of Interest, 11 bidders were prequalified for Round 1 of the negotiations, all of whom were then invited to participate in Round 2. At this stage, explained Shroot, two bidders, representing a total of eight main investor organisations, were invited to participate in the final “revise and confirm” round of negotiations.

Award of the £2.4 billion main tunnel construction contracts – split into East, West and Central – was announced in February (2015). These will be signed off later in the summer now that the IP has been appointed.

The construction awards are:

  • West (6,950m)         – Bam Nuttall/Morgan Sindall/Balfour Beatty
  • Central (12,683m)    – Ferrovial Agroman/Laing O’Rourke
  • East (5,530m)          – Costain/Vinci/ Bachy Soltanche

The new IP for the Thames Tideway Tunnel will be chaired by Sir Neville Simms, with former Crossrail Programme Director Andy Mitchell as CEO.

Along with the recently completed upgrade of five sewage treatment works on the tidal Thames (including Beckton, East London), both the Lee Tunnel and the Thames Tideway Tunnel are needed to prevent some 39 million tonne of untreated sewage that overflows into the tidal river in a typical year from the capital’s overstretched, Victorian sewerage network. The 25km tunnel will run largely beneath the bed of the River Thames, from Acton in the west to Abbey Mills near Stratford in the east. There it will join up with the 6.4km x 7m i.d. Lee Tunnel, where TBM tunnelling was completed in February this year (2015) and casting of the internal concrete lining was recently finalised.

Construction of the Thames Tideway Tunnel will commence next year (2016), with completion scheduled for 2023.

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