Ofwat has yet again extended the contract for the Independent Monitor appointed to monitor and review compliance by Thames Water with the conditions of the undertakings given by the company and accepted by the water sector regulator.

In October 2024, Ofwat awarded a 12-month Independent Monitor contract to global strategy consulting firm L.E.K. Consulting LLP with a contract end date of 15 October 2025.

No overall or firm fee position was settled at the outset as it was expected that requirements under the contract would develop over time. However, initially the fees were expected to be in the region of £3 million (excl VAT) for core monitoring work.

Under the contract, the Monitor has been monitoring and reviewing progress by the company towards achieving the objective of the undertakings. The Monitor reports to Ofwat and makes recommendations as to any additional steps the company should take to achieve the conditions and objectives of the undertakings.

Under the terms of the undertakings, Thames Water agreed to pay the reasonable fees and out-of-pocket expenses of the Monitor.

The direct contract was initially awarded without competition to L.E.K. Consulting LLP for “reasons of extreme urgency brought about by events unforeseeable” by Ofwat as the time limits for the open or restricted procedures or competitive procedures with negotiation could not be complied with.

Prior to making the direct award, Ofwat carried out a non-regulated competition involving seven potential suppliers. Following that process, and having regard to the urgency of appointing an independent monitor, Ofwat proceeded to negotiate directly with L.E.K. Consulting LLP and make a direct award.

The direct award was justified due to the extremely urgent need to appoint a Monitor to fulfil the requirements of the undertakings under section 19(1)(b) of the Water Industry Act 1991 and in time for key next steps in Thames Water's equity raise process, and for its commitment to develop and implement a business plan as set out in the undertakings.

Ofwat has subsequently decided to modify the contract on three separate occasions - the value of each modification was £1.5 million, taking the total contract value after these three modifications is £7.5 million (excl VAT).

The modifications are as follows:

1. First modification 24 April 2025 

Necessary to maintain continuity of the monitoring and assessment of the turnaround plans of Thames Water and the progress made by the Company with raising equity, both of which required a greater level of activity than initially anticipated. The value of the modification was £1.5 million.

2. Second modification 15 October 2025 

With the equity raise process ongoing, necessary to enable the the Monitor to continue to provide oversight in relation to the company's turnaround and input in relation to critical and detailed discussions between Thames Water, Ofwat and relevant advisors, including to understand and assess the steps being taken by the company during its equity raise process. The second modification was to the term of the contract, extending it to 28 February 2026, which was required because it was technically impractical for another contractor to take over the Monitor role at that point in time, due to the technical complexity of the ongoing work and discussions. The value of the modification was £1.5 million.

3. Third modification 27 February 2026 

Necessary for continuity, in terms of the ongoing scrutiny and monitoring of the progress of the company's equity raise and proposed recapitalisation processes due to "ongoing and unanticipated delays in the equity raise process." The third modification which extended the term to 31 August 2026, was necessary for the same reasons as the second modification.

Specifically, the requirements set out in the undertakings and referred to in the contract award notice, to raise the necessary capital to support the company's investment programme and long-term financial resilience remains outstanding and subject to an ongoing process. Thames Water is continuing discussions with stakeholders in relation to a potential recapitalisation, which requires the continued monitoring of actions and progress.The value of the modification was £1.5 million.

The contract permits extensions of the term in limited circumstances, including:

• where an extension is required to maintain continuity of services while the appointment of a replacement independent monitor is completed
• in the event that Thames Water refers its Final Determination to the Competition and Markets Authority (in which case the contract may be extended for the duration of that process and for a short period following its conclusion).

Justification for the contract extensions is on the grounds that onboarding a new contractor as Monitor would necessitate considerable additional work on the part of the new Monitor which would need to bring itself up to speed with many months of detailed analysis which would have resulted in disproportionate duplicative costs and time at a key stage of the equity raise process.

The latest contract extension is due to expire on 31 August 2026.

While Ofwat is not able to confirm exact dates, the regulator intends to commence a reprocurement process for the award of the longer-term Independent Monitor at an appropriate juncture in mid-2026.