Water industry regulator Ofwat has set out its general expectations about the assurance terms a water company can seek in a self-lay agreement with a self-lay organisation.

Providing new water connections is currently one of only a few areas of the sector where customers in England and Wales can choose their service provider. In this market suitably qualified self-lay organisations (SLOs) are able to complete with water companies to provide certain services.

When an SLO provides new connections it must enter into a self-lay agreement with the relevant water company under section 51A of the Act –the agreement requires the water company to take on ownership of the infrastructure before it is used to provide a water supply to end-users.

The expectations represent Ofwat’s starting position when considering appeals about the terms a water company has offered in a self-lay agreement in order to satisfy itself about the quality of the self-laid assets it will be taking ownership of.

Ofwat considers it is reasonable for the terms of a self-lay agreement to require an SLO to:

• Demonstrate it is suitably competent to provide the proposed self-laid works
• Be subject to contractual obligations to meet the water company’s design and construction standards when providing the self-laid works
• Be subject to contractual obligations to remedy any defects arising with the self-laid works within a defined liability period
• Beyond these requirements Ofwat also considers that any additional assurance terms should be:
• Reflective of the accreditation schemes that are developed and recognised by the sector
• Transparent and available for all SLOs to access and understand the rationale for
• Reflective of and proportionate to identifiable costs and/or risks the water company faces
• Reasonable in terms of who holds the balance of risk

Unless there is robust evidence to demonstrate the need for additional assurances, the regulator would not generally expect water companies to be offering terms that require SLOs to undergo “control point” supervision and inspection visits that would require water company approval before the SLO could progress its works. It would also not expect terms which enabled a water company to hold a defects liability retention payment.

Ofwat said that while it recognises a water company may sometimes consider that it needs to inspect an SLO’s work, it would expect this to be "the exception rather than the norm."

Commenting in the paper setting out its views on enabling effective competition in the provision of new connections, Ofwat said it considers there is “significant scope for water companies to harmonise their operational processes and requirements for self-lay, such that differences between them become the exception rather than the norm.”

The regulator consulted on self-lay provision of new connections in September last year to seek views on the reasonableness of assurance terms.

The consultation also sought views on other areas that might cause difficulty when organisations need to access water companies’ non-contestable services in order to compete to provide new connections. 

Ofwat said the responses received had identified a series of areas in which stakeholders felt the sector could make improvements in order to remove potential barriers to competition and enable more effective competition that can benefit customers.

Click here to download Enabling effective competition in the provision of new connections