Ofwat is seeking comments on its decision to accept a proposal by water retailer Clear Business Water Ltd (CBW) to enable micro-business customers to orally conclude contracts.

The firm first asked Ofwat in September to allow a change to the Customer Protection Code of Practice (CPCoP) to enable micro-businesses to conclude verbal contracts with retailers.

Following a review of additional evidence subsequently submitted by CBW, Ofwat said it considered that this had been sufficient to enable it to form a view and to accept the Change Proposal.

The CPCoP sets out the minimum standards that all retailers must comply with in their dealings with non-household customers. It also sets out the minimum standards of behaviour the regulator expects from retailers - compliance is a requirement of retailers’ licences.

The retailer had told the water regulator that evidence from Ofwat’s own State of the Market Report and a report by the Consumer Council for Water on non-household customers experiences of the retail water market in England suggested that relatively few microbusinesses have switched supplier since market opening in April 2017.

CBW has suggested that the inability to conclude oral contracts is hindering the ability of micro-businesses to effectively engage in the market and switch supplier. According to the retailer, enabling micro-businesses to orally conclude contracts will have a positive impact for both non-household customers and retailers.

CBW has argued that existing arrangements are anti-competitive –retailers that acquired a base of customers at market opening or as a result of Retail Exit and existing suppliers renegotiating contracts are permitted to conclude contracts with micro-businesses without to obtain written acknowledgement of a signed copy of the Terms and Conditions of Supply. In contrast, new entrants are unable to do this when gaining new customers and currently have to comply with a requirement for written acknowledgement and/or a signed copy of the Terms and Conditions of Supply.

The water retailer has also highlighted a customer preference to stay with its current supplier unless issues prompt a move away as it is perceived to be ‘less hassle’. CBW has suggested that this means new suppliers need to offer improved terms relative to the existing supplier if they are to persuade micro-businesses to switch. It argued that not only do new entrants have to comply with additional requirements to switch microbusinesses and an increased cost of acquisition, but they also need to offer improved terms.

In CBW’s view that this does not reflect a level playing field and results in a poorer customer experience.

Ofwat has now accepted the proposed amendments to introduce requirements for retailers where they intend to conclude a contract orally with a micro-business, which include ensuring the retailer has a clear audio record of the oral acknowledgement from the micro-business of the Terms and Conditions of Supply. The retailer must also send the micro-business the Section 6.1.1 information in writing along with a copy of the Terms and Conditions of Supply. A seven day cooling-off period will commence when the micro-business is deemed to have received the relevant information.

CBW also drew attention to the fact that while there is a legal requirement for some contracts to be in writing, most types of contract can be concluded orally. It provided examples of contracts that can be concluded orally in other sectors, inclusive of telecoms, electricity, gas, water (Scotland) and insurance contracts. It highlighted that even domestic customers in these sectors are able conclude contracts orally.

Deadline to submit comments on Ofwat’s consultation on the Change Proposal is 8th April 2019 - click here to download the consultation document.