Code for Adoption Agreements

The Water Act 2014 introduced changes to the Water Industry Act 1991 (WIA91) requiring Ofwat to issue statutory codes for adoption agreements. These are the agreements that developers or self-lay providers (SLPs) enter into when they want an appointed water or sewerage company to take over responsibility for infrastructure they have constructed. They are the agreements entered into under section 51A WIA91 for water infrastructure, and under section 104 WIA91 for sewerage infrastructure.

The duty for Ofwat to issue a code came into effect for companies operating wholly or mainly in England in October 2017 and, on 13 November 2017, we published our Code for Adoption Agreements for water and sewerage companies operating wholly or mainly in England (the Code). This followed our engagement with the sector and its customers through a discussion paper we published in September 2016, a stakeholder workshop in January 2017 and our statutory consultation on the draft code in summer 2017.

The Water Act 2014 also introduced changes to the WIA91 requiring Ofwat to issue statutory codes for adoption agreements for companies operating wholly or mainly in Wales. However, in March 2019 the Welsh Government decided to delay the commencement of these changes in order to wait for changes to the governance of the water sector resulting from the Wales Act 2017 to come into effect, which are currently expected to take place in April 2022. We will work with the Welsh Government to keep this under review.

Why have we introduced the Code for Adoption Agreements?

It is crucial that developers, new appointees and SLPs have confidence they can receive the services they want from companies to enable their own business in providing contestable services. End-user customers must also have trust and confidence that their company will only adopt quality, resilient infrastructure.

We expect that in bringing in the Code, we can ensure there is a more consistent approach to adoption agreements in the sector and the information being provided to those parties that need that information.

In introducing the Code we expect the sector to demonstrate its commitment to providing a good customer experience for its customers, which in turn will support the Government’s objective of housing growth and a level playing field for customers who wish to apply for and enter into adoption agreements.

What are the expectations on companies?

The Code sets a framework of overarching principles within which companies must deliver adoption agreements and places obligations on companies to work with their customers to develop, agree and maintain sector guidance (setting out the processes by which parties can enter into adoption agreements) and model adoption agreements. The Code sets out the minimum requirements for these documents, including information and publication requirements; when deviations from them may be permitted; and governance arrangements, which include the sector convening governance panels to consider future changes to the Code.

Water sector documents

On 7 January 2019, companies submitted draft water sector guidance and a draft model water adoption agreement for our approval. Our review of the draft documents concluded there were some aspects of the draft documents that needed further work and engagement by companies, in consultation with their customers, before we could consider that they complied with the Code’s principles.

Companies submitted their revised recommendation to Ofwat on 7 October 2019, including updated versions of the water sector guidance and model water adoption agreement. Although we considered that the revised documents were an improvement on the initial documents companies submitted, the recommendation showed that a number of SLPs raised concerns during the consultation on the revised documents and it was unclear whether these had been fully resolved. We considered that, given the apparent lack of consensus both amongst SLPs and between SLPs and water companies, it would be beneficial to seek further clarification from those SLPs who responded to water companies’ consultation on the revised documents. We decided to carry out this further engagement exercise by issuing a letter to SLPs asking for responses to a series of questions.

We issued our letter on 21 January 2020 and the responses we received from SLPs indicated there remained some outstanding issues and, as such, we asked water companies to consider what further steps could be taken to address these issues. Companies responded constructively and, in June 2020, submitted a further set of revised documents. On 16 July 2020, we issued a letter to SLPs informing them of the progress with the draft water sector documents and asking for any final new comments or concerns that may be relevant to our final decision. The responses we received showed that most SLPs supported us signing off the documents. With this in mind, we are content that the water sector documents meet the Code requirements and have confirmed with companies that we are satisfied with them. As such, these documents now form part of our Code, and the final approved versions will be published on WaterUK’s website. In accordance with paragraph B1.4 of the Code, the water sector documents will become “live” on 1 January 2021 and apply to all new pre-development enquiries and applications from this date.

Water Code Panel arrangements

Appendix H to the water sector guidance sets out the Terms of Reference for the Code Panel. The function of the Code Panel (set out in paragraph 3.8 of the Code) is to consider change proposals to the water sector guidance and model water adoption agreement. We recognise that there remain some areas of disagreement between companies and SLPs and some of these issues will require more work via the Code Panel. We expect companies to proactively take these issues forward.

The Code Panel for the water sector documents has now been constituted. For further details please see WaterUK’s website.

Sewerage sector documents

On 26 March 2019, companies submitted draft sewerage sector guidance and a draft model sewerage adoption agreement for our approval. We subsequently reviewed these documents and in July 2019 we set out that, subject to some minor revisions, we were satisfied that they met the requirements of the Code and we were content to approve them.

Companies have since addressed the minor revisions and submitted revised documents highlighting the changes that have been made. We are now content that our revisions have been addressed and, as such, we have confirmed with companies that we are satisfied with the sewerage sector documents. As such, these documents now form part of the Code. The documents can be viewed on WaterUK’s website.

We initially set out that we anticipated the sewerage sector guidance and model sewerage adoption agreement coming into effect from 31 October 2019. Companies, however, as part of their response to our minor revisions, requested a longer timeframe with a suggested implementation date of 1 April 2020. We consider this to be reasonable and, as such, in accordance with paragraph B1.4 of the Code, this is the date the sewerage sector documents will become ‘live’.

Companies have also set out that they do not anticipate they will not be in a position to start reporting against the level of service metrics set out in the sector documents until 1 October 2020. The main reasoning behind this is the time it will take to get the reporting systems in place. Our primary focus is that companies are committed to delivering against those metrics for customers and that customers (and companies) will be able to enforce their rights under the model adoption agreement and the sector guidance from 1 April 2020. As companies have committed to this we can accept the delay to the reporting. We have, however, made it clear to companies that the 1 October 2020 should act as more of a backstop and that they should work towards fulfilling their reporting obligations as soon as possible.

Sewerage Code Panel arrangements

Appendix G to the sewerage sector guidance sets out the Terms of Reference for the Code Panel. The function of the Code Panel (set out in paragraph 3.8 of the Code) is to consider change proposals to the sewerage sector guidance and model sewerage adoption agreement.

The Code Panel for sewerage sector documents has now been constituted. For further details please see WaterUK’s website.

Further information