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.
What is the Code for Adoption Agreements?
It is a single code that covers the adoption of water infrastructure and sewerage infrastructure. It applies to companies wholly or partly in England.
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.
There are already guidance publications for the adoption of water and sewerage infrastructure, which will provide a useful starting point for companies, but the sector guidance companies are now required to produce will be expected to comply with the requirements in the Code.
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 panels to deal with changes to the codes.
In accordance with the Code, companies need to submit draft sector guidance and model adoption agreements for both the water and sewerage sector to us for approval.
What timetable is the sector working to?
Water sector documents
On 7 January 2019, companies submitted draft water sector guidance and a draft model water adoption agreement for our approval. The original deadline for the submission of these documents was 1 October 2018, however, at the request of companies an extension to 7 January 2019 was agreed, in order for further stakeholder engagement and consultation on the documents to take place.
We have subsequently reviewed the draft water sector guidance and draft model water adoption agreement and we consider that companies have produced documents that broadly include the required content. There remain, however, some aspects of the draft documents that we consider need further work and engagement by companies, in consultation with their customers, before we can consider they comply with the Code’s principles. This is needed before we can approve them. The particular areas requiring further work and engagement are:
- The draft model water adoption agreement where we consider there has been insufficient consultation thus far. We consider this insufficient consultation has led to drafting quality issues and inconsistent terminology;
- The balance of obligations on parties in the water sector guidance and model water adoption agreement including clarifying how non-compliance with procedures will be deal with;
- The amount of detail included in the design and construction standards;
- Clarifying the scope of ‘standard’ procedures and exploring the scope to provide more timescales for activities which could provide more certainty about delivery for SLPs;
- Clarifying an agreed and consistent accreditation definition throughout the sector documents;
- Addressing concerns raised about the complexity of the adoption process when compared to the requisitioning process and how this raises potential level playing field concerns. We do not consider the sector documents can address all such concerns, however, we consider companies could do some further work on this with regards to the drafting of the water sector guidance;
- Further clarity on companies’ proposal that, aside from any defects rectification obligations under the Model Water Adoption Agreement, there are no maintenance obligations or maintenance period for which the developer/SLP is responsible;
- Further transparency around companies’ approach to inspections that might act as ‘control points’ which are key to an SLP’s ability to progress its works; and
- Introducing a standing agenda item on the Code Panel to reflect on Ofwat information notices, orders and determinations, and consider whether any amendments are subsequently needed to the sector documents.
Companies are now required to consider the issues we have identified and consult further with customers on those issues. As part of the further consultation, we expect companies to clearly set out the areas they are seeking input from customers on, alongside revised documents for comment. It should be noted that we are not requiring companies to re-consult on all elements of the sector documents submitted to us on 7 January 2019. Rather, we are requiring companies to consult on the specific issues we have raised.
We expect companies to provide us with a revised recommendation, including, where necessary, revised documents. As part of the revised recommendation, we will be expecting companies to clearly demonstrate how they have addressed the issues we have raised. We also expect the revised recommendation to demonstrate where, and how, customers have been consulted and how the views of stakeholders have been reflected in the recommendation submitted to us. We consider that whilst there were some examples of positive engagement with customers as part of the initial recommendation there were also areas where companies could have done better, in particular on the model water adoption agreement. As such, we have asked companies to reflect on how they can best engage with their customers in the further consultation.
We continue to consider that companies should lead this further engagement and consultation with their customers since they should own their customer relationship with their developer services customers. Companies are also better placed to ensure the detail of the resulting documentation can be implemented in their day-to-day business.
Companies initially committed to submitting a revised recommendation to us by 9 August 2019, however, this has now been moved to 7 October 2019. This is because the engagement companies did with stakeholders, to respond to the issues we raised, identified some wider knock-on changes that are considered appropriate and beneficial to be done at the same time. In addition, SLPs have expressed concerns that there needs to be sufficient time for them to engage with the consultation on the revised documents. For more details please see WaterUK’s website (see link here).
We initially set out that, subject to the quality of the revised recommendation, how they address the issues we have raised, and the accompanying documents companies submit to us, we anticipate approving the water sector guidance and model water adoption agreement by 31 October 2019. Taking account of the revised timetable set out above, we now anticipate approving the water sector guidance and model water adoption agreement by late November/early December 2019. Once we have approved the sector documents, we will work with companies with regards to a sensible implementation date and confirm when it is appropriate for them to come into effect.
As set out in the Code, we will make the final decision on the content of the water sector guidance and model water adoption agreement. Should we not agree with the recommendation companies submit to us by 7 October 2019, we may choose to ask for the further views of customers and companies prior to finalising the water sector guidance and model water adoption agreement.
Code Panel arrangements
As part of the recommendation submitted on 7 January 2019, companies’ submitted terms of reference for a Code Panel (see Appendix H). Once we have approved the water sector documents, including the terms of reference, the function of the Code Panel (set out in paragraph 3.8 of the Code) will be to consider change proposals to the water sector guidance and model water adoption agreement.
Having reviewed the terms of reference for the Code Panel, we are content that preparatory work should begin to put the Code Panel in place ready for the documents being approved. We are therefore supportive of companies starting to progress constituting the Code Panel. We consider this a sensible and practical approach, as it will take a number of months to get the Code Panel in place and it is in the interest of all stakeholders for the Code Panel to be able to familiarise itself with the Code as soon as possible and to start to develop a work programme for when the water sector documents have been approved.
Sewerage sector documents
On 26 March 2019, companies submitted draft sewerage sector guidance and a draft model sewerage adoption agreement for our approval. We have subsequently reviewed these documents and, subject to some minor revisions, we are satisfied that they meet the requirements of the Code and we are content to approve them. These revisions are largely focused on drafting amendments including:
- Addressing typographical errors and consistency between definitions;
- More clearly accommodating, within the process diagrams, the possibility of companies designing infrastructure for developers;
- Making reference in the sector guidance to the dispute resolution process already contained in the model adoption agreement;
- Including day-to-day points of contact in the model adoption agreement;
- Clarifying contestability in the sector documents;
- Including text in the model adoption agreement that if companies fail to inspect a site prior to construction they cannot subsequently complain about any problems the inspection would have revealed; and
- Clarifying in the model adoption agreement that financial liability, in respect of defects, will be capped at the amount of the surety or deposited sum as appropriate.
Companies are now required to address the minor revisions we have raised and provide us with revised documents highlighting the changes that have been made. Companies have committed to doing so by 9 August 2019. Once we have received the final documents, and we are content that the revisions have been addressed, we will confirm we are satisfied with the sewerage sector documents, and they will form part of our Code.
We initially anticipated being able to approve the sewerage sector guidance and model sewerage adoption agreement by 31 July 2019, with them coming into effect from 31 October 2019. We still consider that a timeline of them coming into effect by 31 October 2019 to be reasonable, however, companies have requested a longer timeframe for implementation. We are currently working with companies to determine an appropriate timeline and they will submit their implementation plan on 9 August 2019.
Code panel arrangements
As part of the recommendation submitted on 26 March 2019, companies’ submitted terms of reference for a Code Panel (see Appendix G). The function of the Code Panel (set out in paragraph 3.8 of the Code) will be to consider change proposals to the sewerage sector guidance and model sewerage adoption agreement.
Having approved the terms of reference for the Code Panel, we expect companies to start to progress constituting the Code Panel. We consider this a sensible and practical approach, as it will take a number of months to get the Code Panel in place and it is in the interest of all stakeholders for the Code Panel to be able to familiarise itself with the Code as soon as possible and to start to develop a work programme for when the sewerage sector documents are implemented.