Direct procurement for customers (DPC) involves a water or wastewater company competitively tendering for services in relation to the delivery of certain large infrastructure projects, resulting in the selection of a third-party competitively appointed provider (CAP). DPC will result in water companies competitively procuring more aspects of an infrastructure project, including financing for the project. We believe that by outsourcing the delivery of infrastructure projects using DPC, water companies can achieve significant benefits for customers. This includes both through innovation and lower whole life costs of the project.
We set out in our 2019 price review (PR19) methodology that we expected water company business plans to consider Direct Procurement for Customers (DPC), where this was likely to deliver the greatest value for customers. DPC promotes innovation and resilience by allowing new participants to bring fresh ideas and approaches to the delivery of key projects. In chapter 7 and Appendix 9 of the PR19 final methodology we set out our approach and expectations for DPC in relation to company business plans.
In February 2020 we published a non-statutory consultation – Consultation on proposed amendments to licence conditions for Direct Procurement for Customers. In that consultation we proposed a new condition to enable us to regulate DPC projects, and we invited stakeholders to provide comments on the proposals made.
We published a further non-statutory consultation in July 2020 – Consultation on the proposed amendments to licence conditions for DPC including an uncertainty mechanism. This provided updated proposals on the provisions we had previously consulted on, and it proposed introducing a bespoke DPC interim determination. It also sought to provide clearer guidance on how we expect Allowed Revenue Directions to work. An Allowed Revenue Direction is a direction issued by Ofwat allowing companies to collect from customers the charges payable to the CAP.
In November 2020 we published a statutory consultation under section 13 of the Act – Direct procurement for customers: statutory consultation on proposed changes to the conditions of appointment of five water and sewerage companies. Our November statutory consultation closed on 4th January 2021. The four companies whose licence conditions have been amended, all gave consent to the modifications. We also received consent from Welsh Water.
In March 2023 we published ‘Guidance for appointees delivering direct procurement for customers projects‘. This sets out our expectations for the commercial model applicable to DPC projects and our approval and assurance processes to support DPC projects as part of the 2024 price review.
Guidance for water companies delivering direct procurement for customers projects
Direct procurement for customers: Ofwat’s reasons for modifying the conditions of appointment of five water and sewerage companies
Modification of the Conditions of Appointment of Affinity Water Limited
Modification of the Conditions of Appointment of Anglian Water Services Limited
Modification of the Conditions of Appointment of Southern Water Services Limited
Modification of the Conditions of Appointment of United Utilities Water Limited
Modification of the Conditions of Appointment of Dŵr Cymru Cyfyngedig