Ofwat updates SIPR and DPC guidance

(by Karma Loveday)

Ofwat is consulting until 21 July on draft guidance on its regulatory and commercial expectations for projects being delivered under the Water Industry (Specified Infrastructure Projects) (English Undertakers) Regulations 2013 (SIPR).

The guidance set out:

• The regulatory framework for SIPR projects (including key licence conditions) and how this interacts with the commercial arrangements for each project.

• Ofwat’s approvals process and water company assurance processes for SIPR projects. 

• The specification process and information requirements.

• An indicative model for efficient risk allocation for SIPR projects. Ofwat said this is intended to be a starting point for project-specific discussions, not a prescriptive allocation of risk. 

• An indicative baseline for commercial arrangements, including incentives on the Infrastructure Provider and the water company.

• The assessment of value for money for SIPR projects.

The guidance incorporates lessons from the Tideway Tunnel and seeks to reduce transaction and development costs, support more efficient project structuring, and streamline Ofwat’s approval processes.

Currently, projects are only eligible to be specified under the Regulations where the project is of a size or complexity that threatens the incumbent water company’s ability to provide services for its customers; and where delivering the project under SIPR is likely to result in better value for money than would be the case if the infrastructure project were not specified. Ofwat noted the Government has indicated its intention to amend this test so that more projects can be delivered under the Regulations, and said it would update the guidance accordingly in due course.

Ofwat has also published update guidance (from March 2023) on Direct Procurement for Customers (DPC) arrangements. This is not for formal consultation but comments were invited by 31 July.

This guidance also incorporated lessons learned and set out:

• The regulatory framework for DPC projects and how this interacts with the commercial arrangements for those projects.

• The high-level approvals processes and water company assurance processes for DPC projects. 

• The commercial arrangements, including incentives on the Competitively Appointed Provider and the water company. 

• A standard, efficient risk allocation for DPC projects.

• How Ofwat assesses value for money for DPC projects.

Ofwat is hosting a webinar for investors and supply chain participants on 16 June at 14:15 on both sets of guidance.