Ofwat has published updated guidance to assist water companies to assess whether schemes can be considered technically discrete and suitable for Direct Procurement for Customers (DPC) at PR24.
The final methodology for PR24 told firms to identify all schemes of more than £200m in whole life totex, and assess the extent to which those schemes were discrete, using Ofwat’s updated technical guidance which followed a February 2023 consultation.
The updated guidance, worked on by Jacobs, posed the following three tests – each with a yes or no response – to assess whether a project was suitable for the DPC model.
Programme scalability test
For individual projects or assets, is the sum of the whole life totex for the single project or combined projects/assets proposed by a water company over one or more successive control periods less than £200m? This approach encourages water companies to bundle similar projects or assets for consideration for DPC. If assets pass this test, the two further tests come into play.
Construction risk test
Is there any significant reason why most construction risks cannot be effectively transferred to the CAP and/or managed or mitigated through contractual arrangements, or by adapting the project scope for delivery by DPC?
Operations and maintenance risk test
Is there any significant reason why the maintenance, and/or operations of the asset cannot be effectively transferred to the CAP and or managed or mitigated through contractual arrangements?
According to the guidance, companies are not required to pass all three tests for the project or bundle of projects to be designated as DPC at PR24. “For example, a project may meet the programme scalability test and construction test but may not pass the operations and maintenance test and could still be considered a DPC project…companies should consider what parts of the project are suitable for DPC and reapply the programme scalability test to ensure the whole life totex threshold of £200m has been met.”
Ofwat added that where a project or programme of projects is identified as suitable for DPC but the characteristics change so that DPC is no longer the most suitable option, a company may trigger the bespoke interim determination provisions for DPC projects provided for in its licence.
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