Ofwat ‘clear’ on direct procurement intentions

Regulator on the lookout for companies avoiding use of competitive tendering for projects in business plans

Ofwat’s framework and intentions for the use of direct procurement for customers (DPC) in PR19 is “clear” and companies should be considering now how they will apply the methodology in their PR19 business plans, a senior director at the regulator has said.

Ofwat is yet to finalise its framework for the use of competitive tendering for “discrete” projects with a totex value in excess of £100 million, which are planned for the next regulatory period.

But although the final detail for the new procurement approach is yet to be settled, David Black, Ofwat’s senior director Water 2020 told Utility Week there is no “excuse” for companies to delay in considering which upcoming projects might viably apply it.

He also said that Ofwat will be on the lookout for companies that appear to be avoiding use of DPC in their business plans for PR19.

“Companies need to show clear workings out,” advised Black. While Ofwat accepts that there will be some situations in which DPC is not the appropriate delivery vehicle, he added “we expect companies to really evaluate the use of direct procurement as an option”.

Utility Week understands that some companies have expressed a nervousness about using DPC because the upfront costs attached to the tendering process are high, compared to more traditional procurement methods, and because there is uncertainty around how risk allocation will work in practice.

Black insisted however, that Ofwat has put out “a great deal” of information about how DPC will works and is working closely with companies on perceived issues.

He said more detail and a “firming up” of the regulator’s approach will come with the final PR19 framework, which is due for publication in December. But he added that already “the framework is clear, the intent is clear”.

Ofwat hopes the use of DPC, which was pioneered in the water industry for the construction of the Thames Tideway Tunnel, will deliver more efficient outcomes for customers. Black described it as an “exciting opportunity” and inisted that companies and wider stakeholders have shown “appetite and interest” in DPC.