Ofwat spend on PR24 consultants questioned

Ofwat’s decision to spend millions of pounds to bring in consultants to help assess water companies’ PR24 business plans has been questioned.

The Consumer Council for Water (CCW) has raised value for money concerns after Ofwat paid PwC £8.3 million to assist with PR24 workloads.

The consultant was hired as a “delivery partner” for 9.5 months with its contract starting in late April 2023 and due to expire at the end of January.

The tender notice describes the delivery partner function as a “flexible, efficient resourcing solution, that is capable of being adapted to respond to changing requirements throughout the period of the contract”.

It adds: “Critically, it is an arrangement that brings additional resource into Ofwat that is able to successfully integrate into our internal delivery effort.

“In practice this means that the “Delivery Partner” will provide resource on a flexible basis.

“And the majority of work will be collaborative, with Delivery Partner staff working alongside Ofwat staff within multiple policy work-streams.”

In its submission to the House of Lords’ Inquiry into UK Regulators, CCW calls for a cost benefit analysis to determine the value for money of hiring consultants on a temporary basis compared to spending the same money on full time staff.

It adds: “The cyclical nature of Price Reviews means that workload demands are not consistent.

“When conducting Price Reviews, Ofwat hires consultants (a “Delivery Partner”) at a significant cost to assist with the analysis of business plans. The Delivery Partner costs at PR24 are over £8 million, which is greater than the entire annual budget of CCW.

“CCW would be interested to see a cost benefit analysis of this practice in comparison with using that same money to hire in-house staff for the duration of the five-year period.

“The use of consultants, alongside staff turnover, poses a risk to corporate memory. Given the long-term nature of the water sector, coupled with the risk that customers could pay twice for services promised but not delivered, corporate memory is of vital importance.”

In response, an Ofwat spokesperson said that while “it makes sense” to use consultants at the peak of activity, the regulator has been increasing its headcount to do more work in-house.

“We’re currently examining the detail behind companies’ proposals for around £96 billion of expenditure,” the spokesperson said. “It’s a significant undertaking and requires considerable resources – rightly so, given the sums involved. The peak of activity is from October 2023 to December 2024.

“It makes sense to bring in additional external resource for this period of the price review, rather than create permanent appointments. It allows us to bring in expertise in specific areas such as engineering, to supplement our in-house capability. However, we have been increasing our permanent headcount following HMT approval last year, strengthening our capability in key areas such as enforcement”.

To put Ofwat’s spend into perspective, the water regulator spent just £421,000 on consultants fees during the 12 months prior to releasing its PR24 tender, data obtained by Utility Week via a Freedom of Information request revealed. See full breakdown here.

CCW’s submission also questions the effectiveness of setting targets for combined sewer overflow (CSO) spills.

According to the group, existing targets to reduce 20 spills per overflow per year by 2025 “won’t incentivise water companies to increase their understanding on when and how spills cause harm”.

“Using number of spills as the target risks water companies targeting easy-to-fix spill sites first rather than spills into high-priority sites,” CCW’s submission adds, while calling for a focus on “tackling spills that cause the most harm to the environment”.

The consumer group also suggests that setting the 20 spills a year target discourages companies from implementing nature-based solutions, which directly conflicts with the government’s guidance.

“The government’s strategic priorities for Ofwat state that Defra expects Ofwat to: encourage the increased use of catchment-wide, nature-based solutions and sustainable drainage schemes, where appropriate,” the CCW submission states.

“However, this guidance risks being undermined by the pressure on water companies to deliver the 20 storm overflow spills a year target set by Ofwat.

“When scrutinising water companies’ business plans, as part of our role in the Price Review 2024 process, CCW has seen evidence that nature-based solutions have been taken out of those plans in favour of building concrete tanks. Concrete assets are quicker to produce than sustainable drainage solutions which encourage nature and reduce the pressure on treatment processes.”