The truth about developer services

The water sector gives itself high marks for developer services, but this isn’t borne out by some housebuilders’ experience. Ofwat hopes its new D-Mex measure will fix things.

Take a glance at the water sector’s official dataset for developer services, published by Water UK, and you’d be forgiven for thinking water companies are near-faultless. The figures, which have been published quarterly since June 2015, show high scores and a steady upwards trend across the sector – even the laggards come in with average scores in the mid-90 per cents.

However, speak to certain customers and they paint a very different picture. Anecdotal evidence suggests water companies are hidebound by cumbersome, paper-based processes, and horror stories are whispered of housing developments being completed but sewage having to be tanked out because the new residents are waiting for sewerage connections.

Builders, represented by the Home Builders Federation (HBF), have told Utility Week that as water companies are “gifted” new water and sewerage assets in perpetuity by housing developers, they should step up and offer more “dynamic” infrastructure provision for new housing supply. Even more frustration can be heard from self-lay providers, who, as well as complaining about poor service, argue that a lack of transparency and openness in the sector is obstructing competition for the provision of new connections.

Ofwat has stepped into this fray with proposals for a new regulatory measure – D-Mex – as part of its methodology for the next price review, PR19. The qualitative measure would complement Water UK’s quantitative data, using customer interviews to capture water companies’ performance on developer services and reward it with financial incentives worth up to 5 per cent of developer services revenue. But if the sector is performing as well as the data suggests, then why is this new measure necessary? And how will it change water company behaviour?

First up, the Water UK data. The numbers are based on companies’ performance around statutory and non-statutory targets – the time taken to respond to different types of enquiries, and other milestones in the process. They are staggeringly good – South Staffs, the lowest performer on water in the most recent quarter for which data is available (Q1 2017-18), scored 94.6 per cent; while the lowest performer on sewerage, Thames Water, logged 97.28 per cent. The service offered by the leaders is apparently near-perfect, with Bournemouth Water achieving 99.73 per cent on water, and Welsh Water logging 99.9 per cent on sewerage.

How good is the data?

As it to pre-empt criticism, Water UK commissioned an independent audit of the dataset, which reported back this summer. The report, by CH2M, concludes that the sector and its stakeholders can have “trust and confidence” in the data, despite some areas of non-compliance. It stated: “All companies have appropriate processes, data recording and reporting arrangements in place.”

Richard Warneford, chair of the Water UK Infrastructure Policy Group, says: “Huge progress has been made with the introduction of the service standard measures, which show a generally high level of performance. The industry sees housebuilders and developers as important customers and alongside the existing measures, the industry is very supportive of the introduction of a qualitative measure that reflects how customers feel about the service provided by water companies.”

It will take more than that to convince the HBF, whose spokesman says “the metrics are… not being reported on a like-for-like basis, neither within a company nor across companies and [companies] may be reporting their achievement against varying targets for the level of services – in other words, outside of the defined metric”.

Ofwat acknowledges the disparity between the data and the complaints on the ground. Associate director Jon Ashley tells Utility Week: “We’re aware that developers’ services customers have continued to raise their concerns about poor service from some water companies. One of the reasons that we [consulted on the introduction of D-MeX] now was that one of the measures that has been in place is the Water UK data, and we’re still getting feedback that these aren’t working for customers, that they are interested in the quality of the service rather than specific metrics around whether something has been delivered by a certain time.”

The regulator’s proposed solution, D-Mex, will sit alongside C-MeX, the customer experience successor of SIM (service incentive mechanism), and create financial incentives specifically for developer services for the first time.

While the final format of D-MeX is yet to be agreed, Ofwat is looking at a regular satisfaction survey that can be compared across companies to create an annual league table. It proposes that Water UK continues publishing its quantitative dataset and promises to “explore” with a task group of customers and water companies whether that should be incorporated into D-Mex in any way. The task group will also look at the exact nature and timing of the financial incentives.

D-MeX has won the support of water companies, which recognise the need for qualitative data to work alongside the quantitative data collected by Water UK. Alison Tregale, developer manager at South West Water, says: “We have been talking for some time about having a qualitative as well as a quantitative measure. We believe it will provide a more rounded score for our service to developers – and they are really critical to our business, and we need to have the whole picture.”

Tregale adds that South West Water already performs its own qualitative research, saying: “We are all looking for ways to improve our service, and if things come out as part of [D-MeX] we will take them on board.”

The root of the problem

However, not all customers are confident that D-MeX will solve their problems. Fair Water Connections (FWC), the body representing self-lay providers, told Utility Week last month that Ofwat was “missing an opportunity” to address barriers to competition by failing to bring measures around openness and transparency into D-MeX.

Martyn Speight, the FWC managing co-ordinator says: “To us it looks perverse that Ofwat is now solely considering developer satisfaction ratings and not using D-MeX to incentivise compliance against a range of other matters, such as those aimed at greater openness and transparency, which they look to have difficulty getting established.

“This is in marked contrast to the energy sector where the Ofgem incentive is designed to financially reward companies where their engagement genuinely leads to higher quality outcomes which are to the benefit of all stakeholders.”

In addition to an Ofwat rethink, FWC is calling for the sector, through Water UK and the companies themselves, to take the initiative and establish a national guaranteed standards scheme, “one which commits water companies to deliver the standards and principles that Ofwat, developers and self-lay providers have always required but so seldom receive”, says Speight.

In response to the FWC’s comments, a Water UK spokesman says: “Water companies have invested considerably in recent years to improve the services they provide for developers. The industry is committed to improving these further, in support of both the English and Welsh governments’ growth agendas. We anticipate that the new system of charging for development, which comes into effect next year, will substantially simplify the process of providing connections for new development and will provide a further opportunity to improve service levels. Water UK has been leading work to help ensure that the new system meets customers’ expectations.

“Water UK voluntarily established a detailed reporting system to monitor company performance and improve the delivery of services to developers. This has been independently audited and shows a clear upward trend in performance levels since the system was first introduced.

“The sector will be working closely with Ofwat to provide assistance with how to best implement the new developer satisfaction measure, D-MeX. As Ofwat recognises, this new measure will complement rather than replace the existing Water UK performance reporting regime.”

Ofwat firmly believes that D-Mex will encourage companies to improve their service. Ashley says: “When SIM was introduced there was a big jump in terms of performance just by the fact we were incentivising it, particularly the worst-performing companies, which really improved their service, then the top ones improved more gradually. We expect that just by incentivising it, companies will improve quite quickly. That’s what we will be aiming for – that companies, to do well, have to improve their service quality to developers, self-lay providers and NAVs [New Appointments and Variations].”

With regard to Speight’s call to use D-MeX to address issues around competition, Ashley says: “This is feedback we will take into account as we look to go forward with D-MeX. We did see D-Mex originally as addressing the issue of poor quality of service to customers and that’s what our focus was. It wasn’t aimed to do with this issue, but that feedback will feed into our thoughts going forward.”

Whether or not it goes all the way towards addressing developers’ frustrations, D-MeX is certainly a departure for the sector. If its impact is anything like that of the SIM, it will create a culture change that can only benefit developers – particularly as, with the proposed financial incentives – poor performance will hit the bottom line. Speight and the builders represented by HBF will be watching closely.