Ofwat has launched a new consultation how water companies provide new connections to developers under Self Lay Agreements – the terms of SLOs are an ongoing source of common areas of dispute and a potential barrier to competition in the sector, according to the regulator.

Providing new water connections is currently one of only a few areas of the sector where customers in England and Wales can choose their service provider. Self-lay organisations compete with water companies to provide new connections, but to do so must agree a self-lay agreement with the local water company who will ultimately take on ownership of the new pipework.

Some of the terms in self-lay agreements relate to how a water company can assure itself about the quality of the infrastructure the SLO is providing. According to Ofwat, the terms can be a common area of dispute and potentially a barrier to SLOs competing to provide their services.

Launching the consultation, Ofwat said it is “keen to ensure SLOs can fairly compete in this market” and that water companies can provide safe and secure water supplies to existing and new and customers. The regulator is now seeking views about how the terms in self-lay agreements can reasonably balance both objectives.

Ofwat says that while customer service in developer services is strong for some services and with some water companies, there are marked differences between the water companies and even within the services that individual companies provide, commenting:

“We and, most importantly, customers want to see this gap closed and the sector as a whole raising its game.”

Richard Khaldi, Senior Director, Customers and Casework, commented:

“Competition in the water connections market can benefit customers by driving more customer-focussed, efficient and innovative services. We want to see that market working well for customers and are working with water companies to ensure SLOs can fairly compete to provide customers with choice. This includes ensuring water companies’ self-lay agreements are fair and that disputes can be avoided.”

“Last year we set out our general expectations on a series of common areas of dispute for new connections charging. This has helped to reduce the number of disputes arising on these issues and we are keen to expand that approach to other areas of dispute, such as self-lay agreements.”

Unfair terms for self-lay could be abuse of monopoly position and harm competition

If a developer asks a water company (rather than an SLO) to provide a connection, the water company effectively provides non-contestable services to itself to enable it to provide the contestable services against which it competes with SLOs.  The consultation paper says:

“When providing non-contestable services to SLOs, water companies need to consider whether the way in which they deliver that non-contestable service is more expensive or difficult for the SLO to access than it would be for the water company’s own business operation to access the same service.”

“If it is, this risks creating an unfair market where, by making its offer appear more attractive (whether intentionally or not), the water company is abusing its monopoly position to harm competition.”

The consultation sets out Ofwat’s initial views on what the regulator considers to be ‘reasonable’ terms for water companies to require within self-lay agreements in relation to assurance on an SLO’s work.  The paper is focused on the reasonableness of the requirements - financial, procedural and/or contractual - that water companies place on their SLO customers to assure themselves of the quality of the SLO’s work.

The requirements are often, but not exclusively, put in place by water companies by means of the terms of the self-lay agreement they enter into with an SLO and/or developer – and may have financial and/or scheduling risks for the SLO and/or its developer customer.

The paper says that layering of multiple requirements magnifies the risks for the SLO and that taken together, this can place a disproportionate risk burden on the SLO.

According to Ofwat, in some circumstances, this could be a key factor in whether an SLO is able to compete fairly in the new connections market. Where such requirements are not justifiable, the regulator says this might be an abuse of the water company’s dominant position in providing non-contestable services, and could potentially be in breach of competition law.

Does initial view strike right balance between water companies' duties and SLOs right to compete? 

Ofwat is now seeking comments on the following questions:

• Have we identified the right areas that are causing difficulties for SLOs accessing water companies’ non-contestable services? Are there different or additional ones?
• Have we sufficiently captured the concerns water companies are seeking to mitigate through their assurance requirements?
• Does our initial view strike the right balance between water companies’ wider duties and SLOs right to compete in this market? If not, why not?
• Have we missed anything?
• Where have you seen the scale and nature of water companies’ assurance requirements work well? And what made it work better for both the SLO and the water company?

Click here to access the consultation paper - deadline for submissions to the consultation is 13th November. Responses should be sent to This e-mail address is being protected from spambots. You need JavaScript enabled to view it