The water companies in England and Wales will shortly set up an Alternative Dispute Resolution initiative up to a maximum of £10,000 for disputes involving household consumers and £25,000 for disputes involving non-household consumers.

The news comes as part of a response by Water UK, the organisation which represents most of the UK’s water and sewerage companies at national and EU level, to the recent consultation by the Department for Business, Innovation and Skills (BIS) on Alternative Dispute Resolution for consumers.

Water UK was not included on the list of consultees – presumably on the basis that the water and sewerage undertakers provide their services to consumers as part of their statutory obligations under the Water Industry Act 1991. As there are no contracts with consumers for water and sewerage services, the provisions of the ADR Directive do not apply to the sector.

Water UK said that while this means that many of the more detailed aspects of the consultation are not directly relevant to the water sector, it wanted to comment in particular on the question relating possible gaps in ADR provision -  the consultation notes referred to the fact that a gap in the water sector in relation to ADR provision has previously been identified.

Water companies in England and Wales currently receive about 150,000 written complaints a year, a number that has fallen by almost 45% in five years. Most complaints are resolved by the water companies themselves, while in some cases, CCWater acts as a mediator to resolve complaints or Ofwat makes a decision where it has legal powers to do so.

The response points out that in a limited number of cases of around a few hundred per year a dispute occurs between water companies and customers that cannot be resolved satisfactorily under these arrangements.

Water UK said the principal reason such disputes become“deadlocked” is that at present there is no organisation that can provide consumers with a binding resolution for their dispute.

New ADR service to be operational by April 2015

The response says that while a binding method of alternative dispute resolution is not currently available in relation to most disputes in the sector, the water industry in England and Wales is currently working with stakeholders, including Ofwat and the Consumer Council for Water, to put in place a new ADR service to remedy the gap. Separate arrangements apply in Scotland, where an independent dispute resolution service is provided by the Scottish Public Service Ombudsman.

The new ADR service that is being established aims to provide a fair and effective way of resolving these complaints, with the decisions of the ADR service being binding on water companies.

Individual customers will not have to pay to use the service which will be funded by the industry. Water UK agrees with the conclusion in the BIS consultation which suggests that reliance on case fees alone is not a suitable way to fund an ADR scheme. Its response states:

“ In any sector, it is difficult for a potential provider of ADR services to provide the necessary resources to allow satisfactory levels of service where it does not know the likely number of cases that will be submitted to it in any year. This applies with greater force in sectors such as water where there is a relatively complex legal background to most disputes.”

“ While this remains to be tested through the procurement process, it seems likely that any service provider will require to be paid an element of fixed funding in order to acquire and retain the specialist skills to resolve disputes in the sector.”

“On the other hand, Water UK considers that individual case fees are an essential element of funding as well. Those companies with the greatest number of unresolved disputes will therefore make the greatest financial contribution to the service.”

Water UK said it will shortly be inviting submissions from providers interested in operating the ADR scheme for the water sector and currently expects that the service will be operational later this financial year.

The proposed water sector scheme does not have a minimum award sum but does impose maximum values, namely, £10,000 for disputes involving household consumers and £25,000 for disputes involving non-household consumers.

Water UK said the limits aim to ensure that the great majority of disputes which are currently unresolved are handled by the scheme but that those involving more significant sums are subject to the more detailed scrutiny that court proceedings involve.

The proposed water sector scheme will make the outcome of the new resolution service binding on the company, but not on the consumer.

 Commenting on the possible long-term simplification of the ADR landscape in England and Wales, Water UK said the particular characteristics of the regulated sectors, including water, would need to be taken account of in any proposed simplification of the ADR landscape.

The water companies’ view is that a generic ADR scheme, focussed on resolving contractual disputes, would not be appropriate for disputes arising in regulated sectors where the decision maker would be required to understand the extensive legislative framework within which regulated companies operate.

Water UK said the water companies would not support any proposed change to the ADR landscape which required disputes in the sector to be submitted to a scheme which was not sector specific.

Governance arrangements are currently being put in place to ensure that it is, and is seen to be, impartial and independent from the industry.