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Stagger reviews to even out water spend, Ofwat urged

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CONSULTANTS AND contractors in the water industry this week urged water regulator Ofwat to stagger its five yearly reviews of water company spending.

This would help keep costs down and enable water companies to meet efficiency targets.

Ofwat reviews all 26 water companies work programmes simultaneously every five years.

This has led to criticism that workload tails off at the beginning of each review period, as water companies assess Ofwat rulings on spending limits.

'Every five years there is a horrendous drop off in workload as all companies scramble to pre-qualify for work for all water companies at the same time, ' said British Water Director Paul Mullord.

'They have to stop what they are doing, close down offices, sell off company cars and get rid of staff across the industry, only to have to ramp up again 18 months later after winning new work.

'Eventually the cost of this finds its way back to the water companies because they are the only source of cash in the industry, ' he said.

Over the next five years the water industry will spend approximately £17bn renewing and replacing infrastructure.

Most of this will be carried out by consultants and contractors.

Regulator Ofwat is holding a consultation on whether the next price limits to be set in 2009 should continue to cover a five year period.

But consultants and contractors said that it is not the time period between reviews that is critical, but the fact that all companies are evaluated together.

Water companies contacted by NCE expressed doubts about staggering the review periods.

'It wouldn't work. The cost of capital changes over time and it would make comparisons of relative efficiencies very difficult, ' said Bournemouth & Hampshire Water managing director Tony Cook.

The regulator has set a cost of capital at 5.1% until 2010 but if this was reviewed annually it would be different for each water company.

Suppliers rejected this claim.

'Just because it would be difficult doesn't mean that the regulator shouldn't do it, ' said Water UK's Paul Mullord.

'We are about to begin researching how much this ramping up and then dropping off of work really costs the industry, ' he said.

Ofwat said that it would evaluate all proposals put to it during the consultation, which closes on 17 May.

'That is the whole point of a consultation. We want to achieve a stable price structure that will enable companies to plan for the long term, ' said a spokesman.

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