With new legislation set to shake up how businesses and organisations procure their water supply from April 2017, we look at the benefits and implications for the public sector.
Until recently, water has often been viewed as a poor relation to the other utilities. Annual spend tends to be less than that for gas and electric in public sector organisations, with a recent survey of our customers finding that most spent less than 20% of their total utilities budget on water and sewerage supply.
In addition, unless they used over five megalitres (5Ml) of water to one site, public sector organisations have always had to use the local supplier so there was no need to tender, and no bargaining chip to negotiate pricing or service improvements.
However, there are a flow of changes heading downstream for all non-domestic customers, including any business, company or public sector organisation. The Water Act received Royal Assent in 2014, introducing amongst other policies, competition to the water and waste water supply industry in England from April 2017.
What does this mean for suppliers?
Suppliers wishing to take part in the new competitive market and continue to supply non-domestic customers will need to split their retailer and wholesale operations.
Wholesale costs will still be set, and the customer’s wholesaler will remain the same. The customer will deal directly with water retailers, and the retailer will have a relationship with the wholesaler. The retailer will look have responsibility for the customer facing roles such as billing, customer service, and metering.
What does this mean for customers?
This new competition essentially means that all businesses and organisations in England will be able to choose to work with their preferred suppliers for both water, and waste water supply and services, and not restricted to their local supplier as before.
Although the competitive market comes into force in 2017, businesses will be able to tender and award to their chosen supplier as early as October 2016. The changes could bring about a number of benefits, particularly for public sector organisations:
- Improved customer service.
- Being able to select one supplier across your site portfolio, leading to billing and administration efficiencies.
- Opportunity for savings through increased efficiencies and cost discounts.
- Innovation in the water services market.
Competition was introduced into the Scottish water market in 2010, and case studies of the public sector have reported significant benefits in reducing costs, as well as increased efficiencies, and reducing the use of water and carbon.
The chance to reduce cost in England will be limited however, as the water retailer will only be able to influence 7% of the total delivery cost of the water. The cost passed through from the wholesaler will be fixed. Ofwat estimate that English customers will see around a 5% saving in the water bills between 2015 and 2020.
Despite the benefits, the fact that many public sector organisations spend in excess of £173,514 over a four year period will mean that a full OJEU tender process will have to be performed. That’s why we’ve been working hard with public sector organisations to establish a new framework to cover this requirement, providing a fully compliant route to market in preparation for the first tenders to begin in 2016.
For more general information on water competition and the upcoming public sector water framework please email [email protected].