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Ofwat rules against Southern Water in connection dispute

Ofwat has ruled against Southern Water in a dispute with a customer about the reasonableness of connection costs to a residential premises.

The water company has been ordered to pay Peter O’Connor a refund of £1209.81 plus interest following a compliant by the householder about charges for the connection work made in January 2015.

Southern Water quoted £4,837.40 for connecting Mr O’Connor’s property to the water supply, with the bill consisting of £3,900.33 for the works, an £82.00 trench inspection fee, a post construction administration fee of £48.84 and VAT of £806.23.

The customer paid the amount in full, but complained that the cost was unreasonable and the dispute was referred to Ofwat in October last year. The regulator had to determine whether the water company’s expenses were unreasonable under Section 45 of the Water Industry Act 1991.

The work involved excavating and reinstating a single trench of 2.6m in the footway and 4.5m in the carriageway, laying a 25mm pipe and installing a meter. The Connection was from Southern Water's water main in the road along the property boundary and the water company required the road to be closed.

In Mr. O’Connor’s view the work could have been carried out completely in the footway, which would not have then required the road to be closed. Road-closure costs constituted a large proportion of Southern Water's quoted costs and the water company’s contractor, Clancy Docwra, had told him the connection could easily have been made in the pavement.

He also considered that a connection could have been made off the existing connection to the other two flats. However, Southern Water considered that the existing supply was not sufficient to enable an additional connection without an unacceptable loss in water pressure to the existing properties.

Southern Water’s detailed breakdown of the costs involved revealed that the bill for the work included £1386.46 for the work itself; a road closure permit costing £1,312.32; road closure signage costing £449.95; a construction management fee of £751.60; a trench inspection fee of £82; a post-construction administration fee of £48.84 and VAT of £806.23.

In its final determination, Ofwat found that the road closure costs were reasonable and that supported Southern Water’s view that a new connection was necessary. However, the regulator said that the utility was not justified in charging more than the industry median cost of £981.79 for the work itself, nor was it justified in charging the construction management fee or the administration fee.

“Southern Water has not provided any evidence to us to suggest that the connection was particularly onerous, or to support its claim that that there were circumstances which made the connection costlier than usual for a single connection of this type in its other areas of operation,” said Ofwat.

“Given this lack of evidence and taking into account, amongst other things, the length of the service pipe that was laid, the types of ground that were excavated and the time taken to complete the work, we consider that construction costs should be compared to at the median costs recommended in the Hyder report for connections of this nature.”

On the construction management fee, Ofwat said it can be inferred that the construction management fee constitutes 18% of the total costs for the connection. The regulator said:

“It is not clear to us which underlying activities (and their associated costs) relate to this management fee. Therefore, we are unable to take a view as to whether or not this 18% fairly reflects costs that have been reasonably incurred. For this reason, we do not consider it appropriate for the construction management fee to be included as part of the reasonably incurred expenses for the connection.”

If the complainant and Southern Water are unable to agree the amount of interest payable, the matter can then be referred to the Courts for a determination.

Commenting on wider lessons for companies and customers from the case, Ofwat said: “We reiterate that we do not find it reasonable for companies to charge multiple management and administration fees, beyond that charged in the initial application fee.”

Click here to read Ofwat’s Final Determination on the dispute.

Author: James Brockett,
Topic: Contractors
Tags: construction , ofwat , Southern Water , Water supply

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