A key report has demanded further work on two models used to deliver major water infrastructure projects after the construction industry raised concerns.
The Independent Water Commission recommends that a new single regulator should continue to “address issues” with the direct procurement for customers (DPC) and specified infrastructure projects regulations (SIPR) systems.
Delivered by former Bank of England deputy governor Sir Jon Cunliffe for environment secretary Steve Reed, the report also calls for a review of the two models in 2030.
The commission cautions against introducing further changes to the systems “without significant consideration”.
DPC was introduced by Ofwat in 2019 and has been the default procurement model for schemes worth over £200m since 2024. It sees a competitively appointed provider selected to design, build, finance and sometimes operate and maintain water infrastructure.
SIPR was brought in more than a decade ago but can only be used in specific situations. The Tideway super-sewer in London is currently the only scheme to have used this model, which licenses a third party to deliver construction work and be regulated directly.
Ministers have outlined proposals to relax the criteria for SIPR, and Ofwat has proposed three more projects be delivered through the model including £5bn worth of reservoir building in Lincolnshire and Cambridgeshire.
The commission says it is supportive of government plans to allow more schemes to use this process but that it “would caution against introducing further changes beyond existing plans without significant consideration”.
It adds: “Letting current regulatory changes become embedded and subsequently reviewing how pipeline projects are progressing would be a pragmatic approach for this nascent market.”
Sir Jon said Ofwat was carrying out work to reduce the administrative burden and cost of delivery through DPC.
The report says: “Concerns have been raised by construction companies that Ofwat and water companies may not yet have enough experience of DPC to progress projects without delays.
“Concern has also been expressed over the costs of setting up SIPR projects, which can reportedly go into several hundreds of millions of pounds.”
The commission says a new regulator should “continue the essential steps that Ofwat is taking to address issues with DPC and SIPR”.
It adds: “A full evaluation of both schemes should be undertaken in five years when a broader evidence base has been accumulated. The commission recognises that given different views on the benefits of DPC and SIPR, the Welsh Government may decide not to pursue these reforms.
“As further schemes move through the DPC and SIPR pipeline, additional lessons may emerge including around whether government support packages are needed to address exceptionally high tail risks that can most appropriately be borne by the public sector.”
Sir Jon called for a new regulator to “combine the functions of Ofwat, Drinking Water Inspectorate and water functions from the Environment Agency and Natural England”.
Ed Evans, director of the Civil Engineering Contractors Association Wales, said: “Rebuilding public confidence in the water sector is essential, and we welcome the Independent Water Commission’s recommendations, which are laser-focused at improving performance, transparency and environmental outcomes.”
An Ofwat spokesperson said: “The Cunliffe Report sets out a new direction for the water sector.
“While we have been working hard to address problems in the water sector in recent years, this report sets out important findings for how economic regulation is delivered, and we will develop and take this forward with [the] government.”
A spokesperson for trade association Water UK said: “Everyone agrees the system has not been working. Today is a major moment and this fundamental change has been long overdue.
“Crucially, it is now up to the government to decide which recommendations it will adopt, and in what way, but the commission’s work marks a significant step forward.”
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Greg Pitcher