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Flood and Water Management Bill

My Lords, I welcome the opening remarks of the noble Lord, Lord Taylor, with which we entirely concur. Clause 35 provides for a new regulatory regime designed to cover exceptional high-risk infrastructure projects. An important part of the regulatory regime is the requirement to put such projects out to competitive tender. Currently there is no requirement, but incumbent water companies do this. The new regime will also enable such projects to be designed, built, owned and operated by newly regulated third parties. During debate in the other place concerns were expressed that the original drafting of the clause did not make it clear that the application of new regulations would be limited to exceptional high-risk infrastructure projects and that other water and sewerage infrastructure would continue to be deliverable by the incumbent water companies under Ofwat’s well-known existing regulatory framework. In response, and in close consultation with the industry through its representative, Water UK, the Bill was amended by the Government to make this limitation explicit. The amendment can be found on page 19 of the Bill, at lines 8 to 16. Therefore, Amendment 98 in the name of the noble Lord, Lord Taylor, has been addressed through the government amendment. Amendment 99, to which the noble Lord also spoke, would modify the new regulatory regime’s prohibition on undertaker involvement in delivering exceptional high-risk infrastructure projects. The aim of this new regulatory regime is to mitigate customers’ exposure to the potentially severe financial consequences of delivery problems regarding these exceptional projects whereby delays and cost overruns may be significant. Allowing undertakers to bid on these projects, as Amendment 9 would allow, is thus directly at odds with the overall aim of this new regime. The regulations will, however, have to specify also the extent to which an affiliate of the undertaker may bid for such work. Although the involvement of affiliates has not been completely ruled out, when we draw up our regulations we will need further to consider, in consultation with stakeholders, the extent to which it may be possible for affiliates to participate without undermining the policy objectives of the regime. In addition, I emphasise that these provisions do not exclude the undertaker from directly delivering the parts of such projects that are less risky. We should also make it clear that the prohibition on undertaker involvement relates to the undertaker for the service area that will benefit from the infrastructure in question. An undertaker serving a different geographic area would not automatically be prevented from bidding for or delivering the infrastructure and being designated as an infrastructure provider under these regulations. We recognise the considerable achievements of the water industry over the past two decades, and we will continue to rely on its expertise to deliver low-risk infrastructure and, crucially, to manage the tender process for higher-risk infrastructure. However, the second amendment would undermine the overall policy objective of the new regime, which is to ensure that customers are adequately protected from risks in respect of these exceptional high-risk projects and that customers ultimately receive value for money. I hope that, with that explanation, the noble Lord will feel able to withdraw the amendment.