Ofwat’s DPC model is designed to bring more competition - and thereby drive down costs and improve performance - in the delivery of major water and wastewater assets.
The first project in the pipeline, the £1bn Haweswater Aqueduct Resilience Programme (HARP), is already in procurement, with United Utilities expected to shortlist teams in the near future.
Moody’s has warned that construction risk will weigh on project credit quality, adding that such risks will be “a function of the asset complexity, the contractor’s strength and experience, and the extent of risk transfer under the construction contract”.
Nonetheless, the agency adds that this could be mitigated by contractor strength and experience, as well as the risk-sharing approach adopted by the model.
“Complex DPC projects may benefit from additional regulatory protections that allow significant cost overruns to be shared with customers, which could be credit-enhancing,” the firm said in a note considering the DPC model in more detail.
Some in the market have expressed concern over the decision to launch the DPC model with the HARP project, arguing that its size may put off bidders unwilling to take on such a large scheme under an untried model.