Street works costs recovery legislation - Regulatory Impact Assessment
Purpose and Intended Effect
1.The New Roads and Street Works Act 1991 provides the framework within which utilities must carry out works in the highway to install or access their equipment buried under the road or in the footway. The Act provides also for the co-ordination and inspection of utility street works by highway authorities. In certain circumstances utilities can claim costs from highway authorities and visa versa. The 1991 Act provides in section 96 for the Secretary of State to make regulations prescribing the basis on which costs and expenses are to be calculated. The objective of these proposed Street Works (Recovery of Costs)(England) Regulations is to establish a consistent basis for the calculation of costs and overheads when such claims between parties take place.
Risks
2.When one party claims costs from another there can be concern about whether the costs being claimed are reasonable. One common situation giving rise to claims in the first place is where a highway authority road improvement requires utility companies' equipment to be moved - so called "diversionary works". The companies are able to claim most of their costs from the authority. A particular source of debate, and sometimes dispute, has been the level of overheads charged. There have been examples where highway authorities have thought that the overheads charged by utilities for diversionary works were too high, perhaps much more than the direct costs of the works themselves. The comparison of overheads to costs will be a function of the particular way in which costs are allocated within the organisation providing the figures and seemingly high overheads may well, on closer explanation, be shown to be fully justified. However, the resulting debates and disputes can be very time consuming, resulting in later payments of accounts and affecting relationships between organisations, to the detriment of the principles of co-operation which will encourage efficient working and minimise disruption to road users. With thousands of diversionary works taking place in the country every year the potential costs and disruption are considerable.
Options
3.There are two options:
(i) to do nothing, make no regulations and let the present ad hoc arrangements continue; and
(ii)to make regulations to set down a consistent basis for calculating costs and overheads that all parties must follow.
For option (ii), the regulations have been drawn up in discussion with utility and highway authority representatives. This was done through a Working Group constituted under the Highway Authorities and Utilities Committee, a joint committee that, inter alia advises Ministers on street works matters.
Benefits
4.Under option (i) - no regulations - there are no benefits compared what happens now. The status quo would carry on, with the continuing potential for debates and disputes about cost claims.
5.Under option (ii) - with regulations - the benefits will derived from having a single methodology for allocating overheads incurred in relation to street works activities. Although this is largely formalising what the utilities and highway authorities already do, codifying it in the regulations should reduce or remove the scope for argument about the correct attribution of costs and overheads. It is not possible to quantify this but both highway authorities and utilities agree that it should have this beneficial effect and have been pressing the Department for some years to make regulations under s96.
Costs
6.Under option (i) - no regulations - the status quo continues with the potential for resources to be tied up in disputes about the way claims are compiled.
7.Under option (ii) - with regulations - as mentioned above, the regulations will largely formalise what already happens. The National Joint Utilities Group representatives have advised that costs for utility companies of ensuring that their systems comply with the regulations will, at most, be marginal since this is largely what they do anyway. The reduction in resources involved in disputes mean that ongoing costs would go down and utilities certainly expect the benefits to significantly outweigh any additional costs. The same would apply to highway authorities. There will be no impact on costs for charities or the voluntary sector.
Securing Compliance
8.While it will remain open for one party to challenge another, should they want to question the cost figures, the fact that the regulations in option (ii) refer to published accounts and stated accounting policies within the relevant organisation should ensure that the basis of calculating costs and overheads will be transparent. This transparency should avoid the need to question individual accounts in as much detail as before and should make it possible for an organisation making a claim to demonstrate its compliance easily too.
Impact on Small Business
9.Street works are carried out by statutory undertakers who are mainly the traditional utility companies - gas, water, electricity, telecoms. Street works may also be carried out by others under a licence (under Section 50 of the New Roads and Street Works Act 1991). This may be, for example, where a new development is connected to the main utility network or, say, a farmer wants to run a water supply to a field across a road. The utility companies and highway authorities are large organisations and the regulations in option (ii) are designed for such, for example by anticipating different cost centres dealing with different types of costs and contributing in direct and indirect ways to the works concerned. Some of the licence holders, on the other hand, may well be small businesses. However, the regulations exclude Section 50 licence holders from the requirements. Licence holders have not been a source of problems in the past and the concepts of cost centres and the like are unlikely to be relevant. Thus licence holders remain in exactly the same position as now and will incur no additional costs.
10Although both highway authorities and utilities subcontract work to other firms, some of which may be small businesses, it is the large organisations - the authorities and the utilities - that are subject to the regulations. It is their overheads that are covered in the regulations. Thus, there will be no significant impact, either directly or indirectly, on small businesses.
Consultation
11.These regulations affect only a very limited number of bodies who are principally utilities and highway authorities. They have pressed the Department for these regulations for many years. Draft regulations were the subject of consultation in 1999/2000 and these final regulations in option (ii) have subsequently been drawn up in discussion with, and agreed by, utility and highway authority representatives.
Monitoring and Evaluation
12.The Highway Authorities and Utilities Committee, on which the Department is represented, has undertaken to review street works regulations and related Codes of Practice on a regular basis, preferably on a two year cycle. Thus the operation of the regulations and their effectiveness in reducing disputes between authorities and utilities will be looked at in two or three years time. Refinements and changes can be made at that time, if necessary.
Recommendation
13.The regulations in option (ii) will codify the way costs and overheads are calculated by highway authorities and utilities in relation to street works. The consistency of approach thus obtained will reduce the time and resources spent in debate and argument about costs, when they are claimed by one party from another. That should both reduce ongoing costs compared with continuing the status quo (as in option (i)), more than offsetting any marginal costs of ensuring their systems comply with the basis of calculation in the regulations. The effect will also be to help expedite essential works and so reduce disruption to traffic. The regulations are designed not to affect small businesses.
14.It is recommended that the regulations, as in option (ii), are approved.
Declaration
I have read the Regulatory Impact Assessment and I am satisfied that the benefits justify the costs.
Signed by the responsible Minister:
Date:..
Contact point: Mike Talbot
Web site: www.street-works.dft.gov.uk
