---
title: "PR19 - Balance of Incentives and the Cost of Equity"
ocid: "ocds-b5fd17-1effd34a-103a-4ce9-bc29-fad91cc2af9b"
canonical_url: "https://d3tenders.com/contract/?ocid=ocds-b5fd17-1effd34a-103a-4ce9-bc29-fad91cc2af9b"
markdown_url: "https://d3tenders.com/contract/ocds-b5fd17-1effd34a-103a-4ce9-bc29-fad91cc2af9b.md"
json_url: "https://d3tenders.com/contract/ocds-b5fd17-1effd34a-103a-4ce9-bc29-fad91cc2af9b.json"
source: "Contracts Finder"
current_stage: "Award"
buyer: "WATER SERVICES REGULATION AUTHORITY"
published: "2017-03-22"
---

# PR19 - Balance of Incentives and the Cost of Equity

Buyer: WATER SERVICES REGULATION AUTHORITY  
Current stage: Award  
OCID: ocds-b5fd17-1effd34a-103a-4ce9-bc29-fad91cc2af9b

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## Summary

The procurement process titled "PR19 - Balance of Incentives and the Cost of Equity" was conducted by the Water Services Regulation Authority, based in Birmingham, England. This tender, classified under business and management consultancy services, aimed to assess and recommend improvements to the incentive framework for aligning the interests of companies with those of their customers. The tender period concluded on 7 November 2016, while the contract was awarded on 23 November 2016, with a total contract value of £138,000 and execution period from 29 November 2016 to 3 March 2017. The objectives of this tender include evaluating the cost of equity in relation to varying risk levels and providing strategic recommendations for the upcoming price review (PR19).

This tender presents significant opportunities for businesses, particularly those specialising in consultancy services within the water and wastewater sector. Small and medium-sized enterprises (SMEs) may find themselves well-positioned to compete due to the specific nature of the consultancy requirements, which demand tactical understanding of regulatory frameworks and company performance incentives. Companies engaged in financial consulting, economic analysis, and regulatory advisory services could greatly benefit from the insights and recommendations stemming from this tender, enhancing their expertise in a niche but vital area of public procurement.

## Notice

The overall objectives of this work is to: * Review the overall incentive framework for aligning company interests (including company management and investors) with customers now and in the long term. This includes the setting of the single notional allowed return on capital, ODIs, cost outperformance, financing outperformance, as well reputational and procedural incentives associated with risk based review of business plans to consider whether this is most likely to allocate risk and align returns with best interests of customers. * Consider whether menu based differential on allowed return on equity would improve the overall incentive framework and what the implications might be for other elements of incentive package including outcome delivery incentives, totex and financing, if a differential cost of equity was to be introduced. Also consider whether a menu based differential in allowed return on equity would need to be modified to fit with overall incentive framework, in particular the outcome delivery incentives. * Consider desirability and feasibility of setting differential returns on equity for water and wastewater companes on basis of risk and/or ambition of company business plans. If feasible, recommend an approach as to how a menu based approach cost of equity could be best implemented including how an appropriate differential in return could be set. This should include consideration of the impacts on the cost of equity in a 'lower for longer' interest rate scenario. * Provide recommendations on the overall balance of financial and other incentives to best align company with customer interest now and in the longer term. This should include an assessment of the overall balance of incentive mechanisms. It should consider and provide recommendations on the development of appropriate incentive mechanisms for PR19, which may include the evolution or replacement of, mechanisms that applied at PR14. * Consider the implications of a lower for longer interest rate scenario on the cost of equity for PR19. This will consider whether the CAPM approach remains appropriate for setting the cost of equity in an environment of extremely low interest rates for total market returns, risk free rate and equity premium and for estimating the equity beta. We would welcome further suggestions from Contractors on what else should be considered as part of this work. As part of this work the Contractor will also need to engage with us on outcomes and cost assessment work. The Contractor may also need to engage with companies individually, and potentially in a workshop in developing final proposals. We are separately appointing consultants to consider the future development of performance commitments and outcome delivery incentives and so the Contractor will also be required to liase with the consultants developing our approach to outcomes in developing its work on the balance of incentives and risk and reward.

## Key Details

| Field | Value |
| --- | --- |
| Publication source | Contracts Finder |
| Latest notice | https://www.contractsfinder.service.gov.uk/Notice/35f322ec-1ee7-43c0-a6fb-20f9947517f6 |
| Notice type | Award Notice |
| Procurement type | Standard |
| Procurement category | Services |
| Procurement method | Not Specified |
| Procurement method details | Other - |
| Tender suitability | SME |
| Awardee scale | Large |
| All stages | Award |

## Dates

| Field | Value |
| --- | --- |
| Publication date | 22 Mar 2017 |
| Submission deadline | 7 Nov 2016 |
| Future notice date | Not specified |
| Award date | 23 Nov 2016 |
| Contract period | 29 Nov 2016 - 3 Mar 2017 |
| Recurrence | Not specified |

## Values

| Field | Value |
| --- | --- |
| Tender value | Not specified |
| Lots value | Not specified |
| Awards value | £138,000 |
| Contracts value | Not specified |

## Status

| Field | Value |
| --- | --- |
| Tender status | Complete |
| Lots status | Not specified |
| Awards status | Active |
| Contracts status | Not specified |

## Buyer

| Field | Value |
| --- | --- |
| Main buyer | WATER SERVICES REGULATION AUTHORITY |
| Locality | BIRMINGHAM |
| Post town | Birmingham |
| Postcode | B5 4UA |
| Country | England |
| ITL 1 | TLG West Midlands (England) |
| ITL 2 | TLG3 West Midlands |
| ITL 3 | TLG31 Birmingham |
| Local authority | Birmingham |
| Electoral ward | Ladywood |
| Westminster constituency | Birmingham Ladywood |
| Delivery location | TLG West Midlands (England), TLI London |

## Supplier

| Field | Value |
| --- | --- |
| Number of suppliers | 1 |
| Supplier names | PRICEWATERHOUSECOOPERS |

## CPV Codes

### Divisions

- 79 - Business services: law, marketing, consulting, recruitment, printing and security

### Codes

- 79410000 - Business and management consultancy services

## Release History

- 22 Mar 2017 at 16:14 - AwardUpdate - Award Notice - https://www.contractsfinder.service.gov.uk/Notice/35f322ec-1ee7-43c0-a6fb-20f9947517f6
- 2 Mar 2017 at 12:43 - Award - Award Notice - https://www.contractsfinder.service.gov.uk/Notice/35f322ec-1ee7-43c0-a6fb-20f9947517f6

## Documents

- https://www.contractsfinder.service.gov.uk/Notice/35f322ec-1ee7-43c0-a6fb-20f9947517f6
  22nd March 2017 - Awarded contract notice on Contracts Finder
- https://www.contractsfinder.service.gov.uk/Notice/Attachment/582d79a1-acff-4bb6-8238-d8e3d9233ad9

## Provenance

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