New Appointment Variations (NAVs): An Alternative to Traditional Water Company Adoption
Whilst Section 104 agreements with incumbent water companies remain the standard route for sewer and wastewater adoption, developers increasingly have an alternative option: engaging a New Appointment and Variation (NAV) company to provide water and sewerage services for their development.
What Are NAVs?
New Appointments and Variations (NAVs) are private limited companies appointed by Ofwat, the Water Services Regulation Authority, to provide water and/or sewerage services for specific geographic areas that were previously served by the incumbent monopoly water company (Ofwat). NAVs represent a competitive alternative to traditional water company adoption, introduced to promote competition in England and Wales's water and wastewater services market.
A New Appointment occurs when Ofwat appoints a NAV company to provide water and/or sewerage services to an area previously served by the incumbent company—commonly for new developments. A Variation occurs when an existing NAV asks Ofwat to extend the geographic areas it serves, or when a NAV replaces the incumbent water company for a specific site.
How NAVs Differ from Section 104 Adoption
The fundamental difference is one of ownership and long-term responsibility. Under a traditional Section 104 agreement, the developer constructs sewers to adoptable standards, and once vesting occurs, ownership and maintenance responsibility transfer to the incumbent water company—the same company that serves the surrounding area.
With a NAV arrangement, the NAV company becomes the appointed water and/or sewerage undertaker for that specific geographic area. The NAV owns, operates, and maintains the water and wastewater infrastructure permanently. Residents receive their water bills from the NAV, not the incumbent water company, though the NAV typically purchases bulk supply from the incumbent and discharges wastewater into the incumbent's network under bulk discharge agreements.
Site Eligibility: Three Routes to NAV Appointment
Under Section 7(4) of the Water Industry Act 1991 (legislation.gov.uk), Ofwat can grant NAV appointments through three routes:
1. Unserved Sites (Most Common) – Developments with no existing water or sewer connections to the incumbent water company's network. This typically means greenfield sites or brownfield sites where previous connections have been permanently decommissioned. This is the most common route for housing developments, as it avoids the complexity of transferring existing customers from the incumbent.
2. Incumbent Consent – Even for served sites (those with existing connections), a NAV can be appointed if the incumbent water company provides consent. This route is less common for residential developments but may occur where the incumbent prefers not to serve a particular area or where commercial negotiations make consent mutually beneficial.
3. Large User Criterion – NAVs can serve large users meeting specific consumption thresholds, even without incumbent consent. This route is rarely applicable to standard housing developments but may be relevant for mixed-use schemes with substantial commercial or industrial water demands.
For typical residential developments, the unserved site route is by far the most practical. Developers must confirm site status before pursuing a NAV option. Many incumbent water companies work to industry service level targets (often around 21 days) to confirm served or unserved status, though timescales vary by company and the completeness of the submission (examples cited are from Southern Water and Yorkshire Water).
It's worth noting that even a single existing connection—an old farm standpipe, a heritage property supply, or a decommissioned industrial connection—can technically classify a site as "served." This is where the pre-purchase technical due diligence we discussed in our earlier article becomes critical: verifying site status early, during land acquisition assessment, prevents discovering eligibility problems after contracts are exchanged.
The NAV Application Process
The NAV appointment process is regulated by Ofwat and follows a structured sequence:
Stage 1: Developer Engagement – The developer contacts NAV companies to discuss the development and obtain proposals. NAVs compete on service quality, pricing, technical capabilities, and crucially, asset payment terms (discussed below).
Stage 2: Site Status Confirmation – The NAV requests confirmation from the incumbent water company that the site qualifies for NAV appointment (typically unserved status). This requires submission of a site boundary plan with the NAV area marked clearly, development site plans at 1:1250 scale, drainage plans with levels, and details of pumping stations if required. Timescales vary, but many incumbents target responses within their service level agreements.
Stage 3: Bulk Supply and Discharge Agreements – Most NAVs operate through bulk supply (purchasing water wholesale from the incumbent) and bulk discharge (discharging wastewater into the incumbent's sewers) arrangements. The NAV negotiates these agreements with the incumbent water company, establishing connection points, capacity requirements, and wholesale pricing. Many incumbents target draft agreement provision within approximately 28 days, though this varies by company and application complexity. Delays in securing bulk agreements can affect the overall NAV appointment timeline, making early engagement essential.
Stage 4: Ofwat Application – Once bulk agreements are in place and the developer has provided signed consent, the NAV applies to Ofwat for the new appointment or variation. Ofwat aims to complete the appointment within 85 working days of receiving a complete application, including a minimum 28-day public consultation period (Ofwat NAV Application Process). During this time, Ofwat assesses whether customers will be overall "no worse off" (and in some cases may benefit) compared to incumbent supply, assessed across charges and service outcomes (Ofwat NAV Market Guidance). This doesn't require NAVs to duplicate every incumbent service feature, but provides an overall assessment that customers receive comparable or superior value.
Stage 5: Infrastructure Construction and Adoption – Once appointed, the NAV works with the developer to design and construct water and wastewater infrastructure. The NAV supervises construction, conducts inspections, and ultimately adopts the completed infrastructure into its own asset base.
Technical Requirements Under NAV Arrangements
In practice, NAV technical requirements are usually aligned with the sector's Design and Construction Guidance (DCG) and Sewerage Sector Guidance (SSG) approach, particularly where connections interface with incumbent networks and for maintaining sector-wide standards (Water UK DCG, Ofwat Code for Adoption Agreements). However, the NAV is the appointed undertaker for the site and conducts its own technical review and approval.
The technical drawing package typically mirrors Section 104 submissions: drainage layout plans at 1:100 or larger scale showing foul and surface water sewers, manholes, connection points, and easements; longitudinal sections demonstrating adequate gradients; manhole schedules and construction details; hydraulic design calculations; and pumping station designs (if applicable).
The critical difference is that the NAV, not the incumbent water company, reviews and approves the technical design for the NAV area. The NAV conducts capacity assessments, approves connection methods, and supervises construction inspections. For bulk connection points where the NAV infrastructure interfaces with the incumbent's network, both parties must approve the connection design.
Developer Benefits of NAV Arrangements
NAVs offer several potential advantages that make them attractive to developers:
Asset Payments – The Financial Differentiator – Unlike traditional Section 104 adoptions where developers typically pay water companies fees to adopt sewers, NAVs often pay developers a lump-sum asset payment once infrastructure is completed and properties are connected. This represents the capital value of the infrastructure assets the NAV is acquiring. For an SME developer, asset payments can provide significant cashflow benefit at the completion stage of development—potentially tens of thousands of pounds for a medium-sized scheme. This financial advantage is often the primary driver for developers considering NAV routes. Asset payment values are negotiated commercially between developers and NAVs, varying based on development size, infrastructure quality, and competitive market conditions.
Competitive Pricing for End Users – NAVs compete for business, which can drive service efficiencies. Infrastructure connection costs, design fees, and ongoing service charges to residents may be competitive with or superior to incumbent water company rates, supporting developers' ability to market their developments positively to purchasers.
Service Flexibility and Innovation – NAVs are often more agile and responsive than large incumbent water companies. They can tailor their services to development-specific requirements, accommodate phased delivery more flexibly, and innovate around technical solutions where incumbents may apply more standardised approaches.
Potentially Faster Approvals – With fewer applications in their pipeline and dedicated project teams, NAVs can be faster in some cases, depending on NAV capacity, bulk negotiation timescales, and application completeness. However, this isn't universal—bulk agreement negotiations with incumbents can introduce delays that offset any NAV review efficiencies.
Single Point of Coordination – For developments requiring both water and wastewater services, a single NAV can coordinate both elements, potentially simplifying the approval and construction process compared to managing separate water and sewer applications.
Personalised Service Delivery – NAVs build their business on service differentiation. Developers report more direct access to decision-makers, more responsive communication, and greater willingness to accommodate site-specific challenges.
Regulatory Protections and Standards
Developers and future residents may question whether NAV-provided services meet the same standards as incumbent water companies. Ofwat's regulatory framework addresses this concern explicitly.
NAVs must meet the same service, environmental, and water quality standards as incumbent water companies. The Drinking Water Inspectorate (DWI) plays a role in assessing and ensuring compliance with drinking water quality regulations for NAV appointees, providing regulatory oversight equivalent to that applied to incumbent companies (DWI Guidance). NAVs hold the same statutory duties and responsibilities as incumbent water companies, including compliance with water quality standards, environmental permits, and customer protection regulations.
Ofwat's overall "no worse off" assessment ensures that customers supplied by NAVs receive service quality and face charges that represent comparable or superior value compared to incumbent provision. If a NAV fails to meet its obligations, Ofwat has regulatory powers to intervene, impose fines, or ultimately revoke the appointment.
Considerations and Potential Drawbacks
Whilst NAVs offer benefits, developers should also consider potential challenges:
Limited Geographic Presence – NAVs operate in specific areas where they hold appointments or can secure bulk agreements. Not all developments will be in NAV-accessible areas, and NAV coverage is far less extensive than incumbent water companies. Developers must verify NAV availability and incumbent willingness to provide bulk services for their specific location.
Incumbent Company Cooperation Required – NAVs typically rely on bulk supply and discharge agreements with incumbent water companies. If the incumbent is uncooperative, imposes unfavourable wholesale terms, or delays bulk agreement negotiations, the NAV appointment timeline suffers. This dependency on incumbent cooperation can be a programme risk.
Long-Term Service Continuity Perception – NAVs are commercial entities operating under Ofwat regulation. Whilst the regulatory framework provides security, some purchasers may have perception concerns about long-term business viability, potential takeovers, or service quality variation over time compared to incumbent water companies with centuries of operational history.
Purchaser Education – Homebuyers may be unfamiliar with NAVs and may have questions about purchasing properties served by companies they've not heard of. Developers may need to educate purchasers about NAV arrangements and provide reassurance about regulatory protections and service equivalence. However, as NAVs become more established, this concern is diminishing.
Mortgage Lender Acceptance (Now Largely Resolved) – In the early years of the NAV market, some mortgage lenders scrutinised NAV arrangements more closely than incumbent water company service. However, because NAVs are Statutory Undertakers under the Water Industry Act 1991 with the same legal standing as large incumbent companies, most major UK lenders (coordinating through the Council of Mortgage Lenders) now fully accept NAV-served properties without additional conditions. What was once a material concern is now largely resolved, though developers should confirm lender acceptance for specific NAV companies if any doubt exists.
When to Consider a NAV vs. Section 104
The decision between pursuing a NAV arrangement or traditional Section 104 adoption depends on development-specific factors:
NAVs may be preferable when:
The site is definitively unserved (or incumbent consent is obtainable)
Asset payment benefits significantly improve development cashflow
The developer values competitive wholesale pricing and service differentiation
The development timeline may benefit from potentially faster approvals (subject to bulk agreement negotiations)
The developer values personalised service and direct access to decision-makers
The development is large enough to justify NAV commercial interest (typically 50+ units minimum, though this varies)
Section 104 with the incumbent may be preferable when:
Site served/unserved status is ambiguous or complex
The incumbent water company provides responsive, competitive service without NAV intermediation
The developer prioritises familiarity and perceived simplicity
The development is small and NAV commercial terms are unattractive
Bulk agreement negotiations with the incumbent create timeline uncertainty
NAV Decision Framework
When assessing NAV viability, developers should evaluate:
Eligibility Route – Unserved site status is simplest; incumbent consent or large user routes add complexity. Confirm status early through formal requests to the incumbent company.
Bulk Connection Points and Capacity – Where will the NAV connect to incumbent infrastructure for bulk supply and discharge? Does the incumbent network have capacity at those points? Capacity constraints can derail NAV applications.
Programme Risk – Factor in 85 working days for Ofwat appointment plus bulk agreement negotiation time. Compare this realistically against Section 104 timelines for your specific incumbent water company.
Asset Payment Terms – Obtain competitive proposals from multiple NAVs to understand asset payment terms, developer responsibilities, and ongoing service commitments.
Customer Communications – Plan how you'll explain NAV arrangements to purchasers, including regulatory protections and service equivalence messaging.
Lender Familiarity – While largely resolved, confirm that major lenders accept your chosen NAV without additional mortgage conditions.
The Technical Coordination Role
Whether developers pursue NAV arrangements or traditional Section 104 adoption, the technical drawing and documentation requirements remain fundamentally consistent—sewers must be designed to DCG/SSG-aligned standards, construction must be supervised, and as-built records must be comprehensive and accurate.
Technical specialists coordinate these requirements regardless of the adoption route. For NAV projects, coordination extends to managing interactions with both the NAV company (for infrastructure within the NAV area) and the incumbent water company (for bulk supply and discharge connection approvals). Drawing packages must satisfy both the NAV's technical review and the incumbent's connection approval requirements where interfaces occur. Version control remains critical, as changes must be communicated to multiple parties. The fundamental technical coordination role remains unchanged—ensuring that infrastructure is designed, documented, and constructed to adoptable standards, whoever the adopting authority may be.
NAVs and the Competitive Water Market
The introduction of NAVs represents Ofwat's commitment to promoting competition and innovation in water services. For developers, NAVs provide genuine choice—the opportunity to select a water and sewerage service provider based on service quality, asset payment terms, pricing, and responsiveness rather than accepting the incumbent monopoly provider as the only option.
As the NAV market matures and more companies establish track records, developer familiarity and confidence increases. Major housebuilders increasingly include NAV assessments as standard practice during development appraisal, recognising that the right NAV partnership can deliver both financial benefits (through asset payments) and service advantages.
For SME developers less familiar with NAVs, the key is understanding that they represent a legitimate, fully regulated alternative to traditional adoption routes. Engaging with NAV companies early—during site acquisition or planning stages—allows developers to compare options and make informed decisions about which adoption route best serves their specific development's financial and operational needs.
Asset payments, in particular, can materially improve development cashflow at the crucial completion stage. For smaller developers operating on tight margins, this financial benefit alone justifies serious NAV consideration for any development meeting eligibility criteria. Combined with potential service responsiveness advantages, NAVs represent a genuine competitive alternative that SME developers should evaluate alongside traditional Section 104 routes.
If your development requires Section 38, 104, or 278 agreements—or if you're considering a NAV arrangement—and you need technical drawing coordination to ensure comprehensive approvals and successful adoption, contact Sovatech Consulting. We'll work with your professional team to prepare regulatory-compliant documentation, coordinate between consultants, and support you through to complete infrastructure adoption—protecting residents and your reputation.
