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The cost of repairing utilities equipment: Why does damage occur?

18 November 2020
Our power, water and telecoms utility companies are placed in an unusual and unique position. Their services are laid in public areas such as roads and are subject to the risk of unintended damage from contractors at liberty to excavate in these locations. 

Not only that but they have an obligation to instigate emergency repairs to maintain utility services for the population. It is therefore unsurprising that when the bill lands for the cost of repairs in the post box of the party which instigated the damage, the repair costs look excessively high.
 
Additionally latest figures suggest that the frequency of these utility 'strikes' are actually on the increase, up nearly 50% in some cases compared with the same period last year.
 
Whilst the most worrying aspect of this is the safety of operatives working near life threatening services, and it is also of interest to see construction develop vacuum excavations as an alternative to digging, the high cost of these repairs ultimately borne by the insurance market is becoming much more significant.

Why are repairs expensive?

The repairs are backed by legislation, the New Road and Street Works Act 1991 and additionally the Street Works (Recovery of Costs) (England) Regulations 2002 which provides the basis for the recovery of relevant costs by utility companies. The intent is to ensure the utilities are able to recover the abnormal costs of having maintenance crews on standby and reacting to unplanned emergency situations. On this basis, overheads are charged at levels of +70%.
 
Often, however, the utility companies employ contractors to undertake the repair works and still apply this level of percentage overhead thus appearing to make an emergency situation into a profitable position.

Can these costs be challenged?

Yes.
 
Legislation:
 
The legislation ensures the utilities, provided with an obligation to repair damage to their equipment, are suitably reimbursed. It is not intended the utilities apply the associated high overhead percentage to their contractors who may be employed to undertake the repair work on their behalf. 
 
A section 50 licence is required by anyone other than a statutory authority who wants to undertake work on a highway relating to the installation or maintenance of apparatus. The above Regulations "do not apply to costs or expenses recoverable in respect of any action undertaken in relation to a licence granted under section 50 of the Act." It follows that if a contractor employed by a utility is required to obtain a section 50 licence, the recovery of costs rules are not applicable.
 
Case law:

 
Case law suggests claims need to be considered on a case by case basis, and has catered for an allowance of 7.5% in such cases, which is a major reduction from the +70% overheads element often claimed.

Action

If you receive what you think may be excessive repair costs for utility damage, we can assist in the verification of true costs. 

If you require any further information then please contact Ian Cooper.

Further Reading