A total of pounds 1.9m worth of consultancy work was carried out by Indepen, a company with expertise of the regulatory business, without Ofwat providing detailed job specifications. There was no overall monitoring of the spending and the daily rates paid by different departments to the consultants were not checked across Ofwat.
The management consultancy was first awarded in July 1991 by Ofwat to Indepen, and initially the work was on a very small scale, involving fees of just pounds 8,000.
However, over the next four years, the company carried out work for the water industry regulator worth pounds 1.27m without ever having to go through a tendering process. Approval was obtained for this work from the Treasury.
Ofwat then sought an ex-tension of the contract at an estimated cost of pounds 375,000. Although the Treasury was initially contacted about whether the consultancy work should be put out to tender, the issue was not pursued and the extended contract was awarded to Indepen.
The budget was subsequently increased during the course of 1995/96 to pounds 525,000 and eventually pounds 645,000 was paid to Indepen that year.
Although Ofwat claimed to have carried out an evaluation of the work carried out by the consultants and found that it provided excellent value for money, according to the NAO "no documentary evidence of the check was retained".
The NAO criticises Ofwat for its failure to obtain Treasury approval for the contract extension, for the lack of compliance with directives from the European Commission, and failure to co-ordinate the work required under the contract.
The NAO also criticised overspending by Ofwat of pounds 400,000 in 1995/96 which came to light too late for Ofwat to get parliamentary approval.
A spokeswoman for Ofwat said: "We have changed our procedures following the NAO's advice. As for the overspend, we could have got round this by not paying bills for a couple of weeks."
The contract for management consultancy was won by Pareto, from August 1996.Reuse content