13 A specially-created company will construct the Tunnel, and is incentivised to bring the Tunnel into operational use sooner than planned. The Department appraised the costs and benefits of different delivery models (by the public sector, or by Thames Water, or a separate company with contingent government support), before deciding to support a separate infrastructure provider. Bazalgette was appointed in August 2015 to design, build, commission, finance and maintain the Tunnel, following a competition run by Thames Water. Through a separate procurement competition Thames Water started, Bazalgette contracted with three consortia to build the three sections of the Tunnel. In August 2015, the project plan was for the Tunnel to be operational by 2024, though Bazalgette has given contractors incentives to complete construction earlier (paragraphs 1.10, 1.11 and 3.2).
14 Eventual costs to customers are uncertain. Thames Water's customers will ultimately fund this project, with their contributions depending on the final cost. Tunnel costs added £13 on average to Thames Water customers' annual bills in 2016-17 (in 2016-17 prices). Thames Water has forecast that the peak impact of the project on the average annual household bill will range from £20 to £25 (in 2016-17 prices) in the early 2020s. This projection assumes cost overruns are no higher than 30% of the £3.2 billion target price for the project works; although government considers the probability of this occurring to be below 5%. The lower than expected cost of finance has helped to reduce the expected impact of Tunnel costs on household bills from the 2011 prediction of between £70 and £80 a year (paragraphs 3.4, 3.7 and 3.8).
15 Cost estimates have risen over time during planning, but have remained relatively stable since 2011. Between 2006 and 2009, the cost estimate for the preferred Full Tunnel option increased from £2.2 billion to £4.2 billion in 2016 prices (Figure 11), with Ofwat's consultants attributing increases mainly to more realistic cost estimates. Since 2009 estimates have periodically increased (largely due to scope changes aimed at mitigating the risk of failing to achieve planning consents), and decreased (due to Thames Water's modelling refinements after 2007 which allowed the design of a shorter tunnel). The current £4.2 billion estimate consists of £3.2 billion of works Bazalgette will undertake (including £0.5 billion contingency), and Thames Water's enabling works estimated at £1.0 billion. Experience from costs on the Tunnel's 'sister' project, the Lee Tunnel, has been used to improve estimates for the Tunnel. By completing construction early, Bazalgette is aiming to reduce project costs, which could potentially reduce costs for customers (paragraphs 3.5 and 3.6).
16 The Department estimates that the benefits of the Tunnel will exceed the costs, although both are uncertain. Cost-benefit analysis was not critical to the government's endorsement of the Tunnel option, but it provides important information on whether the overall benefits justify the costs. The Department has estimated that the benefits of the project will be between 1.8 and 3.1 times greater than the costs. Estimated benefits are highly sensitive to assumptions used to extrapolate from the surveys, and the ratio has varied considerably during project development. The Department's estimate does not reflect some important but uncertain benefits, such as averted fines payable for non-compliance with the Directive. Approximately 60% of the estimated annual benefits accrue to households outside of Thames Water's service area, although only Thames Water customers will pay towards the Tunnel's costs (paragraphs 3.9, 3.10, and Figures 13 and 14).