5.19 A PFI transaction is one of the most complex commercial and financial arrangements that a procuring authority is likely to face. It involves negotiations with a range of commercial practitioners and financial institutions, all of whom are likely to have their own legal and financial advisers. Consequently, procurement timetables and transaction costs can be significantly in excess of those normally incurred with other procurement options.
5.20 These factors will also have an effect on the private sector's ability to compete for PFI transactions. Private sector sponsors of such projects will incur significant bid costs, both internal and external. The extent of these will affect their ability to bid for other PFI projects. Higher than expected bid costs can also lead to an increase in costs in the PFI project and in the longer term can limit competition for projects and/or increase the equity return sought for investment in such projects.
5.21 It is key, therefore, in achieving VfM for a PFI transaction that a realistic competition is maintained, but this is only likely to be the case if the public sector keeps tight control of these transaction costs and completes a realistic assessment of what will be necessary to ensure a competitive market for their project that minimises these costs for both public and private sector.