70. Bidding processes for PFPs are longer because private finance contracts are more complex, including servicing and maintenance over 25-30 years, while traditional procurement contracts only cover construction. Although more PFI projects are completed on-time and on-budget, some witnesses argued this masked large cost increases which arose during the much longer bidding process. Ms Jaffe said: "Mysteriously, the price between the outline business case, which is at the start of that process, and the final business case at the end goes up fantastically, and so for the first wave of PFI hospitals, for example, it was mostly between 20 and 220 per cent. Some of that may be the public sector saying we want you to add all the twiddles and it has got to be gold-plated and so on, but a lot of it is because the consortia are protecting themselves from failing to provide to cost" (Q 571).
71. These price rises often occur during the preferred bidder stage when the public sector enters into exclusive negotiations with one consortium. The Centre for International Public Health Policy at Edinburgh University noted: "During this period, the private sector can 'hold-up' the public sector, pushing up prices … meanwhile, the scope for public authorities pulling out of such negotiations is limited by the unavailability of other procurement routes" (p 133). The Centre added: "A project that is delivered to time and to budget (in post-contractual terms) may represent poor value for money if the price paid for the risk transfer that led to that outcome was too high" (p 134).
72. The National Audit Office found preferred bidder negotiations lasted on average 15 months for PFPs finalised between 2004 and 2006. In one third of these projects the value of the contract varied on average by 17% (upwards and downwards) of the total project value. The NAO conclude: "Value for money is most at risk during the final stage of negotiations, when negotiation is with a single preferred (or final bidder) and competitive tension is at its weakest" (p 107).
73. Common EU procedures-known as Competitive Dialogue-were introduced in 2006. They seek to eliminate changes late in the procurement process. But the NAO reported: "Our recent study on Building Schools for the Future found some early indications that at least some changes are still being made late in the process. Kent County Council's project experienced seven months delay after the selection of final bidder" (p 107).
74. Preferred bidder negotiations are not exclusive to PFPs and are widely used in conventional procurement projects as well. While competition is reduced at the preferred bidder stage, it should be easier during this stage for a public body to walk away from cost increases than after construction has begun, as can happen in traditional procurement.
75. Substantial price increases are undesirable late in the bidding process whatever procurement path is chosen. Despite the longer bidding process under PFPs-and the associated higher costs-the greater likelihood of projects being completed on time and on budget after the contracts have been signed can be a benefit worth some extra expense to the public sector at the initial stage.