15 Competitive pressure is vital to establish economic pricing of construction, services and funding. Competitive pressure is not, however, always as strong as it should be. Issues affecting competition in tendering are: some bidders are deterred by the high bid costs associated with many private finance projects; some projects have specifications that do not attract many bidders because they are inherently difficult to achieve or offer little chance of profit; in addition, in the early days of using PFI the large number of public authorities advertising new projects meant that bidders were selective resulting in weak competition for some projects. Although lessons have been learnt, our 2007 report on tendering found limited overall improvement.2
16 Achieving the benefits of competition also depends on competitive financing markets. The recent credit crisis has made finding competitive and economic funding harder. It has become difficult to achieve competition in financing because each bank is only prepared to lend a small amount, and not always for the full term of the project. Large deals may need all the lenders available to participate in the project.
This is likely to have been a cause of the higher cost of finance since autumn 2008.
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2 Improving the PFI tendering process, National Audit Office (HC 149, 2006-07).