5.31 Undoubtedly, high bid costs and long procurement times can represent a concern for both the public and private sector, can impair delivery and value for money for the public sector and limit companies' capacity to bid for projects. Several companies have found that new technical guidance published by the Accounting Standards Board on how to account for pre-contract costs increased the impact of up-front costs. The guidance required some bidders to recognise as costs in the year incurred the expense associated with PFI bids, which previously they had been able to capitalise, and has increased the sensitivity of some companies to bid costs.
5.32 The Government recognises that bid costs and procurement timescales for PFI transactions will always be somewhat longer than for conventional procurement. Unlike other forms of procurement, PFI projects benefit from whole-life costing over 30 years, involving both construction and service delivery, and a full competition for design with extensive involvement of users in deciding upon the preferred solution. Bidders must invest time and money in planning bids in some detail and persuading others to fund their proposed scheme. The Government believes this process leads to a greater degree of up-front due diligence by both public and private sectors and detailed analysis and negotiation of the risk aspects of a project. The evidence in Chapter 4 suggests this greater effort at an early stage of a project's development has significantly improved project outturns to the benefit of the public sector.
5.33 The cost of bidding for PFI projects will always place some constraints on the private sector in its ability to bid for large number of PFI projects. HM Treasury's research into PFI companies suggests that the cost of bidding for PFI projects can be a consideration as important as the funding of an investor's equity and subordinated debt investments. In funding such costs, a key consideration for the private sector is its success rate in winning bids. Irrespective of success, however, the aggregate level of bid costs expensed in a year does limit the number of bids a company can undertake in that year, usually determined by the overall financial capability of the contractor.
5.34 The Government does reimburse bid costs in certain very limited circumstances, where it is deemed that the increased competitive tension created by assuring bidders that costs will be covered provides value for money in the procurement, but the Government does not believe that this is a potential general solution, for the following reasons:
• to the extent that high bid costs represent wasted or duplicated work, the Government's aim should be to reduce these costs, rather than allow them to persist by funding them;
• to reimburse the bid costs of losing bidders will in effect subsidise less successful PFI companies or artificially discourage them from redeploying resources to other PFI opportunities where this could be more successful; and
• it will reduce the competitiveness of bids by limiting the downside faced by losing bidders. The Government wishes to maintain competitive tension throughout a procurement.
5.35 The Government's drive to improve public sector capacity is the best, most sustainable solution to problems associated with bid costs and delays in procurement. To this end, the Government's approach which is set out in more detail in Chapter 8 will be to:
• improve the enforcement of standardisation;
• develop new procurement models and reinforce procurement expertise to the public sector, to ensure all departments operate as best practice clients;
• improve the transparency of the future PFI programme to encourage private sector investment; and
• continue to encourage new entrants into the PFI market, including firms currently active outside the UK.