3.5 Before the announcement of the preferred bidder, one of the three short-listed bidders withdrew. DVTA told us that this was due to the fact that the preferred bidder would have to commit significant funding to the project before contract signature, with no guarantee that this would be recouped if the project did not proceed. In addition, we consider that one of the two remaining bids was not PFI compliant, due to the absence of any realistic proposals for risk transfer. In our view, this left DVTA with only one viable bid.
3.6 Experience gained on later PFI projects in other organisations has shown that failure to attract a significant number of bidders may indicate potential problems with the viability of proposed projects. Some organisations have reimbursed a proportion of bidders' costs for major PFI projects, in order to encourage competition and secure an appropriate range of bids. In January 2003, the NAO commented that "Departments should take it as a warning sign that their proposed PFI projects may not be workable if few bidders show initial interest and others withdraw as the procurement process continues."6 This view was subsequently reinforced by the Public Accounts Committee (PAC) who stated that "a single bid for a major complex project is seldom likely to achieve value for money."7
3.7 Treasury Taskforce (TTF) guidance on PFI procurement specifies terms for compensation that should be awarded in the event of a contract being terminated due to operator default. DVTA told us that it viewed the acceptance of these terms as crucial in concluding contract negotiations, but, after the preferred bidder was appointed in April 1998, it encountered difficulty in finding a bank willing to accept these terms. One bank was unwilling to conclude a contract on this basis, and there were prolonged negotiations with another on the matter before it agreed to provide funding.
3.8 The software suppliers initially appointed by the preferred bidder withdrew from the project, and were unwilling to disclose the reasons for their withdrawal. When replacement suppliers were appointed, they carried out a re-appraisal of IT requirements and identified potential additional costs of almost £7 million. However, following negotiations, DVTA succeeded in reducing this to £5.2 million.
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6. "New IT Systems for Magistrates Courts" (HC 327, Session 2003-04).
7. "New IT Systems for Magistrates Courts" (HC 434, Session 2003-04).