1.14 In November 2004, the Agency assessed options to procure the widening of Sections One, Two, Four and Five of the M25 (it linked Section Three to improvements on the A2, progressing this work separately). The Agency assessed three options:
• multiple conventional contracts;
• multiple private finance contracts; and
• a single private finance contract.
1.15 The Agency's preference was for a single private finance contract. It did not assess a single conventional contract, considering, based on experience, that industry would be unwilling at that time to take on conventional contracts worth more than £250-£350 million. The capital cost of the M25 project was over £1 billion.
1.16 The Agency had experience of private finance, awarding its first four contracts (known as Design, Build, Finance, and Operate contracts) in 1996.6 By 2004 it had let 11 such contracts, covering nearly 10 per cent of its 4,500-mile road network.
1.17 The Agency had a target to use private finance for 25 per cent of its road programme. It identified that projects likely to deliver savings were ones that include a large element of capital expenditure, spread over an extended period, and in which the relatively high costs of tendering are proportional to the value of the contract. The M25 project met these criteria.
1.18 The Agency considered that a single private finance contract would be advantageous for the construction and the operation of the M25 because:
• Construction - contractors could achieve efficiency by using the same arrangements, such as appointing subcontractors for all sections; and learn lessons for later sections. A single private finance contract could also reduce the risk of delays on earlier contracts causing delays on later contracts, known as interface risk.
• Operation - a single company responsible for the M25 would have easier interactions with third parties such as the emergency services, and the opportunity to make operating efficiencies.
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6 We reported on these schemes in Department of the Environment, Transport and the Regions: The Private Finance Initiative: The First Four Design, Build, Finance and Operate Roads Contracts, HC 476, January 1998.