Bid evaluations

2.5  The Agency designed its bid evaluation process to identify the bid with the best combination of quality and price. The Agency initially found that all three of the bidders were technically non-compliant due to misunderstanding requirements. It ran a limited re-bid in January 2008, causing delays of around six weeks but avoided a full re-tender.

2.6  The Agency carried out a financial evaluation on bids meeting its quality threshold. FLOW did not meet this threshold and the Agency did not assess it further. The cost range produced by the Agency's benchmark cost model was between 27-43 per cent more than the lowest adjusted qualifying bid (Figure 6 overleaf sets out the unadjusted and adjusted bids). The Agency concluded that this demonstrated the bids were good value for money. Whilst the bids were significantly below the cost model, the model did not represent a challenging benchmark. The Agency's low estimate of operation and maintenance costs, based on the Agency's previous experience, was between £1.0 billion-£1.5 billion higher in cash terms, than the costs assumed by the bidders.

2.7  The Agency commissioned a report to compare its estimates with the bids. This identified a number of issues in the preparation of the Agency's cost data. The Agency satisfied itself that the lower priced bids were robust but did not carry out detailed analysis of the reasons for the differences from its estimates.

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Figure 6 Comparison of standard tenders to the Agency's estimates

NOTE

1  Using a discount rate of 3.5 per cent.

Source: Highways Agency

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2.8  The Agency did not intend to use its benchmark cost model to estimate the likely cost of a privately financed solution. In our experience an accurate 'should-cost' model for private finance projects can help in planning financial resources and bid negotiations as well as assisting the identification of ways in which conventional procurement can be improved. This is particularly critical in the current environment of spending constraints.8

2.9  The Agency adjusted and ranked Connect Plus's and ALF's standard and variant bids. The bids were close: Connect Plus's best adjusted bid had a net present cost of £3.021 billion, while ALF's was £3.057 billion. The Agency selected Connect Plus as Provisional Preferred Bidder (announced in May 2008), as it offered better quality at a lower price.

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8 We referred to concerns over the Agency's lack of information on the cost of its maintenance work in our report Contracting for Highways Maintenance, HC 959, 16 October 2009 published after the letting of the M25 widening contract.