Comparison with conventional procurement

2.21  The Agency based its view that the deal was still value for money on a comparison of Connect Plus's price of £3.4 billion against an updated estimate that the cost of procuring the widening conventionally, through multiple contracts, would fall within a range of between £3.4 billion and £4.2 billion (Figure 8 overleaf).12 The comparator was updated from the Agency's 2004 estimate, which was £3.6 billion in 2006 prices.13 In updating its comparator the Agency drew on operation and maintenance cost information in its benchmark cost model.

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Figure 8 Final value for money comparison of Connect Plus's bid to a conventionally procured option

NOTES

1  2007 prices.

2  Using a discount rate of 3.5 per cent.

3  The present value of construction cost, including development, in Connect Plus's bid was £0.9 billion. Operational and maintenance costs were £1.6 billion.

Source: National Audit Office analysis of Highways Agency data

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2.22  There were, in our opinion, other factors which the Agency should have considered in its comparison:

•  The present value of the Agency's lowest estimate of operation and maintenance costs was £0.4 billion higher than Connect Plus's equivalent costs in its final bid. We consider that there should have been scope for reducing the Agency's estimate of these costs under conventional procurement as the market was becoming more competitive in the economic downturn of 2009. In addition, in pricing the contract when its financing costs rose in the credit crisis, Connect Plus built in conservative assumptions for maintenance costs over the full 30 years of the contract. The Agency considers, however, that renewing conventional maintenance contracts every five years would lose efficiencies which a single contractor can deliver over 30 years.

•  The private finance cost excluded the £68 million for risks the Agency had accepted back in addition to the contract price.

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12 In an answer to a question in Parliament in June 2009 the Agency assumed that operation and maintenance cost would have been in the middle of its range for conventional procurement costs to demonstrate that the private finance solution at £3.4 billion was cheaper than a conventionally funded solution at £3.8 billion.

13 It had been £2.7 billion in 2001 prices (Figure 3).