■ Medium Support Helicopter Aircrew Training Facility project: The Department guaranteed payments to the contractor equivalent to a level of usage of 80 per cent of the facility's capacity, across the first 20 years of the contract. The aim was to ensure that the contractor could recover the capital cost of the facility. Actual usage of the facility has been, and is currently, lower than the usage guaranteed to the contractor (Figure 12 on page 27). It is difficult to identify a single cause for the lower than expected usage. Factors that may have caused a discrepancy between the expected and actual usage of the facility may include:
■ the Chinook Mk3 aircraft has not been introduced into service;
■ changes to the timing and numbers of Chinook, Puma and Merlin helicopters procured by the Department; and
■ higher than expected operational deployment during the contract period, which means that aircrew are not available for training.
Overall usage to December 2007 was 64 per cent of the hours guaranteed in the contract. As a result the Department has contracted for guaranteed capacity that it has not needed of 34,000 hours. However usage increased during 2007 to 84 per cent of the guaranteed hours level. If this trend continues the facility will be utilised, in future, at or above the quarterly level relating to the Department's agreed payments to the contractor. If the Department needs additional training above this level it will have to buy additional hours from the contractor at a cost of at least £250 per hour.
11 | The result of not having sufficient robust data | ||
| Project | Result | |
| Armoured Vehicle Training Service | A key part of the deal structure was the transfer to the contractor of the risk of students not passing the training course. Information critical to assessing the risks included historical data on student pass rates and the amount of live resource used in training (such as the usage of ammunition and hours spent in armoured vehicles). The Department did not have sufficient data available or the systems to collect data of sufficient quantity, quality and relevance to enable a robust value for money PFI deal to be agreed. However, the project team advanced the discussions with PFI bidders in the absence of this data. | There were misunderstandings between the public and private sector about the scale of the risk being transferred. The private sector's ability to commit to a structure and price in their proposed solution was limited. After six years the Department decided that a PFI solution would not give value for money. |
| Defence Animal Centre | Detailed information on the condition of the estate was not available to bidders. The Department expected bidders to carry out their own surveys during the bidding process, or at the preferred bidder stage as part of due diligence. The project agreement stated that the contractor should, before the commissioning date, inspect the old equipment and project facilities to ensure that it complied with the availability criteria. The Department was entitled to carry out this inspection jointly. The inspection was not, however, carried out. The contractor and the Department failed to agree the condition of the assets to set the baseline to determine whether the asset was fit for purpose and deemed 'available' in the future. | This information would have helped bidders in their pricing by reducing the uncertainty in the pricing. The contractor was exposed to unexpected cost which contributed to the project's difficulties. As no baseline was set it increased difficulties for the Department in enforcing the performance regime. |
| Main Building | The Department did not carry out additional surveys of the Main Building premises. They were carried out by Modus after their appointment as preferred bidder. The surveys found that further building work would be required because of the condition of the building. Our report on the redevelopment of MOD Main Building recommended that Departments consider the merits of making a detailed survey available to all bidders to enable redevelopment building risks to be priced competitively by all bidders. | There was a price increase in the region of £37 million. Although the Department was satisfied that the work was necessary, the opportunity to benefit from competition between bidders on these additional elements was lost. |
| Tidworth Water and Sewerage | The conventional option used to compare the PFI proposals included investment in new sewerage treatment facilities. As the facility was actually in a better condition than the Department had envisaged, Thames Water chose to repair and maintain the existing infrastructure rather than build a new waste treatment plant. All maps, data, drawings and records should have been made available in advance of the invitation to tender phase. Much of this information was, however, retained by the Department's Establishment Works consultant (EWC). | The public sector comparator understated the good condition of the facility and overstated the investment required by the Department. This information would have helped bidders in their pricing. |
| Heavy Equipment Transporter | Some data on usage of the existing fleet was not available as it had never been recorded. However, in this case the bidder had sufficient information based on the knowledge and experience of their own bid team. | This information could have helped bidders in their pricing. |
| Defence Fixed Telecommunications System | Our previous report on the Defence Fixed Telecommunications System project identified shortcomings with the information the Department presented to bidders, particularly on volume of usage and details of assets.1 This shortcoming was also identified in an earlier report on the Management of Telephones in the Ministry of Defence.2 | Bidders found it difficult to price tariff charges accurately. |
Source: Social Fund Annual Report | |||
NOTES 1 HC 328 1999-00 The Private Finance Initiative: The Contract for the Defence Fixed Telecommunications System. 2 HC 637 1993-94 The Management of Telephones in the Ministry of Defence. | |||