3.17 Authorities believe that some delays could be traced partly to the private sector and this was confirmed by PFI advisers to whom we spoke. Two issues create avoidable delay, risking higher costs and poorer value for money:
a) Attitude of the preferred bidder to negotiations
3.18 While it should be as much in the interests of the preferred bidder as the Authority for financial close to be reached quickly so minimising as far as possible the costs of putting a PFI deal in place, this is not always true in practice. Once chosen as a preferred bidder, contractors have the security of knowing that they are virtually guaranteed the contract. Authorities saw this as a primary cause of delays post-preferred bidder selection, citing examples such as contractors ignoring the contents of preferred bidder letters to which they had signed up, failing to produce timely information and regularly missing agreed milestones.
3.19 These risks underline the importance of public sector Authorities having access to and using strong commercial and negotiating expertise. As the example in Box E indicates, the conduct of private sector contractors can be influenced strongly by the presence of commercial experience within the public sector procurement team, as well as by sufficient prior development of the project specifications.
BOX E |
The importance of actions by public sector procurement teams to prepare for preferred bidder negotiations A PFI hospital project team had a very conscious strategy of making sure that it had gone into enough detail in its specification and in its evaluation clarification questions to make sure that negotiations, other than outright back tracking by the preferred bidder, were minimised. This worked and bidders remarked upon it. |
b) The position of funders in PFI deals can be uncertain and may introduce delay
3.20 In bidding for a PFI deal, bidders have to demonstrate that they will be able to fund the construction of an asset before they are selected as the preferred bidder. As most bidders will usually seek to borrow the money required, they need to satisfy potential lenders that the deal represents a sound investment. Many funders are not, however, prepared to commit significant resources to examining a deal in detail until a preferred bidder has been chosen. In one project, terms were agreed with bidders but then rejected by the funders and the commercial basis of the deal had to be re-opened, which led to delays in reaching final agreement. Box F. For the future, the introduction of funding competitions for larger deals should help to prevent this problem.
BOX F |
The position of a preferred bidder's funders was uncertain and caused delays "Negotiations [to close the deal] would have been smoother if the preferred bidder had involved its funders at an earlier stage. It became obvious that the bidder started to talk to the funders in detail only after it had negotiated the contract with us. We were then left to re-negotiate points that the bidder couldn't agree with the funders, leading to a delay of three months." (National Roads Telecommunications Services project) |