1.11 In the absence of a funding competition, the normal means by which PFI projects are funded is for the private sector bidder to negotiate with external funders, such as banks. Having decided that the funding should be obtained after a competition, there were several options open to the Treasury as to how the competition should be run. One option would have been for the Treasury itself to run a funding competition. But there are compelling reasons why the private sector bidder should usually run a funding competition:
a It is the bidder who must convince its lenders and investors of the robustness of the project and therefore its credit worthiness. It is also the bidder who must develop a long term relationship with the lenders.
b Due diligence on the sub-contracts which a bidder proposes to enter into must, in the first instance, be a matter for the bidder and the bidder's financial advisers.
c The obligation to obtain funding remains with the private sector bidder.
Accordingly, Exchequer Partnership was required to run the competition, albeit with proactive involvement from the Treasury and its advisers as the financial consequences (in terms of price) of the competition would be borne by the Treasury.
2 |
| Advisers used during the funding competition |
Parties to the Competition Advisers | The Treasury | Exchequer Partnership | Funders |
Legal | Berwin Leighton | Ashurst Morris | Allen & Overy |
|
| Crisp |
|
Financial | Dresdner Kleinwort Benson | Société Générale | N/A |
|
|
|
|
Technical | Gardiner Theobald | N/A | WS Atkins |
| management services |
|
|
Insurance | Willis Corroon | CE Heath | Marsh |
|
|
| Bankrisk services |
Source: National Audit Office |
1.12 A funding competition would not yield its full benefits unless the process was well managed. In this first use of such a competition it was also presentationally important for the Treasury that the competition should be perceived as successful. Before embarking on the competition, the Treasury and Exchequer Partnership agreed formally how the competition was to be run and managed. There was to be a three stage process: pre-qualification to identify suitable bidders, a long list, and then a short list.