2.2 To ensure that the necessary finance will be available when a contract is signed, current practice in PFI procurement is to require contractors to demonstrate that they have committed funding for a project at a relatively early stage. This may be considered particularly important if capital costs form a large proportion of the total value of a deal. The funding package used by a bidding contractor as the basis for their bid has to be competitively priced if the bidder is to maximise its chances of winning the procurement competition. For this reason, a contractor may have chosen financiers to support its bid through a competitive process, albeit at an early stage in the procurement. If selected as the preferred bidder, however, a contractor will usually be tied into a particular funder or group of funders until financial close of the deal. This approach may not always result in the best value for departments.
2.3 Funders are more likely to offer better terms if they are invited to bid against one another for the financing after a preferred bidder has been chosen and the project risk profile is defined. Departments and their financial advisers should therefore consider whether the introduction of a funding competition after the appointment of preferred bidder could offer better value.
2.4 Deciding to obtain financing after a competition is not without significant risks. The greatest risks are that the project will not attract competitively priced funding and that the funding competition will increase the time and cost of the procurement process. A well managed competition should avoid these risks. However, running a funding competition is a complex undertaking requiring experienced and qualified people acting for both the public and private sectors. If, in the judgement of a department and its advisers the risks of the competition and the complexity of the process outweigh the potential benefits it would be sensible for the PFI procurement to proceed without a separate funding competition.
2.5 If a department decides that project financing should be obtained via a funding competition, legal advice will need to be sought regarding the roles of the various parties and the best way to structure the competition. The funding competition to obtain financing for the Treasury building project was run by Exchequer Partnership which had the responsibility for the procurement of the finance. The reasons for this approach are described at paragraph 1.11. Where a department wants to organise a competition with different allocations of responsibility it should take appropriate advice to ensure value for money is optimised and any relevant legal requirements are met.