6. In requiring Exchequer Partnership to hold a funding competition, the Treasury aimed to obtain funding at the best available price, and to persuade project flinders to accept standard contract terms for future PFI deals. Both of these objectives were achieved.2 Previous guidance from the Treasury had suggested that it was sufficient to have a single competition to optimise the separate elements of a PFI deal, so we asked whether the use of a funding competition was a departure from this guidance.
7. The Treasury said that this deal had been the first to use such a competition and represented an innovation in PFI procurement which could be extended elsewhere. Funding competitions should always be considered for future projects and departments should retain the right to ask bidders to conduct one. The method was particularly suitable for projects that had been developed to a stage where they were commercially viable, as flinders would be unlikely to refuse to fund them. Indeed, for large projects that were not too complicated, funding competitions could become common practice.3
8. Asked whether funding competitions should be used in all PFI deals, the Office of Government Commerce considered that they should not. Such competitions were a sophisticated technique which should be used carefully, and as set out in the Comptroller and Auditor General's Report there were many criteria to consider before deciding whether a particular project would be suitable. Nevertheless, the right to request a competition should always remain a credible option for departments to take.4
9. The Office was in the process of getting agreement within the public sector on detailed criteria for the use of funding competitions. There would be guidance to departments that they should reserve the right to require a preferred bidder to run a funding competition. The existence of such a right would introduce additional tension into the procurement process to secure competitive financing arrangements.5
10. The Office of Government Commerce also believed, however, that there were other ways in which departments could take a close interest in the funding of a PFI project which need not necessarily mean holding a financing competition. Departments should always consult their professional advisers on whether any proposals put forward by bidders were competitive and to what extent bidders had explored the various ways in which a particular project could be financed.6
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5 Q11
6 Q12