2.9 In the three market tests to date, one resulted in the provision of service being taken back in-house (Sussex Partnership NHS Trust) and two have been won by the incumbent supplier (Norfolk and Norwich University Hospital, and Queen Elizabeth Hospital, Greenwich). New external suppliers bid but were not successful in these three initial market tests. In both cases where the incumbent won, the process was competitive with alternative suppliers putting in bids. For example, in the case of Norfolk and Norwich University Hospital, there were initially 16 expressions of interest by suppliers; after checks, this was reduced to six, and then to three for the final stages of the market test. Similarly, in the case of Queen Elizabeth Hospital, Greenwich, there were three alternative suppliers in the final stages of the market test. In both cases the alternative suppliers, having submitted bids, were unsuccessful in winning the competitions.
2.10 In any recompetition of a service contract the incumbent is often in a strong position to win, even if its tender is not the most competitively priced, for several reasons:
■ The incumbent may have better knowledge and access to data to help with its bid.
■ If the incumbent is also providing services relating to the infrastructure of the building (hard FM services) then its management costs are spread across a broad range of services, hence its bid price can be lower, and also its lines of communication with the authority are more straightforward.
■ Assuming that the incumbent has built up good relationships with the authority, the authority may place high importance on those relationships and there is a perceived risk that a different contractor may not perform according to their tendered bid. As a result the authority may factor these risks into their assessment.
2.11 There is a possible risk to the competitiveness of future PFI market tests if, for any reason, bidders lose interest in competing. Some suppliers may conclude that there is little chance of any gain in competing against the incumbent if incumbents continue to win a very high proportion of these competitions and so may decide to save the time and cost of putting together a bid. However, in other outsourcing markets, where the costs of bidding are relatively low, companies may still be willing to bid, even where they perceive a low probability of beating an incumbent, in order to put competitive pressure on the incumbent to remove the opportunity for it to make excessive profit. In our view, for market testing to work most effectively there needs to be demonstrable examples of new suppliers winning these competitions in order to maximise the likelihood of strong competitions in future. To facilitate competition, the market test must be seen to be rigorous and equitable, with a transparent assessment procedure and detailed feedback to unsuccessful bidders. The Treasury is seeking to facilitate a market in benchmarking and market testing through publishing details of ongoing services that will be put out to competition. The Treasury intends to make this available on PUK's website.