Selection of preferred bidder, premature end of bidding process and increase in costs-did bidders estimate their costs after selection and what were they.
As the NAO Report "Were they good deals" points out in paragraph 2.19, the policy of maintaining reserve bidders had drawbacks, but no realistic alternatives were available. The option of pursuing a full reserve bid would have only doubled the bid costs with little value for money and would not have been attractive to those reserve consortia selected. As Figure 14 in the Report illustrates, the cost increases for Tube Lines are significant after the selection of preferred bidders in May 2001.
The appointment of preferred bidders was necessary to ensure that the selected consortium and their backers retained confidence in the bidding process. The consortium were reluctant to commit to detailed negotiations and preparation unless selected as a preferred bidder.
On the issue of recovering costs, successful bidders in any tendering process have to recoup their costs through the prices they charge for their services. In the PPP these are not an upfront cost to the public sector. Instead they are recovered through a component of the monthly Infrastructure Service Charge. While the bidders did not provide an exact estimate of their costs after selection, the scale of these costs was known since they largely relate to items such as legal and financial transaction costs which any preferred bidder would have had to incur prior to concluding the contract. As such, they were part of the cost that was evaluated as being better value for money than a public sector alternative. So the £114 million and £134 million paid to Metronet and Tube Lines respectively were included within the PPP process and pricing before the contracts were closed.