3 The Home Office deal benefited from a good project team backed by good advisers. Shortly before financial close, the Home Office brought in a Senior Project Manager from another government department who was experienced in managing major construction projects, while retaining key staff. We recommend that a team with the right skills and experience is put together early on in the deal and where possible is retained after the contract is let in order to maintain continuity.
4 The Home Office was able to work with the Office of Government Commerce and therefore take account of the wider context of the Government's accommodation needs. The Department for Constitutional Affairs commitment to take over the Queen Anne s Gate lease will result in a saving to the Home Office and shows that there is an important role for the Office of Government Commerce to play in developing a structured long-term strategy for office accommodation in Westminster.
5 Departments should always allow bidders the opportunity to come up with new ideas such as the variant bid to redevelop 2 Marsham Street. Such suggestions should be tested thoroughly, for instance as the Home Office did by extending the competition and requesting Further Best and Final Offers from all bidders.
6 During Further Best and Final Offers and preferred bidder selection, the Home Office worked hard with AGP to reduce risk and therefore any premium for inappropriate risk transfer, and the extent to which prices were conditional and subject to later changes. Although having selected AGP as preferred bidder, it still took 20 months to reach financial close, the Home Office considers that the time spent driving out conditionality was worthwhile as reflected in the final terms of the contract and the relatively small overall increase in price between preferred bidder selection and financial close. Departments should seek to achieve an appropriate balance between reaching financial close quickly and reducing risk and price conditionality as the Home Office did here.
7 Departments should always ensure that the funding provided is competitive. In this case AGP competed part of the equity and subordinated debt financing for the deal, researched both bond and bank options for the senior debt and competed the reinvestment of the bond issue proceeds.
8 The use of residual value finance brought down the price of the annual combined payment. This form of finance may be appropriate to other PFI accommodation deals. We would expect departments and their advisers to have considered the merits of such a form of financing in future deals.
9 The Home Office negotiated an option, whereby in the event of an early termination of the contract by the Home Office, it could avoid the immediate payment of outstanding capital on the bonds and instead elect to pay over time. This would give it flexibility in its options if it needs to terminate the contract early and avoid a large cash outlay in one financial year. We recommend that when negotiating future PFI deals, departments consider whether this option could offer improved value for money.