E Where there is a lack of data, and therefore certainty, bidders may reflect this in their prices and so it is in a department's interests to have the complete and appropriate data that the bidders require to price their bids. If such data on an estate cannot be assembled in good time, a joint survey with the bidders should always be considered. This ensures that all bidders are working to common assumptions and reduces bidding costs. Even then, material uncertainties may remain ahead of selecting a preferred bidder and, in such cases, an adjustment mechanism could be incorporated, based on strictly factual data such as area and title. In the STEPS deal, the Departments realised early on that they did not have high quality estate data and they therefore commissioned a joint survey from their property advisers.
When considering a deal involving the transfer of a large number of freeholds and leaseholds, departments should assemble appropriate and high quality estate data based on bidders' pricing requirements.
F Ahead of signing the contract, the Departments had not given a high priority to analysing the possible termination scenarios. This weakened their position in the face of Mapeley STEPS' stated financial situation. The Departments took further advice to clarify their position in the light of the particular circumstances which faced them and have subsequently assigned roles and responsibilities in the event that termination should occur.
Departments must always have a business continuity plan to cover termination (whenever it might arise) and its impact. This understanding must encompass how termination would be effected, where key responsibilities would lie, and what continuity arrangements would be in place.
G In STEPS, the performance measurement system was not tested fully before implementation although a three month period was created to allow the system to bed down. However, early on in the deal Mapeley STEPS considered that the performance measurement system was not providing sufficient incentives and it is currently under review.
Performance measurement systems are an important element in the risk transfer of a PFI deal. Where possible, therefore, performance measurement systems should be agreed before contract signature and tested prior to implementation. Both the contractor and the department should have the ability to review progress after an initial bedding in process, as in the STEPS deal.
H Key staff in both a department and a contractor can move on shortly after deal signature. As was demonstrated in the STEPS deal, the corporate knowledge of a deal must be retained in a department until a contract has bedded in.
Alongside a well developed succession plan, key staff should be retained as far as possible for the contract bedding-in period.
I The joint procurement of STEPS has demonstrated a number of benefits both for departments and for bidders, for example, reduced costs and a more attractive portfolio of properties.
Other Government departments should consider joining together to enhance the value for money achievable in any future procurements of this type.
J Mapeley STEPS' bid was based on returns over a 20-year time horizon with operating profits expected to be minimal. Mapeley STEPS also assumed that it would win other business on the back of this deal.
This approach makes the deal high risk for Mapeley STEPS and it therefore included a much higher level of equity than is commonly found in PFI deals. This has helped to tie in the shareholders and reinforced their commitment to the deal.
The capital structure of a deal must be consistent with the risks involved in the project.