2.18 The Departments were concerned by the fact that Mapeley STEPS' bid was significantly cheaper than the other bids, as well as the PSC. In order to evaluate whether it could deliver the deal at this price, the Financial Review Groups tested the robustness of its financial model and examined in more detail some of the key assumptions that underpinned the bid. This analysis showed that the funding structure was robust under most scenarios examined, but that it may be vulnerable to increases in life cycle and annual maintenance costs. Assuming the most extreme variances in these costs over the life of the contract suggested that there was an 11.5 per cent probability that Mapeley STEPS would breach the terms of its debt repayments. The Departments' property advisers, Insignia Richard Ellis, reviewed Mapeley STEPS' costs in these areas and stated that they had no concerns about the life cycle costings but that some caution needed to be taken as to the robustness of its bid in the area of maintenance. The Departments calculated that the level of variance suggested by their property advisers would result in a reduced probability of 1.3 per cent that Mapeley STEPS would breach the terms of its debt repayments.
2.19 The Departments were also concerned about the assumptions made on property disposal income in the first year of the contract. The Departments commissioned work from their property advisers, who stated that the annual figure of some £6 million for disposals did not cause them concern, but that, if the timing of the receipts was critical to the robustness of Mapeley STEPS' bid, the property advisers would have concerns about its ability to achieve this receipt in the first year. Another area of the bid that varied significantly from the other bids as well as the PSC and historical data was that of security costs. Mapeley STEPS included an annual cost of £1.26 million in its bid, whereas the other bidders allowed an average of £6.8 million. The Departments were aware of this costing and took the view during negotiation that this was partially offset against a possible overpricing (some £2.2 million) of the amounts that Mapeley STEPS had allowed in its bid for payments of rent to landlords.
2.20 Mapeley STEPS was selected as the preferred bidder in 2000 and, following detailed negotiations, the contract was awarded in March 2001 to Mapeley STEPS Contractor Limited (registered in the UK) which will provide the services, and Mapeley STEPS Limited (a property holding company registered in Bermuda). There was no material increase in the bid price between its selection as preferred bidder and financial close. This was facilitated by a Memorandum of Understanding (MoU) agreed between the Departments and Mapeley STEPS which set out how outstanding issues would be resolved between the two parties.