| 23 As a result of this examination we have identified the following key learning points for future projects, a number of which are reflected in the Department's current guidance: |
1 Where there are interrelationships and potential synergies between different services departments should appraise their strategy for delivering all such services before developing a long-term project for any of them. They should also be open to suggestions from bidders as to how to draw the boundaries of a project to maximise value for money. After letting a contract a department should reassess the scope of the project at periodic intervals during the contract period and prior to any further competition. The Department's 1998 guidance "Private Finance Initiative Guidelines in the Ministry of Defence" emphasises the need for those procuring a Private Finance Initiative project to consider how possible solutions to their service requirements fit in with wider departmental needs and strategy and where exactly the boundaries of these requirements should be drawn. | |
2 Even where departments have in-house staff with expertise in traditional forms of procurement, they should still consider at the outset what additional skills external advisors can contribute to a privately financed project. It can be a false economy not to make use of external advice. Advisors should be appointed through competition. The 1998 guidance stresses the importance early in a project of identifying what outside skills might be necessary. To this end the Department have established a framework of contracts with a range of consultancy companies and lawyers who can offer advice on Private Finance Initiative projects. | |
3 Departments should, with their advisors, make use of the Treasury's new guidance on contract terms to develop a set of proposed contract terms. They should then ask contractors to price their bids on the basis of these terms. This will enable departments to obtain competitive bids based on terms which meet the departments' requirements and should help avoid protracted negotiations once they have appointed a preferred bidder. Departments should review how the contract terms work in practice to inform their negotiations of future deals. The 1998 guidance recommends that the Department should, with their advisors, draft contract terms and conditions and invite bidders to comment on these. The Department are also preparing guidance on Private Finance Initiative terms relevant to the defence sector to supplement the Treasury's guidance. | |
4 Departments should reserve the right to modify the bidding process in any way which seems likely to improve value for money. In this project, for example, the Department obtained significant price reductions by asking the final bidders to reassess their bids before selecting the preferred contractor. Departments should be careful, nonetheless, to avoid making a general practice of asking for further rounds of bids as bidders would be likely to anticipate this and take it into account when making their opening bids. They should also try to avoid increasing bidding time and costs unnecessarily. The Department's guidance contains advice on the advantages and disadvantages of asking for an extra round of tenders. | |
Paragraphs 2.36 and 3.14 | 5 Departments should consider whether benchmarking prices before contract signature can help their position in negotiations. In a field like telecommunications, where prices change frequently, they should also regularly benchmark contract prices against prices charged by other suppliers for comparable services. This is common industry practice to assess the value for money of services provided, and is being followed by the Department in this contract. Benchmarking also assists discussions about prices, where the contract allows prices to be adjusted if they are uncompetitive. There is no reference in the Department's guidance to the use of benchmarking techniques before contract letting. |
6 Where a contract provides for regular price adjustments departments should ensure that they are able to receive the benefit of downward price adjustments at least as frequently as they bear upwards price adjustments. Although the 1998 guidance deals with price variation issues, it does not deal with the frequency with which indexation formulae should be applied. |