2.4 The Department retained the interest of both bidders until they selected BT as preferred bidder in November 1996. This was despite BT's dominance and the fact that the Department requested two further bidding rounds after the first Best and Final Offer. The Department calculated that in their third Best and Final Offers BT offered savings which would reduce the project costs by some £60 million, or five per cent, and that Racal had improved their previous bid by £30 million, or two per cent. These price reductions secured at the final bidding round suggest that bidders felt they were under competitive pressure. Although the Department made more accurate information about their systems available at the later stages of the competition, in the absence of competitive pressure there would have been no incentive for bidders to use this information to reduce prices.
2.5 In order to achieve a good contract price it is important for a procuring body to maintain competitive pressure for as long as possible, to prevent one bidder from having excessive negotiating power. This must be balanced against imposing higher costs on bidders by retaining them in the competition when they are unlikely to win the contract. We spoke to both BT and Racal and they both felt there was a genuine competition up until November 1996 when BT were selected as preferred bidder.