The Department selected two bids to proceed to the Best and Final Offer stage

2.12  The Department's assessment of the four original bids showed that none fully met their requirements. They then considered whether the bids would be operationally acceptable and, if they were, whether technical and financial adjustments were needed to bring them more in line with their requirements. The Department judged that, although GPT's bid had initially appeared to offer £48 million more savings than BT's, the way it proposed to meet some of the telecommunications service requirements was not technically feasible. The Department made adjustments to address some of these aspects, and this reduced the estimated additional savings to £12 million. The Department still considered, however, that the GPT bid was not technically feasible. Nortel's bid initially offered £27 million more savings than BT but, after adjusting for aspects which did not meet the specification, the Department considered the Nortel bid would be technically feasible but £26 million more expensive than BT's bid. Figure 8 shows the estimated savings over ten years of all four initial bids before and after the Department made their financial adjustments. Of the three bids which the Department considered were technically feasible, the Department consider that BT's was a clear leader because it offered the most savings and the best solution to their requirements.

2.13  The Department decided they would take only two bids to the next bidding round because they were concerned about the resources and time that might be needed in considering more than two final bids. As a result of this decision they had to choose between Racal and Nortel as the other final bidder to compete with BT. Nortel's adjusted bid was £30 million cheaper than Racal's bid over a ten year period (although Racal's bid would have offered greater savings over a 15 year period).

2.14  The Department chose to invite Racal to participate in the final bidding rounds because they were keen to follow a privately financed solution and believed that Racal's bid which was based on private finance principles would offer more credible competition to BT in the next round and had fewer technical non-compliances than Nortel's bid. Although the Department indicated in their first formal invitation to tender that they would consider a privately financed approach, Nortel told us that, had they known this earlier, when they were putting their bid team together, they would probably not have bid.

2.15  As a result, in December 1995, the Department asked BT and Racal to submit Best and Final Offers, by February 1996. Their revised invitations to tender asked bidders to examine more thoroughly the privately financed proposals they had made in the first round. The Department were not precise in some areas as to what responsibilities they expected bidders to accept (paragraphs 1.19 and 1.20). This lack of clarity contributed to the need for further Best and Final Offers.