4.6 A number of aspects of the contract could have been strengthened to protect the Department's interests further (see Figure 7 and paragraphs 3.20-3.21). In addition, the Department's project team were not aware of the latest market thinking on procurement procedures (paragraph 2.8). In our view the Department would have been in a stronger position to negotiate a contract which better protected their interests if they had:
■ brought their legal team together at the planning stage;
■ identified firms with the most relevant experience, and sought competitive tenders from those firms; and
■ asked contractors to bid in competition on the basis of a set of contract terms developed by the Department and their advisors, rather than negotiating later on a set of terms which had been proposed by their preferred bidder.
The Treasury's subsequent guidance on the standardisation of privately financed contracts15 will help departments to develop acceptable terms for privately financed contracts.
4.7 We would also have expected the Department to have asked their external legal advisor to:
■ assist Departmental staff with advice on the most appropriate procurement procedures for a project under the Private Finance Initiative;
■ comment on the proposed contract period;
■ comment on the legal aspects of alternative bids before the preferred bidder was selected; and
■ review all contract documentation before contract letting.
4.8 We consider that it was reasonable that the Department wished to make use of in-house contractual experience - as they had previously negotiated many smaller communications contracts (Appendix 2) - and to use external advisors efficiently. We consider that greater use of financial and legal advice, however, would have enabled the Department to appraise more fully the most appropriate scope for the project, to negotiate more efficiently with bidders, and to secure better contract terms.
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15 Standardisation of PFI contracts published by the Treasury Taskforce in July 1999.