1.32 In recommending to Ministers the appointment of Arteos as preferred bidder in June 1997, the FCO ensured a like-for-like comparison of the short-listed bids by stripping out items not common to all three. The resulting £38.5 million was not the final cost of the project because some items had been stripped out and because the FCO knew that certain items, such as the cost of utilities, had not been finalised at that stage by any of the bidders.
1.33 During the course of our examination of this project, the FCO has estimated that the full cost of the deal, taking into account these other items, would have amounted to £50.1 million at the time the preferred bidder was appointed. The net present cost of the deal immediately prior to financial close in June 1998 was £51.0 million. This then fell to £49.8 million at financial close because Arteos was able to take advantage of a lower interest rate in the arrangements for hedging against interest rate changes over the concession period. This means that during a period of over 11 months exclusive negotiation with Arteos, there was no adverse movement in the price to be paid to Arteos for the deal.
1.34 The difference between the stripped down figure used to compare the three short-listed bids and appoint the preferred bidder (£38.5 million) and the full cost of the deal at the time of that comparison and appointment (£50.1 million) was mainly due to:
■ obtaining more accurate cost estimates for utilities and tertiary services;
■ changes in FCO assumptions and external economic conditions;
■ the additional cost of risks transferred to the supplier; and
■ the cost of security and additional items.