5 Some 70 companies expressed an initial interest in the project and a number of these joined together to create three potential bidding consortia. These consortia passed a pre-tender assessment, but two decided to merge to produce a stronger bid. Later on, this merged consortium dropped out, following the withdrawal of one of its key technical partners. This left the consortium led by O2 as the sole bidder. As existing radio systems were not meeting operational requirements, there was no do-nothing option and the preferred solution had to avoid delaying implementation of a new radio service. After wide consultation, PITO concluded that continuing with O2 as a single bidder offered the least risk of delay.
6 In the absence of competition and acting on a suggestion by O2, PITO sought to strengthen its negotiating position with the use of a should-cost model. Such a model was expected to provide an understanding of the costs of delivering the service and permit direct comparisons with, and challenges to, O2's estimated costs. To estimate O2's costs, specific information over the duration of the contract was required but difficulties were encountered. For instance, reliable cost information for equipment proved not to be readily available because the technology was new. Nevertheless, the should-cost model was used to challenge O2's costs and both PITO and O2 consider that prices were reduced as a result of these discussions.
7 The cost of Airwave was also compared to a public sector comparator. The comparator estimated the cost that would have been incurred if the public sector were to design, build, finance and operate a new police radio service to the same specification as Airwave. Our examination of the public sector comparator indicated that its value was limited by a number of factors. Concerns as to whether the public sector had the necessary skills and resources to successfully procure such a risky project meant that a public sector comparator was not prepared until 1999 when negotiations with O2 were at an advanced stage. PITO considers that the comparator helped with the assessment of value for money but added nothing to the decision on whether or not the PFI was the most appropriate procurement route. Although a sensitivity analysis was undertaken, the principal output from the comparator was a single number. PITO's financial adviser issued a positive verdict on value for money based on the comparator showing that Airwave, at £1,470, million was cheaper than the estimated £1,610 million cost of a conventional procurement.