15 It is too early to reach a conclusion on whether Airwave will bring about all of the benefits envisaged. The three emergency services currently have radio systems which do not allow full interoperability between them. Following the implementation of Airwave, this will still be the case. Police forces will all be on the same national system; ambulance services will be on a national system, which may or may not be Airwave; and the fire brigades may be operating a number of local systems, some of which may be Airwave, some not. It is unfortunate that the potential economies of scale of a single procurement were not realised but, more importantly, the events in the United States on 11 September 2001 make it all the more important that all our emergency services have the best communications and information sharing capability.
16 Nevertheless, it is apparent from our examination that, in difficult circumstances, a range of complex issues had to be addressed and that PITO handled the negotiations with O2 on behalf of more than 50 police forces and their respective authorities in a competent manner. There are a number of important lessons to be borne in mind for future public-private partnerships.
1 Decisions on whether or not to go ahead with a single bidder must take full account of whether it will be possible to gain adequate assurance of good value
Full competitive tension in any procurement will usually ensure that the deal on offer is the best available in the market at the time. In the absence of competition, PITO put in place a should-cost model and started to prepare a fallback option to put pressure on O2 during negotiations. The use of a should-cost model was successful and should be followed by other departments when faced with a single bidder situation. For such a strategy to work effectively, it is essential to get the full co-operation of the bidder and to allocate adequate resources to analyse and interpret what will be complex calculations.
2 A public sector comparator can play a part in judging value, but a single-figure comparison with the price offered by a bidder cannot be relied upon
PITO used a public sector comparator as an element of a toolkit of methods to justify going ahead with Airwave on the basis that it would cost less than a publicly funded and managed procurement which delivered the same benefits. Because of the inherent uncertainty of forecasting 19 years into the future, it was very unlikely that a single figure output from the comparator would have been sufficiently robust to provide assurance on value for money.
3 To remove uncertainty in the pricing of a PFI deal, the number of sharers for a service should be settled as early as possible
The cost of building the fixed assets for Airwave will be borne by the police. If large numbers of additional emergency service and public safety sharers decide to join Airwave, O2 stands to make substantial gains but the police will get nothing in return. PITO attempted to negotiate a clawback of part of any additional income earned by O2 but were unsuccessful as no sharers for the service could be guaranteed. O2 argued that it had assumed Airwave would be used by customers other than the police and had priced this into the deal. As it was taking all the risk on this assumption, O2 refused to share any future income that would result from the use of the system by other customers. However, the number of additional customers for Airwave was, and remains, uncertain and there is little clear evidence of the effect, if any, on the pricing of the contract.
4 In most cases a pilot project should not be accepted if further work is needed to demonstrate that the service will be delivered in full compliance with the contract
If a pilot project is necessary to demonstrate that a PFI project will deliver, it is crucial that what is required can be measured accurately and, when measured, that delivery has been fully demonstrated before a green light is given to proceed. PITO faced difficult problems with Airwave in that it was based on new technology for which satisfactory measurements of coverage had not been fully developed before the pilot got underway. When O2 appeared to fail against one of the key measures, PITO could not be sure whether the results pointed to an acceptable or unacceptable level of service. Under time pressure, PITO gave an amber light to O2. In doing so, PITO saw the key issue as whether an improved service was being provided which could soon be brought to the contractual levels required. To encourage this to happen, PITO ensured that O2 would suffer financial penalties if certain conditions were not satisfied within an agreed timescale. In addition, other police forces are unlikely to take Airwave if it does not pass their acceptance testing and O2 would lose more of its revenue stream. Although PITO retains the right to terminate the contract, this seems unlikely as increasing numbers of forces take up the service.
5 The benefits expected from a PFI project go wider than cost savings in delivering a service and need to be understood fully
Value for money depends on more than just price. Business cases often make use of anticipated benefits to justify a deal, but more often than not, make little effort to quantify them as far as possible or set out a clear methodology to ensure they are achieved. When procuring a step change in technology, such as Airwave, it must make sense to develop mechanisms to ensure that the maximum possible benefits are obtained for what will be a considerable investment of public money. This requires the allocation of resources up front to analyse performance before the service is introduced. In this deal, such investment was not undertaken either early enough or in sufficient depth during the procurement. PITO chose instead to focus resources on ensuring that the new network would meet police requirements and on encouraging police forces to use Airwave as a platform for changes in working practices. In PITO's view, this should, along with other IT projects underway, maximise future operational benefits for the police. Since contract signature and following the establishment of the Business Benefits Steering Group, PITO is now taking this work forward.