4.9 The number of lead consortia bidders has fallen from 32 involved in initial projects (Wave 1 to Wave 3) to 25 for upcoming procurements (Wave 4 to Wave 6a). Three bidders have been bought out by other BSF consortia, six bidders have exited the market and one bidder has not yet committed to future projects. There are also six new entrants and three of these bidders are now formally bidding for a project.
4.10 Three projects have selected their private sector partner without full competition. Only one of the bids received by Westminster remained compliant with its tendering requirements by the time it selected a final bidder and all but one consortium withdrew from the Durham and Tower Hamlets tendering process before the submission of final bids. Where competition during negotiation is weak, PfS supports the Local Authority to benchmark the costs and increases its scrutiny of the business cases.
4.11 There are significant barriers to entry for new consortia, including:
■ High bid costs and the complexity of procurement. PwC estimates that bid costs average £4 million for the winner and collectively £10-15 million for all the project's bidders. Few consortia can sustain more than a few bids at a time.
■ Constructing and maintaining a supply chain. Bidders are expected to have their supply chain and financing in place before they bid. If one member of the consortium encounters problems, the whole bid could fail.
■ Finding an ICT partner. There are fewer active ICT contractors than construction contractors in the programme. When forming new consortia to bid for projects, construction contractors compete for ICT contractors who have already won bids elsewhere.
■ The scale of the task. Local Authorities require bidders to understand the education sector, prove they can integrate services, improve the operation of schools, and provide high quality affordable buildings.
4.12 PfS promotes an active BSF private market and creates competition for BSF projects. This function would be difficult for either the Department, which lacks appropriate commercial expertise, or Local Authorities, who do not have a view over the whole programme and market. To do so PfS:
■ has regular senior level formal and informal meetings with bidders;
■ monitors who is bidding for each project and who is intending to bid for future projects with 'bidder bulletins' on upcoming projects, including tendering dates and indicative capital value;
■ consults with bidders, notably through a procurement review in May 2008, undertaken by PwC, which consulted Local Authorities and the private sector on the procurement process and ways to shorten it, and three times on the form of standard contracts;
■ acts as a broker between Local Authorities and bidders during the procurement process and helps enforce standard form contracts; and
■ controls the flow of deals to help ease pressure on the market's bidding capacity.
4.13 The extent to which problems in the finance markets will affect BSF is unclear. Approximately 75 per cent of Local Authorities that had signed contracts before December 2008 have developed BSF projects under PFI arrangements. Over the course of 2008, difficulties in the banking sector reduced the amount of money available to banks to lend and it became increasingly difficult for Local Authorities to find lenders of senior debt for PFI deals. By the end of January 2009, economic conditions had not delayed any BSF projects, but the last Local Authority that had agreed a PFI contract was Kent County Council in October 2008. Newham Borough Council had intended to use PFI to build two schools when it established its LEP in January 2009, but had to postpone using PFI and use conventional funding instead to build the school. It intends to sign a PFI deal for these schools later.
4.14 The Department and PfS are in active discussion with Banks and other potential lenders and believe that BSF remains one of the more attractive markets for bidders. The projects are relatively small and financed through a mix of grant and PFI funding. PfS has secured commitment in principle from the European Investment Bank for £300 million of investment in the senior debt of BSF PFI projects.