Recommendations

19  As a result of this examination we make the following recommendations:

A  The extensive experience which the MOD Building project team has built up of managing a large complex PFI building procurement should be disseminated more widely across central government. The project team should summarise the lessons it has learned and make this available to other departments. These include the importance of the commitment from senior officials to the project's success and of negotiating objective performance standards for the availability of all types of serviced accommodation.

B  Departments should bear in mind that, although the expected price is important there are also, as MOD recognised, other important strategic factors which may influence the choice of procurement. If, as was the case in this deal, there is a reasonably foreseeable long-term need for accommodation, it makes sense to consider a long-term contractual arrangement for it to be supplied. And arrangements, such as those included in PFI contracts, which incentivise the contractor to complete on time, which minimise the risk of cost variations to the department and which provide specified service standards, may be an important consideration in the choice of procurement.

C  Departments should recognise the importance of survey work on the physical state of their buildings to the pricing of bids for redevelopment projects. Departments should consider the merits of making a detailed survey available to all bidders to enable redevelopment building risks to be priced competitively by all bidders.

D  Departments should be aware they may be exposed to fluctuating financing costs if there are extended negotiations with the preferred bidder. Costs may go up or down. Where possible the need for negotiations after a preferred bidder is appointed should be minimised and a decision on the choice of financing (which may be affected by fluctuations in the rates obtainable for alternative sources of finance) should be made as late as possible in the procurement timetable.

E  There are significant uncertainties inherent in any public sector comparator. The actual costs of a conventionally procured project may fall within a wide range of possible costs. Departments should recognise this in making cost comparisons. In particular, they should be careful not to conclude that a PFI deal becomes better value for money if it is marginally less than a single figure estimate of the cost of conventional procurement. Given the uncertainties in the comparison, a more reasonable conclusion in that situation may be that the cost comparison shows there is little to choose between PFI and conventional procurement in cost terms.

F  As the MOD team did in this deal, departments should compare a proposed PFI deal with the best alternative option available before proceeding with the deal. Conventional procurement as modelled by a public sector comparator may not represent a true fall-back solution when closure of the deal approaches. But there may be other realistic alternatives, such as carrying out an alternative project with a reduced scope, which should be compared with the proposed PFI deal.

Table 1: Key aspects of MOD redevelopment deal