2.58 MOD's PSC was more expensive than the PFI option throughout the tendering stage of the procurement. At the appointment of Modus as preferred bidder the PSC showed the estimated cost of conventional procurement as £25 million (year 2000 price levels) higher than Modus' bid.
2.59 During the extended preferred bidder stage Modus' bid increased relative to the PSC, mainly as a result of changing finance costs (Figure 12). Capital costs also increased due to work arising from the extensive survey programme, but these affected both the PSC and the PFI bid equally. The PFI price was consequently £4 million higher than the PSC on the morning of the day of financial close, 4 May 2000.
2.60 In finalising the deal on 4 May 2000, MOD decided to use the average cost of conventional procurement of £746.2 million shown by its PSC as a negotiating tool to achieve a final price reduction. It informed Modus that it would only be able to close the deal if Modus' price was lower than this benchmark of the cost of conventional procurement. As noted in paragraph 2.39, Modus then agreed to reduce its price. As a result of Modus' shareholders and banks accepting lower returns from the project, and general reductions to financing rates which occurred later that day, Modus' price was reduced by around £4 million to £746.1 million, £100,000 less than MOD's benchmark price for conventional procurement.