2.26 The Trust chose Bywest as the preferred bidder in February 2000 and reached financial close nearly a year later on 30 January 2001.
2.27 In order to guard against the possibility of deal drift, the Trust obtained a preferred bidder letter from Bywest in February 2000. This confirmed that, subject to certain conditions, Bywest would stay committed to the price for seven months17. It would also commit to the timetable for doing the deal (then expected to be October 2000) and all the contract terms, with the exception of uninsurable risk where contract negotiations were ongoing. The Trust considers that Bywest honoured the commitments it gave in that letter. Deal closure was delayed until February 2001 and this delay contributed towards the price increase. The Trust informed us that some remaining standard contractual uncertainties and design issues were the major factors contributing to the delay. NHS Trusts now ask all preferred bidders to confirm the price and deal closure timetable at the time of initial appointment. These commitment letters are also now part of OGC guidance18.
8 |
| The comparison of bid prices at preferred bidder selection | ||||
|
| This Figure shows that deal drift was controlled with the annual unitary charge increasing by 8.4 per cent between preferred bidder selection and financial close, mainly due to inflation and an increase in costs as the Trust decided to use land sale proceeds to fund other work. The extension of the contract and other timing factors affected the net present value of the contract. | ||||
|
|
| Annual unitary charge £000 | % change | NPV £m | |
|
| Bywest's bid - Feb 2000 (in April 1999 prices) |
| 8,595 |
| 95.2 |
|
| Increase in funds as land sales proceeds were replaced by other funding1 | 517 |
|
|
|
|
| Inflation uplift2 | 446 |
|
|
|
|
| Interest rate movements | (361) |
|
|
|
|
| Other negotiations | 224 |
|
|
|
|
| Timing factors3, 4: |
|
|
|
|
|
| Annual unitary payment reduction by extending contract 30 to 35 years | (100) |
|
| (1.1) |
|
| Increase in NPV due to extension of contract | - |
|
| 8.4 |
|
| Change in discount base date | - |
|
| 7.0 |
|
| Final contract price before energy costs |
| 9,321 | 8.4% | 118.7 |
|
| Energy costs5 |
| 453 |
| 5.1 |
|
| NOTES 1. After Bywest became preferred bidder the Trust decided to use proceeds from the land sales associated with the redevelopment to fund other work on the site. Bywest therefore had to seek additional external funding to replace the land sale proceeds which, when bidding, it had assumed would be £7.5 million. 2. The inflation uplift arises through restating Bywest's bid at 1999 prices to March 2001 prices applicable at financial close. 3. After Bywest became preferred bidder the Trust decided to extend the contract period from 30 to 35 years, partly because this would reduce the amount of the annual unitary charge. 4. The NPV at preferred bidder stage was undertaken about a year before financial close and used a different discount base date. The adjustment of £7 million is the result of altering the date so the calculations are on a consistent basis with the final NPV of £123.8 million. 5. Throughout the procurement it had always been agreed that the selected contractor would pass on energy costs based on actual usage. These costs were not included in the February 2000 bids. Source: The Trust | ||||
___________________________________________________________________________
17 After the seven-month fixed period, the price was to be increased according to an agreed index.