1 It is important that departments considering the potential for Private Finance projects think sufficiently widely about their requirement.
This project demonstrates how, in accommodation projects, departments can improve the feasibility of their projects by applying an output specification, and by including a wide portfolio of property to enable the private sector to make innovative proposals.
2 Departments should undertake a comprehensive strategic review of the fundamentals of the service they require before they begin formal procurement.
In this project, in line with the Contributions Agency's understanding of the negotiated procedures, many fundamentals of the deal were developed after the Contributions Agency issued a notice inviting private sector interest. This is because they were concerned that the private sector were becoming aware of the project and that they needed to issue the notice quickly to preserve fairness between bidders. The contract notice reflected all requirements known to them at the time and provided the flexibility to develop key requirements as the procurement progressed. This approach reflects the ground-breaking nature of the project and the negotiated procedures procurement route followed by the Agency.
3 Where large projects are undertaken involving the accommodation of several executive agencies, they should have the appropriate level of corporate management and support. This should help reduce the scope for dispute and poor co-ordination between the participating bodies.
This project was managed by the Contributions Agency on behalf of other parts of the Department, although other users, the Department's central administration function, and other parts of government were represented on the project board. The project team encountered some co-ordination difficulties during the procurement, but such difficulties may be encountered by any team procuring a service on behalf of a number of autonomous agencies.
4 Departments should exercise caution when setting project procurement budgets and timetables. Using budget and timetable data from other projects can be helpful but sufficient attention must always be paid to differences between projects.
The Contributions Agency initially set too short a timetable and too small a budget, largely because of the lack of useful precedents to guide the estimates. They adjusted their timetable and budget as soon as they realised that their initial estimates were overly ambitious.
5 The risk that business requirements, such as the way space is used or staffing levels, may change is one of the most important risks facing departments when they enter into Private Finance contracts for office accommodation over a long period. Departments must adopt the same approach to this risk as to any other: identifying the most likely outcome, considering who is best placed to manage that risk, and considering how to mitigate any residual risk remaining with the public sector.
In this case, the Department considered that the staff numbers and known and possible changes to the business were the key drivers of accommodation requirements. To inform their judgements about this risk, the Agency sought to obtain staffing projections from all business units using the accommodation, but, given uncertainties affecting the Department's overall business strategy, considered that any staff projections beyond a five-year horizon would be speculative and unrealistic. But, after discussions with bidders, they concluded that the private sector could manage an overall level of flexibility at 20 per cent of total office space, and requested bids on this basis.
6 Departments should consider inviting variant bids from suppliers in key areas of accommodation deals, such as flexibility to vacate space without payment and whether to require a capital payment for property transferred to the supplier. On flexibility, variant bids would enable departments to assess the price they would pay in higher basic charges in order to reduce the risk of having to pay for surplus space. On capital payments, variant bids would enable departments to assess the amount they would pay in higher basic charges if they require an up-front capital payment from the supplier.
The Department considered flexibility as a mandatory requirement and therefore saw no need to request variant bids. However, they will receive discounts from accommodation charges should they not use, or surrender their rights to, flexibility. On capital payments, the Department obtained variant bids showing the additional cost of requiring an up-front payment and decided on that basis not to require one.