2.30 On 4 January 1995, the Agency, acting on behalf of the Department's agencies accommodated in Newcastle, formally invited private sector interest by placing a contract notice in the Official Journal of the European Union. The notice is reproduced at Appendix 6.
2.31 The Contributions Agency told us that there were pressures on them to commence the procurement quickly. In particular, the market was becoming aware of the potential project and the Contributions Agency were keen to be fair and open to all potential bidders. When issuing the contract notice, and consistent with the negotiated procedures they had chosen, the Agency decided to adopt an open approach to allow the private sector to bring innovation in areas of service delivery and risk allocation. They felt that this approach also reflected the ground-breaking nature of the project and that it allowed them to identify requirements known to them at the time. In addition, it gave them the flexibility to respond to key changes as they occurred and to develop key issues as the project progressed. For example, the number of staff to be accommodated changed as a result of the introduction in February 1995 of the Departmental Change Programme.
2.32 We note that, after issuing the contract notice in the Official Journal, the Department's requirements developed in the following key areas:
a) The number of staff to be accommodated. The exercise of collecting staffing projections on a consistent basis from 35 points around the Department proved to be very difficult. The contract notice referred to the 14,000 staff accommodated in the Newcastle area at that time. In February 1995 the Department began a review that over the next year resulted in a Change Programme intended to reduce running costs by 25 per cent over a three-year period. Against this background, in April 1995 the Contributions Agency assembled projections that suggested a requirement to accommodate 13,200 staff by the year 2000. This figure was revised to 10,700 by December 1995 reflecting employee reductions due in part to the planned introduction of new information technology. Two of the three short-listed bidders made fundamental late changes in their bids because of this reduction in the staffing figures. Some of these reductions relating to the introduction of a replacement National Insurance Recording System were known to the Contributions Agency by the time of the contract notice but were not then public knowledge because the contract had not yet been let, and consequently could not be released.
b) The range of office services to be included. The contract notice invited interest for the supply of building and engineering works, but noted that the development could include the subsequent management or operation of the new facility. The Contributions Agency considered from an early stage that the maintenance of the buildings would be included. But it was not until September 1995 that the project team devised a strategy in which the three short-listed bidders would be given the option to bid to provide security, cleaning and other facilities services.
c) A proposed allocation of risk between the Department and the chosen supplier. The Contributions Agency did not construct a register identifying the foreseeable risks associated with the project until June 1995, and did not propose an allocation of risks to bidders until November 1995 in the Invitation to Negotiate. This was an understandable approach in this case given the scarcity of precedents on which to base an allocation. But it would now be good practice in Private Finance Initiative procurement to state the client's preferred allocation of risks at the start of the process.
d) Key terms and conditions of contract. Work did not start on an outline of the contract until May 1995. Bidders therefore did not see draft heads of terms until the Contributions Agency issued the first Invitation to Negotiate document in November 1995. The Contributions Agency consider this reasonable given the absence of good practice and guidance for them to follow.