2.34 The Agency received formal expressions of interest from 58 companies, 14 of whom submitted themselves for assessment of their technical capacity and financial standing. They then selected a long list of eight property or construction firms to be evaluated through written and oral presentations and interviews, and following this short-listed three companies to enter detailed negotiations.
2.35 The Department appointed a preferred supplier only after a comprehensive evaluation of all bids. They set up specialist teams to consider the following areas:
a) technical, construction, sites and planning;
b) legal and contracts;
c) finance and funding; and
d) services.
2.36 Each team identified and established detailed evaluation items with weighted scores for each item and presented their findings to an experienced Evaluation Panel, made up of representatives of the main business units on the Newcastle estate and from other parts of the Department.
2.37 The Evaluation Panel considered the technical, legal and services aspects of the bids before they had sight of any financial information. They considered, through a system of "alerts" raised by the specialist teams, any proposals which would require improvement through further negotiations. In NEP's case, the Panel were concerned that the design of the buildings might not meet certain output specifications. They were also concerned about compliance with aspects of fire safety provisions.
2.38 The Panel concluded from financial information that NEP's bid represented the best price. After including costs that would be incurred directly by the Department, and discounting over 31 years they estimated NEP's bid would cost £244.6 million, Tyne Partnership's £282.4 million and NERL's £354.5 million. The Panel then considered further the issues with NEP's design. They recognised that improvements were necessary and that fire provisions would need to be met. They therefore sought advice from their technical advisers, who considered that the improvements could be achieved at a cost of no more than £10 million. Even allowing for this increase, the Panel calculated that NEP's price remained below the other bids and still represented best value.
2.39 The Panel therefore recommended to a separate Tender Board, whose role was to validate the evaluation process and consider the recommendation of the Panel, that NEP be selected as preferred supplier. The Tender Board was made up of representatives of the Department, Private Finance Panel Executive, and the Treasury. The Tender Board, and subsequently the Project Board, confirmed that NEP should be appointed as preferred supplier.
2.40 The cost of addressing the design issues raised by the Evaluation Panel was therefore determined during exclusive negotiations with NEP. Changes made to meet fire requirements added £2.8 million to building costs. The Agency also requested the inclusion of air cooling systems to provide a more comfortable working environment, adding £2.7 million to building costs. Overall, the actual cost of design changes was lower than the £10 million maximum estimate made by the Evaluation Panel.
2.41 The period during which NEP and the Agency negotiated lasted much longer than expected. As this was the first Private Finance deal of its kind, there were few templates for the two parties to refer to in order to resolve disputes. There were lengthy discussions over important issues, often being encountered for the first time, including:
a) the terms on which NEP would take ownership and structural risks of existing buildings on the Estate, in particular Tyneview Park and Durham House. Prior to the Private Finance deal, the Agency bore the full financial consequences of structural problems on the estate, and they regarded this element of risk transfer as a key issue, given the known structural defects at Tyneview Park and Durham House;
b) the definition of when space became "unavailable";
c) which party would assume risks if insurance to cover them were to become unavailable in the market;
d) the availability of alternative accommodation in the event of the project's facilities becoming unusable;
e) the responsibility for cost increases should ground conditions on the Estate make construction more complicated than expected;
f) the output specification of the offices, clarifying aspects of the performance required by the Department; and
g) the need to develop a performance measurement system for the accommodation service in partnership with the preferred supplier.
2.42 Furthermore, changes in the Department's requirements during this period included:
a) the replacement of an existing sports hall at Longbenton planned for demolition, and earlier completion of the construction phase of the project;
b) initial inclusion, then exclusion in May 1997, of the provision of office furniture as part of the Private Finance deal;
c) a change in requirements in March 1997 through which NEP, after negotiation, agreed to delete provisional sums and instead assume the additional risk of providing a fixed cost for remedial and other works; and
d) a change of requirements as to whether NEP should assume the full risk of decanting all staff into new buildings at a fixed price. The Invitation to Tender had envisaged the supplier assuming this risk, but in negotiation with NEP it became evident that only the Department could control the number and phasing of decant moves.