3.1 In September 1995, and in line with Treasury advice, the Contributions Agency conducted an evaluation of the feasibility of a Private Finance solution to their accommodation problems. The study included a comparison of the three short-listed bidders' indicative (non-binding) prices with the updated cost of the original 1993 plans to redevelop the estate. This would have been a conventionally-funded project using capital provided by Treasury.
3.2 The Contributions Agency estimated that, over 25 years, the conventional project would cost £338 million. They concluded that one of the three bidders had quoted indicative prices lower than this (Taylor Woodrow at £271 million), with the others, AMEC (£391 million) and Tyne Partnership (£493 million), quoting higher prices. But the Contributions Agency considered it was highly likely that these opening estimates could be reduced through competition and negotiations and as proposals became firmer, and noted that bidders' prices incorporated a greater degree of risk transfer than the conventional project. They therefore concluded that there was every likelihood that the Private Finance solution would result in better value for money for the taxpayer, and decided to continue with the project.
Figure 12 |
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Summary of the process undertaken by the Contributions Agency for assessing value for money during the procurement process |
The Contributions Agency's approach to evaluating value for money on behalf of the Department developed as the procurement progressed. | |||
Stage of the procurement | Assessment methodology | Assessment tools | Results and conclusions |
Feasibility stage September 1995 | Comparison of non-binding indicative bids from the private sector with the cost of a publicly-funded new build, over 25 years. | I) Net present costs of prices quoted by private sector bidders. II) Net present costs of the 1993 proposals to redevelop the estate, appropriately updated. | One bidder quoted lower prices, and the other two higher prices, than the publicly funded alternative. The Contributions Agency, acting on behalf of the Department, considered that bids should reduce in competition, and that a Private Finance deal would in every likelihood offer value for money. |
Evaluation of Best and Final Offers March/June 1996 | Evaluation and comparison of competitive bids from three private sector bidders to identify which one offered best value for money. | Evaluation based on four key criteria: risk transfer, meeting user requirements, cost and deliverability. | The Contributions Agency, acting on behalf of the Department, concluded that, comparing the bids with one another, NEP offered the best value for money of the three. |
Assessment of whether the deal was within probable budgetary allocations March 1996/July 1997 | Comparison of the likely cost of the Private Finance deal with probable budgetary allocations for accommodation if the deal did not go ahead, over 31 years. | I) Net present cost of the Private Finance deal. II) The Do Minimum Option, an estimate of likely budgetary allocations in the absence of a private finance deal, including internal rents payable to Treasury. | The cost of the deal to the Department was estimated to be less than the cost of continuing with the existing estate including the Department's payments of rent to Treasury. The Contributions Agency concluded that the deal was affordable to the Department. |
Assessment of value for money July 1997 | Comparison of the cost of the deal with the cost of remaining in existing accommodation, over 31 years. | I) Net present cost of the Private Finance deal. II) The Do Minimum Option, excluding internal rents payable to Treasury. | The deal cost more than remaining in existing accommodation, but could be justified by the significant operational benefits that arose from the replacement of outdated accommodation. |
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Source: The National Audit Office | |||