3.17 The Invitation to Negotiate set out the standard of performance expected from a private sector partner and a range of potential deductions from the unitary charge if the standards were not met. National Savings considered that a persistent failure to meet the levels of customer service expected would merit severe performance deductions. The limits of any deductions are determined by the frequency of failure and grading of key performance indicators. For key performance indicators graded platinum, gold or silver, National Savings proposed maximum deductions from the monthly volume adjusted unitary charge of 10 per cent, 1 per cent or 0.7 per cent respectively. As SBS and EDS considered that such large deductions would represent an unacceptably high risk, they proposed lower levels of performance deductions in their bids.
3.18 There is no evidence that SBS and EDS inflated their bids to offset the risk of the performance deductions proposed by National Savings. There was a high degree of competition between the two and their prices, based on the middle funding scenario and lower levels of performance deductions, were similar. During the course of negotiations with the final bidders, National Savings reached agreement with SBS on the scale of performance deductions after SBS had reduced the overall margin expected over the life of the deal by £70 million. Although the agreed performance deductions were higher than those proposed by EDS, they were a level 50 per cent lower than National Savings had originally proposed.