3.25 National Savings maintained competitive pressure on SBS and EDS by negotiating a draft contract with each of them before recommending a preferred bidder to the Economic Secretary to the Treasury. In negotiations, National Savings sought clarification from bidders by asking them to respond to position statements in the form of the project objectives, National Savings' understanding of each bidder's position and any gaps which needed to be closed. This approach, which was aided by clear specifications in the Invitation to Negotiate, allowed National Savings to lead in negotiations rather than the bidders doing so.
3.26 National Savings negotiated reductions in the prices of both final bids. Neither bidder had included all the requirements of the Invitation to Negotiate in their first bids in July 1998 and were asked to improve their bids. Following the receipt of the improved bids in October, National Savings considered there were a number of issues where both bids needed to be made comparable with each other and the Public Sector Comparator. Both bidders were therefore asked for a final reconciliation of their bids by November 1998. The differences between the bids, based on the middle funding scenario, are shown in Figure 15.
3.27 EDS did not change the price of its bid between July and October but did take the opportunity to make a reduction in November. The reduction of £68.5 million was accounted for by a fall in forecast redundancy costs, savings in postage, a reduction in expected profit margin and lower charges for dealing with manual transactions if the Post Office Counters Automation project was delayed.
Figure 15 |
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This figure shows that SBS's bid for operational services was £21 million lower than that of EDS and that its bid for accommodation was £36 million lower | ||||||
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| Operations £m | Accommodation £m | Total £m | Operations £m | Accommodation £m | Total £m |
July | 641 | 4 | 645 | 622 | 68 | 690 |
October | 592 | 35 | 627 | 623 | 68 | 691 |
November | 604 | 31 | 635 | 625 | 67 | 692 |
Notes: | 1. All values are shown in net present terms at 1998/99 prices. 2. SBS's initial bid for the accommodation elements of the deal was an error and was corrected in October. 3. Both SBS and EDS were prepared to purchase or lease the accommodation. National Savings negotiated a leasehold option with SBS and a purchase option with EDS as these represented the best value for money solutions offered. | |||||
Source: National Savings | ||||||
3.28 The fall in SBS's bid between July and October resulted from a substantial reduction in central services costs and expected profit margin, partly offset by a number of cost increases as a result of a greater understanding of National Savings' requirements and the correction of an error in the accommodation element of the bid. However, the price of the bid increased in November for items SBS had not previously included and an erroneous assumption that the use of 1st class pre-paid envelopes in communications with customers at a cost of £37 million over the life of the contract could be withdrawn.