12. Without proper competition it is difficult to demonstrate that any offer from a single bidder represents value for money. In these circumstances a "should cost" model is essential to benchmark the figure that the contractor is providing and to measure the reasonableness of the cost of all the elements making up the bid. A should cost model enables direct comparisons with a single bidder's estimated costs and provides a basis for challenging them. Access to the bidder's financial model is necessary to develop a should cost model.
13. The Department was unaware of the detailed make-up of ICL's costs because it did not examine ICL's financial model. It was given sight of ICL's financial model at a presentation but had no copy. At the time of the Libra procurement in 1998, Treasury advice was that the bidder's financial model did not need to be examined if the bidder was funding the project from internal sources. Treasury advice had since changed, however, and the Treasury now recognised that it was helpful for the department and the contractor to share this information.12 The National Audit Office had already recommended in 1997 that departments should check the financial robustness of bids and obtain in electronic form the financial models of bidders whose proposals are to be the subject of negotiation.13
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12 C&AG's Report, para 2.20; Qq 45-47, 119