The proposed structure of the partnership reduced competition

Paragraphs 2.15, 2.18, 2.22-2.24

12  Although the proposed structure and nature of the partnership represented a new departure in the relationship between the public and private sectors there were 56 expressions of interest in the project. In February 1996 the Agency drew up a long list of 12 potential bidders. Eventually in June 1997 two companies, CMG and Logica, submitted unpriced technical bids in response to the Agency's full specification for the partnership. Of the other ten potential bidders, nine withdrew and one was acquired by another potential bidder. The Agency rejected Logica's bid because Logica were reluctant to accept the Agency's proposal that the partnership, in the form of a joint venture company, should supply IT services and also exploit commercially the Agency's expertise in spectrum management. Logica wanted a direct contract with the Agency for the supply of IT services because Logica considered that there would be serious conflicts of interest within the Agency as they attempted to satisfy the roles of both purchaser and supplier of IT services. Logica were, however, prepared to form a joint venture with the Agency for the commercial exploitation of the Agency's expertise.

13  A factor that reduced interest amongst potential bidders was the Agency's proposal that the Agency should hold a controlling interest in the joint venture company. The Agency initially considered this necessary to secure the influence they wanted over business critical IT systems. Many potential bidders felt that this level of control created uncertainty about their freedom to add value to the delivery of services. Before commencing negotiations with CMG, the Agency reviewed their requirements and decided to take a minority (30 per cent) stake in the company. At this stage the Agency were satisfied that the influence they sought over business critical IT systems could be achieved through contractual provisions. In September 1997 the Agency effectively issued an amended full specification reflecting this change to those potential bidders who had received the original in April 1997. This approach did not generate fresh interest in the partnership.

14  Another factor that reduced interest was the apparent weight the Agency attached to the commercial exploitation of their expertise. Most potential bidders did not feel they had the knowledge to sell the Agency's expertise. Of the six potential bidders left in the competition when the Agency issued their full specification in April 1997, three were deterred from competing further because they considered that CMG had a commanding position through their existing IT contracts with the Agency. The view was that CMG would have already acquired a good understanding of the consultancy services, systems and software that could be sold.