The Agency maintained its bargaining position through to the selection of a preferred bidder

2.15  In January 2003, the Agency issued bid documents to the four short-listed consortia, but two dropped out before bids were submitted in July. The BT/AMEC consortium withdrew because it considered that its proposal to run the services through BT's national network, rather than the Agency's dedicated cable network, could not be developed sufficiently to put the consortium into a strong winning position. The Serco/ Marconi consortium dissolved when its potential debt providers became nervous about the financial difficulties that Marconi was then experiencing. Rather than exit the procurement, Serco obtained the Agency's approval to join the LINK consortium.

2.16  Between July and October 2003, the procurement team evaluated the bids from the two remaining parties, GeneSYS and LINK. Both bids included proposals, issues and omissions that the Agency was not prepared to accept. To find workable positions, the Agency introduced an additional stage in the procurement. Between October and December 2003, the Agency regularly met each bidder to work through the non-conforming proposals. In December, the bidders formalised the changes by revising their proposals, issues and omissions in their original bids.

2.17  In the revised bids, all but two of the Agency's non-negotiable issues (Figure 12) were fully resolved. The two outstanding issues remained features of GeneSYS's bid, but rather than expel GeneSYS from further participation in the competition, the Agency downgraded the status of the non-negotiable issues to proposals, issues and omissions that it was prepared to consider (Figure 12). The decision avoided a single bidder situation, but was achieved at the risk that the Agency would not later be able to secure the terms it wanted as the momentum of the procurement grew.

2.18  In April 2004, the Agency issued bid documents for a Best and Final Offer (BAFO) bidding round and received two bids in June. The Agency considered that the overall quality of GeneSYS's technical solution was higher than LINK's proposal, which was also more expensive. Our technical advisers, Mason Communications Ltd, confirmed that GeneSYS's solution was state of the art. The present value of the cost of LINK's bid was £190 million (2004 prices) higher than GeneSYS's bid (Figure 13 overleaf), which reflected the LINK consortium's more risk averse approach to the project.

2.19  From its analysis of the BAFO bids, the Agency saw that GeneSYS had a clear technical and price advantage over LINK. Even so, GeneSYS's bid continued to contain proposals, issues and omissions that the Agency was reluctant to accept. It therefore introduced a fourth bidding round (known as the Revise & Confirm round) with the purpose of reducing these outstanding issues. Knowing that LINK was unlikely to win the competition, the Agency indicated to the consortium the scale of the task it faced. Consequently, LINK withdrew from the competition.

2.20  The Agency informed GeneSYS of this change to the procurement, but did not appoint it as preferred bidder. The Agency's action avoided LINK incurring cost in fruitless pursuit of the contract, but brought the competitive phase of the procurement to an end before all issues were resolved. Consequently, the Agency ran the risk that the remaining bidder would exploit its single bidder position.

2.21  In the event, when GeneSYS submitted its Revise and Confirm bid, the present value of its offer had not increased from its BAFO bid. Moreover, clarifications provided by GeneSYS about its technical solutions and its proposed amendments to the terms of the contract led to a £65 million reduction in the Agency's estimated financial impact of outstanding proposals, issues and omissions (Figure 13). The values that the Agency assigned to commercial issues in GeneSYS's BAFO bid, which collectively amounted to £58 million, were cautious estimates based on the professional judgements of the Agency's advisers. The subsequent reductions (£48 million) reflected revised judgements of the advisers as they obtained a better understanding of GeneSYS's commercial proposals or secured concessions from the bidder (Appendix 2). The Agency placed zero value on the concessions that it made.