16. Although three consortia were formed to bid for the Airwave contract, the competition quickly collapsed, leaving the 02-led consortium as the sole bidder. The market for providing a national radio service for public safety organisations was relatively small because only a few companies possessed the financial strength to take on such a large project. The size of the market was further reduced by the decision to adopt the TETRA standard, which required potential bidding consortia to include companies committed to the development of what was, at the time, an emerging technology.14
17. PITO realised that, in the absence of competition, it would be difficult to demonstrate that any offer from 02 would represent value for money. As existing radio systems were not meeting operational requirements, there was effectively no do-nothing option and any delay in implementing a new radio service had to be avoided.15 In PITO's view, the option that posed the least risk of delay was to continue with 02 as a single bidder and to protect the taxpayer's interest by comparing 02's projected costs against two models:
(a) a financial model to estimate what 02's technical solution should cost ("the should-cost model");
(b) a public sector comparator-based on the estimated cost of a conventionally financed public sector project delivering the same benefits as Airwave.
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14 C&AG's Report, paras 2.9-2.11
15 Ibid, para 2.15