44. Table 1 below sets out points which should be considered by the project team and should reflect the nature of the sector. At any stage, if the project team identifies market failure, e.g. lack of competition as a result of a single bidder or perhaps two bidders where only one is credible, then it is unlikely that the project will deliver value for money. In such cases, the MOD PFU should be consulted on whether there are exceptional circumstances in which it is sensible to proceed as a PFI. The reason for the market failure should be examined closely as it is possible that it may, in some circumstances, equally affect a conventional procurement.
45. It should be noted that it is not only the number of bidders which is of concern in this regard; the quality of bidders will be a vital factor. It is possible to have an extremely effective competition with just two players if both are very credible and want to close the contract. In other circumstances three may be insufficient, if only one constitutes a serious contender.
Table 1: Key Stages, Indicators, and Actions (Note, from January 2006 new MOD PFI procurements will be required to utilise the EU Competitive Dialogue procurement process, unless exempt from EU procedures for security reasons)
The key stages and indicators, which should be considered, are:
| KEY STAGE | INDICATOR | ACTION | |
| Response to OJEU notice | A strong competition ideally requires a number of well qualified bidders. If the response indicates that this is not the case then, prima facie, optimal competitive conditions may be absent. | The project team should reconsider the planned procurement at this time. There may be a case for revisiting the first stage of stage 3. If the problem is simply one of timing, a delay and re-launch may be appropriate. If the problem is more fundamental, the approach may need to be reconsidered, see outcomes above. A very low response, or only one credible bidder, should be regarded as a warning sign. | |
| Pre-qualification | The project team would ideally want to see a number of strong bidders pre-qualifying and will want to be satisfied that a sufficient number of these will submit bids. | If not, the project team will need to reconsider the planned procurement. As above, there may be a case for revisiting the first part of stage 3. If timing is an issue, the project team should consider the case for delay and re-launch. If the issue is more fundamental, the approach should be reconsidered, see outcomes section above. The project team should only proceed with the minimum number of bidders that they are comfortable with, except in exceptional circumstances, and after consultation with MOD PFU (if applicable). If there is only one bidder, there will be a need to reconsider the approach. | |
| Invitation to Dialogue | As above. | With a low number of bids or a proportion which are not credible, the project team will need to reconsider and, where applicable, consult with MOD PFU. | |
| During Dialogue | Any loss of a bidder, which is not a decision of the project team, is a warning signal. If the competition is reduced to a single bidder through loss of bidder(s) (and not from decisions of the Authority) the procurement will need to be reconsidered. | Need to reconsider approach. | |