Understanding the Public Services Industy

Public Services Industry Review
4.59 Bidding costs will also be linked to the size and complexity of the project. At the most
complex end the London Tube PPP cost bidders an estimated £275m (0.9 per cent of a
total programme worth £30bn), whereas for a more standard PFI project the external
advisor costs typically cost between 1.5 per cent to 3 per cent of capital costs for a
commissioning process lasting just under three years . A more traditional outsourcing
contract may not incur external costs, but will use significant internal resources in
preparing the bid. Given the smaller size of these contracts, as a proportion of the
contract cost, such costs can reach 10 per cent in many cases.
4.60 Some effort has already been made to reduce tendering costs. The NAO has made
a number of recommendations and departments are working up best practice
documentation of how long commissioning processes should take in standard PSI
markets. This allows for greater transparency when commissioning processes have
taken too long.
4.61 Further recommendations in the NAO report on PFI tendering, that have broader
relevance to the rest of the PSI market include:
•
•
•
obtaining commitment to the project from all key stakeholders at an early stage;
developing better output specifications, including greater dialogue with potential
bidders about the design of assets, before approaching the market; and
establishing the affordability of the project before it is brought to the market
and again before a preferred bidder is selected. In establishing affordability,
authorities should calculate available resources against a range of scenarios;
4.62 Departments have also taken action to reduce procurement costs. Recent changes
to the BSF programme produced a reduction in the overall procurement time from
82 weeks to 75 weeks. This was accomplished by using more comprehensive prequalification
of bidding consortia; and selecting two lead bidders earlier in the process,
after 29 weeks rather than 44 weeks.
4.63 Despite such positive steps, more needs to be done to reduce bid costs. Focussing
on the timing of the bidding process seems to be an effective route, and this is
incorporated into Recommendation 6.
Competitive Dialogue
4.64 The Competitive Dialogue process (described in Box 4.5) has raised concerns, in
particular that it will further increase the time taken (and therefore expense) to procure
services 59 .
59 See Unlocking the full potential of Competitive Dialogue, CBI (May 2008) for a discussion of some of the issues identified.
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