Annex I
HOW NAO RECOMMENDATIONS HAVE BEEN REFLECTED
IN GENERIC GUIDANCE PUBLISHED BY THE TREASURY
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| NAO Report Recommendations | Treasury Generic Guidance[14]
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| [As listed in Annex E] |
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THE SKYE BRIDGE (HC5 1997-98)
Advisers should always be appointed by means of competition unless there are exceptional reasons to the contrary, and cost targets for fees to advisers should be set at the earliest opportunity.
| (I) Technical Note No 3: How to Appoint and Manage Advisers
(II) Procurement Guidance No 3: Appointment of Consultants and Contractors
(III) A Level 3 module on the management and appointment of advisers is available as part of the Taskforce's programme of PFI training
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| Departments should carry out, and document, a comprehensive analysis of all important risks to the project, showing which party or parties will bear them. It is good practice to cross reference this risk analysis with the eventual legal agreements to show how far they allocate the risks in a manner which corresponds to the analysis.
| (I) Partnerships for Prosperity (Chapter 3)
(II) Further Contractual Issues
(III) Standardisation of PFI Contracts
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| Departments should check the financial robustness of bids including robustness in the face of increased project costs.
| Technical Note No 4: How to appoint and work with a preferred bidder
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| Departments should obtain in electronic form the financial model of bidders whose proposals are to be the subject of negotiation.
| Technical Note No 4: How to appoint and work with a preferred bidder
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| Where bids are conditional on the raising of finance, departments should seek independent confirmation that the financing on the proposed terms is likely to be achievable. Particularly in novel or unusual cases departments should consider, or ask their advisers to consider, what might go wrong and how such circumstances might be remedied.
| (I) Technical Note No 4: How to appoint and work with a preferred bidder.
(II) Appraisal and Evaluation in Central Government
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| Departments should seek to ensure that as far as possible competitive pressure is brought to bear on the bidders in respect of all project costs, including financial costs. Where financing or other project costs are not determined competitively, departments should seek to cross-check the terms of the deal against the market.
| Appraisal and Evaluation in Central Government
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| Where a similar but publicly financed project is not a realistic option departments should carry out and document a systematic financial comparison with the realistic alternative option(s) to the privately financed deal that are available, eg doing nothing or achieving the same objectives in a quite different way.
| (I) Policy Statement No 2: Public Sector Comparators and Value for Money
(II) Forthcoming Technical Note No 4: How to Construct a Public Sector Comparator
(III) Appraisal and Evaluation in Central Government
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(I) Also Bates Conclusion 21—"The recent recommendations
of the NAO in their reports on the Skye Bridge and Contract to
Develop and Operate the Replacement National Insurance Recording
System, should be noted carefully by Departments."
(II) HM Treasury Appraisal and Evaluation in Central
Government (The Green Book) 1997 covers general principles
and offers advice over most of the areas covered above.
NATIONAL INSURANCE RECORDING SYSTEM (NIRS2) (HC 12 1997-98)
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| Maintain competitive pressure throughout the bidding process while remaining sensitive to bidders' costs.
| (I) Bates 1 recommendation 29
(II) Technical Note No 4: How to appoint and work with a preferred bidder
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| Test the enthusiasm of the market for PFI schemes through consultation with appropriate organisa-tions before the competition is formally announced.
| Partnerships for Prosperity (Chapter 3) |
| The advertisement announcing the competition in the OJEC should be worded to allow flexibility in contract negotiations.
| Technical Note No 2: How to follow EC Procurement Procedure and Advertise in the OJEC
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| Fully consider the impact of any delay to the organisation's key business activities and ensure adequate contingency arrangements are in place.
| (I) Partnerships for Prosperity (Chapter 3)
(II) Forthcoming Technical Note No 4: How to Construct a Public Sector Comparator
(III) Further Contractual Issues
(IV) Appraisal and Evaluation in Central Government
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| Set out clearly the criteria against which consortia seeking to pre-qualify will be assessed, the bids will be evaluated and the core requirements bidders must satisfy.
| (I) Technical Note No 2: How to follow EC Procurement Procedure and Advertise in the OJEC
(II) Further Contractual Issues
(III) Appraisal and Evaluation in Central Government
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| When assessing the value for money offered by bids, any public sector comparators should be based on the best available information but the degree of precision required in any case should be considered before committing resources to the calculation of a comparator.
| (I) Policy Statement No 2: Public Sector Comparators and Value for Money
(II) Forthcoming Technical Note No 5: How to Construct a Public Sector Comparator
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(i) Also Bates Conclusion 21—"The recent recommendations
of the NAO in their reports on the Skye Bridge and Contract to
Develop and Operate the Replacement National Insurance Recording
System, should be noted carefully by Departments."
(ii) HM Treasury Appraisal and Evaluation in Central
Government (The Green Book) 1997 covers general principles
and offers advice over most of the areas covered above.
BRIDGEND AND FAZAKERLEY PRISONS (HC 253 1997-98)
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| Where more than one contract is being let simultaneously, Departments should consider whether bidders would be prepared to reduce their proposed contract prices for the benefit of working on more than one contract. This would need to be balanced against other benefits which individual bidders could provide and the possibility that Departments might be exposed to a greater degree of risk where there is only one provider.
| (I) Policy Statement No 2: Public Sector Comparators and Value for Money
(II) Technical Note No 4: How to appoint and work with a preferred bidder
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| Where Departments are committed to very long term contracts they should consider including a facility for contract prices to be compared prices to be compared at periodic intervals with those charged by both public and private sector providers of comparable services and for contract prices to be adjusted if they are more expensive than the charges of other providers.
| (I) Further Contractual Issues
(II) Standardisation of PFI Contracts
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| Departments should seek to ensure, before signing a PFI contract, that the contract unambiguously reflects their understanding of how risks are to be allocated between the signatories.
| (I) Partnerships for Prosperity (Chapter 3)
(II) Further Contractual Issues
(III) Standardisation of PFI Contracts
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| Even where an adviser has provided preliminary advice on PFI matters, Departments should normally appoint advisers for PFI projects after competition.
| (I) Technical Note No 3: How to Appoint and Manage Advisers
(II) Procurement Guidance No 3: Appointment of Consultants and Contractors
(III) A Level 3 module on the management and appointment of advisers is available as part of the Taskforce's programme of PFI training
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| Departments should gather information which will enable them to establish an accurate budget for each adviser's costs at the earliest practicable stage in a PFI procurement process.
| (I) Technical Note No 3: How to Appoint and Manage Advisers
(II) Procurement Guidance No 3: Appointment of Consultants and Contractors
(III) A Level 3 module on the management and appointment of advisers is available as part of the Taskforce's programme of PFI training
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| In a long term contract arrangement there are likely to be benefits from a cooperative relationship between the customer and the supplier. Departments should consider such partnering arrangements as they plan future PFI projects.
| Forthcoming Technical Note No 6: How to Manage the Delivery of PFI Contracts will stress the importance of Authorities working in partnership with Contractors
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THE FIRST FOUR DBFO ROADS CONTRACTS (HC 476 1997-98)
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| The Department of Transport should take into account the relative priority of road projects in the roads programme when selecting projects for inclusion in future rounds of tendering.
| (I) Department specific recommendation
(II) Appraisal and Evaluation in Central Government
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| Government Departments and Agencies procuring privately financed projects should consider the need to stimulate market interest in forthcoming projects before commencing the formal procurement procedures.
| Partnerships for Prosperity (Chapter 3) |
| To encourage innovation in privately financed projects, it is important to minimise the extent of core technical requirements, and when it is, exceptionally, necessary to vary those requirements, it is preferable for that to be done in a way which enables competitive pressure to bear on pricing variations.
| (i) Partnerships for Prosperity (Chapter 3)
(ii) Further Contractual Issues
(iii) Appraisal and Evaluation in Central Government
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| Departments and Agencies should be wary of spurious precision in carrying out public sector comparators as part of their evaluation of the value for money of privately financed projects.
| (i) Policy statement No 2: Public Sector Comparators and Value for Money
(ii) Forthcoming Technical Note No 5: How to construct a Public Sector Comparator
(iii) Technical Note No 4: How to appoint and work with a preferred bidder
(iv) Appraisal and Evaluation in Central Government
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| The Highways Agency should ensure that effective measures are in place to ensure compliance with the contracts for the road projects both during construction and during operation.
| (i) Partnerships for Prosperity (Chapter 3)
(ii) Further Contractual Issues
(iii) Forthcoming Technical Note No 6: How to Manage the delivery of PFI contracts
(iv) Appraisal and Evaluation in Central Government
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IMMIGRATION AND NATIONALITY DIRECTORATE'S CASEWORK PROGRAMME
(HC 277 1998-99)
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| The department should consider whether the proposed project might be too ambitious to be attempted in one go.
| Discussion draft on the standardisation of PFI Contracts—Information Technology
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| The department should consider whether their own resources are adequate to manage the procurement, and if necessary limit the project to what they can manage effectively.
| Discussion draft on the standardisation of PFI Contracts—Information Technology
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| In setting output-based specifications for proposed PFI contracts, departments should have regard to the complexity of the business to be handled by the proposed project.
| Discussion draft on the standardisation of PFI Contracts—Information Technology
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| It is undesirable for contracts to leave the detailed mechanism for remunerating the supplier to be decided later.
| (I) Standardisation of PFI Contracts
(II) Discussion draft on the standardisation of PFI Contracts—Information Technology
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| In establishing a payment mechanism for a PFI contract, the department should seek to avoid creating incentives which might distort the supplier's approach to the project.
| Discussion draft on the standardisation of PFI Contracts—Information Technology
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| In cases where suppliers sub-contract work arising from PFI contracts, departments should satisfy themselves that the prime suppliers arrangements for managing the sub-contracts are consistent with the requirements of the main contract.
| Standardisation of PFI Contracts |
| Even when the supplier is proposing to shoulder substantial risk, the department should consider most carefully how to manage the residual risk which remains with them.
| Will be covered in CITU study on Government IT projects
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A74(M)/M74 MOTORWAY, SCOTLAND (HC 370 1998-99)
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| In future roads contracts Departments should think how the promotion of road schemes could be managed to allow the maximum possible scope for innovation on the part of the private sector in the delivery of the scheme.
| Departmental specific recommendation |
| Departments should continue to look at alternatives to shadow tolls for future privately operated roads.
| Departmental specific recommendation |
| Departments should consider how best to maintain competitive tension in a procurement process. Where competitive tension can only be maintained by including a second stage of bidding involving parallel negotiations with two bidders, then departments should examine closely the case for reimbursing some or all of the losing bidder's costs if unconditional bids are sought from both.
| (I) Technical Note No 4: How to appoint and work with a preferred bidder
(II) Bates 1 recommendation 29
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| Departments should evaluate carefully the additional costs that would arise from having a service provided significantly ahead of schedule, and the likely benefits which could reasonably be expected.
| Standardisation of PFI Contracts |
| Departments should invite an independent contractor to participate in the development of a public sector comparator, and should also adopt a value engineering approach in their assessment of the most economical public sector alternative.
| Forthcoming Technical Note No 5: How to construct a Public Sector Comparator
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PRIME: TRANSFER OF THE DSS ESTATE TO THE PRIVATE SECTOR (HC
370 1998-99)
The Department should continue to hold Trillium to its contractual
obligations to maintain and service the estate to the required
standards. This should not mean an inflexible approach, both parties
should be willing to trade variations in the contract over its
20 year duration.
(I) Forthcoming Technical Note No. 6: How to Manage the Delivery
of PFI Contracts
(II) Standardisation of PFI Contracts
The Department have negotiated the right to share Trillium's profits
from several activities where the participation of accommodation
budget holders is essential. The Department should implement as
soon as possible internal arrangements to ensure that these users
are incentivised to participate by receipt of a share of the savings
in their own budgets.
Guidance for departments on joints PFI schemes is under consideration
PRIME type deals, which take control of accommodation away from
key officials within Departments who were previously responsible
for managing it, can encounter internal opposition and should
only be undertaken as corporate projects closely supported by
top management and ministers.
Departmental specific recommendation
Departments should make strenous efforts to assemble complete
data on their estates before starting procurement; particular
attention should be paid to establishing the terms of all existing
property leases and records of historic expenditure.
Departmental specific recommendation
Where estate data cannot be assembled in advance, departments
should consider arranging for bidders to pool their resources
for joint condition surveys and measurements of buildings, to
reduce bidding costs and to ensure that bidders work to common
assumptions.
(I) Technical Note No. 4: How to appoint and work with a preferred
bidder
(II) Also to be reflected in revised Step by Step Guide to
the PFI Procurement Process
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Flexibility to vacate accommodation without payment at the time is paid for through higher basic prices; departments should obtain variant bids from suppliers to assess the price they will pay and whether this is reasonable in the light of their staffing projections.
| Departmental specific recommendation
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Departments should consider carefully the best way to protect the value of the assets transferred to the private sector, bearing in mind that up-front capital payments may increase costs borne by the taxpayer as well as reducing risks to which department may be exposed. Departments should inform their judgement in this regard by seeking costed options from the private sector.
| In similar projects the Taskforce recommends that Departments inform their judgement by seeking costed options from the private sector bidders
This approach may be reflected in future published guidance
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DARTFORD & GRAVESHAM HOSPITAL (HC 739 1998-99)
Trusts and Health Authorities should agree at the outset the likely
funding limits for the project in the context of future spending
plans and should evaluate their proposals against these plans
at key stages in the procurement. The local Health Authority and
Regional Office should also confirm that the project will contribute
to the best use of NHS funds within the plans for health services
in their respective localities. Trusts should provide bidders
with clear guidelines on their funding limits to help secure bids
which the Trust and the Health Authority can afford.
NHS Executive: The Private Finance Initiativein the National Health
Service—publication imminent
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| Key decisions on whether the project represents value for money should be based on careful calculations of the likely costs and benefits. Trusts should carry out a rigorous review of the calculations which compare the expected costs and benefits of the proposed PFI project with the conventionally financed alternative. These comparisons should also be updated to take account of all significant changes to contract terms prior to letting the contract.
| (I) NHS Executive: The Private Finance Initiative in the National Health Service—publication imminent
(II) Forthcoming Technical Note No 5: How to Construct a Public Sector Comparator
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| Data available on cost overruns on past traditional hospital procurements might be refined in order to be consistent with the status of the cost estimates used in the public sector comparator under review. The calculations of the various provisions for cost overruns should be reviewed carefully to avoid any possible double counting.
| (I) NHS Executive: The Private Finance Initiative in the National Health Service—publication imminent
(II) Forthcoming Technical Note No 5: How to Construct a Public Sector Comparator
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| Trusts should seek to maximise the extent of competitive tension in the bidding process for PFI projects. They should ensure that bidders feel able to comply with their bidding requirements and the timetable for submission of bids remaining sensitive to the effect of bidding costs on the willingness of bidders to participate in a competition. When selecting final bidders Trusts should assess the comparative merit of bids on the basis of overall value for money, not just price.
| (I) NHS Executive: The Private Finance Initiative in the National Health Service—publication imminent
(II) Forthcoming Technical Note No 5: How to Construct a Public Sector Comparator
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| Trusts should normally go out to formal competition to commission advice on a PFI project. Where for exceptional reasons a Trust selects an existing adviser without competition, they should benchmark their existing adviser's proposed costs against charges for PFI work made by firms with equivalent experience, as well as satisfying themselves that the existing adviser has suitable experience.
| (I) NHS Executive: The Private Finance Initiative in the National Health Service—publication imminent
(II) Technical Note No 3: How to Appoint and Manage Advisers
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The NHS Executive may wish to consider the scope and benefits of commissioning certain advice centrally on common issues, and benchmarking advisers' costs with those incurred on other PFI projects, to help reduce the overall costs to the NHS of individual Trusts commissioning advice separately.
| NHS Executive: The Private Finance Initiativein the National Health Service—publication imminent
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THE PROCUREMENT OF NON-COMBAT VEHICLES FOR THE RAF (HC
738 1998-99)
Requirements for the services to be provided in privately financed
projects should so far as possible be specified in output terms
rather than inputs. Within any essential constraints bidders should
be left to determine for themselves the best way to deliver the
services required. This allows them to offer innovative solutions
and at the same time places risks where they are best managed.
Partnerships for Prosperity (Chapter 3)
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| PFI deals should be handled under the European Union's negotiated procurement procedure rather than the restricted procedure. Because well conducted PFI procurement offers the bidder much scope to determine how they will provide the service, inviting to tender against a detailed specification is unlikely to be suitable for PFI.
| Technical Note No 2: How to Follow EC Procurement Procedure and Advertise in the OJEC
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The results of pre-qualification procedures should be the driving force in determining which potential suppliers are invited to bid.
The purpose of pre-qualification is to select bidders who can be expected to provide compliant bids of high quality and, if selected, to deliver what they have undertaken.
| Technical Note No 4: How to appoint and work with a preferred bidder
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| Departments should be wary of seeking wide-ranging financial guarantees from individual bidders. Arranging such guarantees can be expensive for bidders, and high bidding costs are likely to deter bidders and weaken competitive tension to the detriment of value for money.
| Guidance on Standardisation of PFI Contracts
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Treasury Taskforce
28 October 1999
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14
The guidance will not necessarily respond precisely to the recommendations Back
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