Select Committee on Treasury Minutes of Evidence

Annex B


  1.  The PFI guidance extant at the time the 1996 bidding process was taking place stated it was not necessary to produce a Public Sector Comparator for projects which involved no public money, or which would not have gone ahead other than as PFI projects. For this reason, despite having undertaken a good deal of work on the construction of a comparator for the Treasury project, we dispensed with it, with Minister's approval, before bids were tendered in the summer of 1996. However, when Exchequer Partnership (EP) became the sole bidder, it was clear we required a PSC to help us assess the value for money of the project and to act as a tool in negotiating the price and we completed our earlier work. (The presumption enshrined in current guidance is that, whatever the circumstances, some form of comparator is necessary for PFI projects.)

  2.  The preparation of the PSC was overseen, independently of EP's bid and the Treasury's project team, by a senior Treasury economist. It represented an estimate of refurbishing the western end of the main Treasury building, assuming that the Treasury procured the construction and service contracts separately, continued to manage the services themselves and that the project was funded by the Government. It could not represent a true alternative to a PFI option, since it could not be developed in the same degree of detail without a detailed design but it was a like for like estimate. It was risk adjusted to ensure that, as far as possible, it was comparable with EP's bid. However, only those risks which could be reasonably quantified were added to the base costs of the PSC.

  3.  The PSC's construction costs were calculated independently of the procurement process, although not in as much detail as EP's. They were inevitably based on a design solution broadly similar to that provided in the EP bid. However, they did not include removal of the four stair cores, negotiated with EP at a comparatively late stage in the process. (This was costed separately because the removal represents a once and for all opportunity to improve the accommodation.) The comparator also did not include a number of other design features present in the EP bid, or a latent defects risk (which was included in EP's construction costs but priced separately in the PSC). Moreover, since the largest risks lie with the construction company which forms part of the EP consortium, we would expect some allowance to have been made for this too in the construction costs of the project, but no such allowance was made in the PSC.

  4.  The Net Present Value of the EP bid amounted to £169.348 million, compared with £189.810 million for the PSC.

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