EL CONTRATO EN GENERAL

curement path for PFI projects. The PricewaterhouseCoopers report PFI Competence Framework suggested these stages fall into three broad phases:

Table 4.3 Investment in public sector projects

2004/05 2005/06

£ billion £ billion

Public sector investment 33.0 42.0

Investment in PFI deals 2.8 3.2

1. Phase (i), Feasibility – Stages 1–4 2. Phase (ii), Procurement – Stages 5–13

3. Phase (iii), Contract management – Stage 14.

Note: Although the Treasury Taskforce no longer exists, the data produced by this organisation is still recognised as being valid and appropriate. During the past 5 years or so, there have been various Table 4.4 PFI procurement guide (Source: HM Treasury)

Stage 1 Establish business case.It is vitally important

that the PFI project is used to address pressing business needs. Consider key risks

Stage 2 Appraise the options.Identify and assess realistic alternative ways of achieving the business needs Stage 3 Outline business case.Establish the project is

affordable and ‘PFIable’. A reference project or public sector comparator should be prepared to demonstrate value for money, including a quantification of key risks. Market soundings may be appropriate at this stage (see Chapter 6). The outline service specification should be prepared

Stage 4 Developing the team.Form procurement team with appropriate professional and negotiating skills Stage 5 Deciding tactics.The nature and composition of the

tender list and selection process

Stage 6 Publish OJEU. Contract notice published in OJEU (see Chapter 6 and Appendices)

Stage 7 Prequalification of bidders. Bidders need to

demonstrate the ability to manage risk and deliver service Stage 8 Selection of bidders. Short-list bidders. Method

statements and technical details may be legitimately requested

Stage 9 Refine the proposal.Revisit original appraisal (stage 3) and refine the output specification, business case and public sector comparator

Stage 10 Invitation to negotiate. Could include draft contracts. Quite lengthy – 3 to 4 months. Opportunity for short-listed bidders to absorb contract criteria and respond with a formal bid

Stage 11 Receipt and evaluation of bids.Assessment of different proposals for service delivery

Stage 12 Selection of preferred bidder.Selection of preferred bidder with bid being tested against key criteria Stage 13 Contract award and financial close.Sign contract and

place contract award notice in OJEU (see Chapter 6)

Stage 14 Contract management.Operational and management

attempts to modify the procurement process as it has been criti- cised for lacking flexibility and being too long. For example, in the PFI project for the redevelopment of West Middlesex Hospital that opened in 2004, a round of bidding was omitted in order to speed up the process. Subsequently the National Audit Office concluded that the trust ran an effective bidding competition but that it should be noted that if this strategy was to be used in a future PFI deal then the following safeguards need to be put in place to main- tain competitive tension when using this approach. It is recom- mended that the public sector client should:

● Obtain greater bid detail at an early stage

● Keep the main aspects of the deal constant in the closing stages ● Be prepared to walk away from the preferred bidder

● Make it clear to bidders that this process is to be applied ● Ensure that there are no major open issues for negotiation.

This section of the chapter will concentrate on the stages that have proven to be of crucial importance in determining the case for the use of PFI, namely:

● Stage 3 – the assessment of value for money and risk transfer,

the Outline Business Case

● Stage 9 – Refining the proposal

● Stage 12 – Selection of the preferred bidder.

Stage 3 – The outline business case

The outline business case is at the heart of the feasibility phase. Assuming that the need for the project has been established and other methods of delivery considered, the preparation of the outline business case is the starting point of an audit trail that runs through the procurement process and should contain the following: 1. An identification of key risks

2. An output specification

3. A reference project or public sector comparator.

Identification of key risks

Risk transfer is one of the key tests for a good PFI deal as value for money can be demonstrated to increase each time a risk is trans- ferred. There are two aspects to risk transfer:

1. Transfer between the public and private sectors

2. Transfer between the members of the PFI consortium.

In most PFI projects, the risks that are earmarked for transfer to the private sector are by now fairly standardised and well under- stood; however, major difficulties can arise in deciding who within the consortium carries the various burdens of risk. This factor would seem to explain why complete teams, that include both con- tractors and facilities management operators, are increasingly suc- cessful at winning PFI bids. In the case of risk transfer between public and private sectors, the main drivers are transparency and the need to demonstrate value for money, in the case of risk trans- fer within the consortium the commercial interests of the various players, i.e. financial institutions, contractors, operators, etc., dom- inate the discussion.

The principle governing risk transfer is that the risk should be allocated to whoever from the public or private sector is able to manage it at least cost, that is to say identified risks should either be retained, transferred or shared. The valuation of risk transfer, however problematic, often tips the scales on PFI deals as the pub- lic sector comparator alone often shows that value for money has not been demonstrated. In six of the 17 projects analysed in the Arthur Andersen/Enterprise LSE, the assessment of value for money was entirely dependent on risk transfer valuation and in all 17 projects it accounted for 60 per cent of all cost savings, making this element of the deal particularly important. There will always be a wide variety of risks associated with potential PFI projects, in- cluding the following: