DoT fears as firms take big DBFO risk

Bidders for the first tranche of DBFO roads may have 'bitten off more risk than they can chew', fear DoT officials.

Sources close to the Government's bid adjudication panel say that DoT staff are alarmed at the amount of risk contractors are willing to take on.

'All of the bidders are willing to take a major slice of the risk, far more than was expected. The trouble is the industry is so tight at the moment, contractors need a base load of work in the UK so they are very keen. But officials are nervous about whether contractors are capable of bearing that risk,' said one.

This concern has been echoed at top level meetings with contractors. One industry source who attended the meetings said: 'The Treasury is quite pleased with the amount of risk some contractors are willing to take on, and they are pressing the DoT to go for the bid that takes on the most risk. But the DoT is very nervous. They fear contractors may have bitten off more risk than they can chew.'

The officials are now looking closely at how the bidders have calculated the risk on the schemes.

But contractors are surprised by the DoT reaction as the Government has been encouraging the bidders to take risk on. They are now concerned about how the winning bid will be chosen.

One said: 'We have done a thorough risk assessment. We know what we are doing, unlike some of the DoT's team of advisors who unfortunately are guiding the Treasury on how much should be set aside for these schemes. If they get it horribly wrong there's going to be a big problem.'

And another DBFO bidder claimed that DoT officials were only concerned because they are not fully behind private roads as they could eventually cost them their jobs.

But transport minister John Watts told CJ he welcomed the news that contractors were willing to take on substantial risks on DBFO contracts. 'Substantial risk transfer is a feature of all private finance initiatives. I am sure contractors have evaluated the risks which, after all, are particularly related to the construction work. These are substantial contractors and I have every confidence they will fulfill their obligations.'

Watts this week invited tenders for the second tranche of DBFO roads.