Ruling could price bidders out of PFIs

Schools and hospital PFIs could become too expensive for most companies to bid for due to a new threat from the European Commission’s (EC) public procurement directive.

The UK had managed to fight off attempts by Europe to keep hold of dialogue between the client and its preferred bidder allowing for some fine tuning to the PFI bid (CJ 11 February).

The EC initially wanted member states to force all bidders to go through the lengthy and costly ‘competitive dialogue’ process, with everyone remaining in the running until the final award to prevent changes to the contract at the preferred bidder stage, which could be construed as anti-competitive by the other bidders. But asking all the bidders to work up full designs is prohibitively expensive and wasteful.

However, an end to the consultation period of the directive’s current position on Friday carries a strong possibility that the EC will rule that all member states’ "complex PPP/PFI projects", including all those in the UK, will have to go through the competitive dialogue process – a move which would have a far-reaching impact on all future UK PFI projects.

David Cox, senior associate of law firm Masons, said: "Schools and hospital contracts could be badly affected due to their complexity if the EC becomes too prescriptive in what makes a complex project. If this is the case PFIs will have to undergo a marked change. Many contractors that have to go through the competitive approach could find it just too costly."

Cox told CJ that the definition of what makes a complex project is still very much a grey area with the EC, although the rough guidelines state that a complex project is one that has a complex financing structure and whose legal and financial package cannot be stipulated in advance of the bidding.

He also warned that the competitive dialogue approach would undermine the principles of PFI and that contractors could be forced to foot the bill from clients who might ‘cherry pick’ ideas from other bidders.

"The competitive dialogue process means that clients can approach all bidders for ideas for the best solution for the project," said Cox.

"This means that the client could take ideas from each of the companies and then expect them to pay the extra costs of catering for all the new options it has gathered. The approach also takes away the whole idea of PFI, which states that the client leaves it to the bidders to come up with a solution."