Dismissed!

The Ministry of Defence is pulling out of the £150m privately-financed Chelsea Barracks project. This hasty retreat comes after Treasury and MoD officials decided against continuing the process with sole bidder Regalian Properties/Bovis Lend Lease.

The move raises questions over the future of defence PFI schemes after MoD officials confirmed that the Chelsea Barracks scheme will probably be relet as a prime contract, similar in form to Project MoDEL.

This is the latest development in a sorry seven-year saga that saw the original project delayed by an MoD review, downsized by £50m and then reduced to a sole bidder after the Amec/Berkeley Homes consortium pulled out of the competition (CJ 10 September 2003). Last week, the final coup de grâce was delivered by the MoD Investment Approvals Board and a panel of Treasury officials.

An MoD spokesman told CJ: "Although going forward with a single bidder using open book accounting did have merit, both the Treasury and the MoD viewed this as second best to a keenly-fought competitive procurement."

The abortive operation leaves the Bovis Lend Lease consortium facing an £800,000 bill for bid costs. The MoD is adamant there will be no compensation. An MoD spokesman said: "The MoD standard rules of engagement are that bidders absorb their bid costs."

As CJ went to press, Bovis was putting on a brave face. John Stokoe, defence strategy director at Bovis, said: "We are disappointed that the project has changed tack, but we understand the reasons for it and we look forward to maintaining our position. We will wait and see if the new project is one we feel we can bid for."

The MoD will now consider alternative options, which are unlikely to include PFI. "The MoD’s view is that market appetite for a new PFI scheme for Chelsea Barracks will be somewhat diminished after this," the MoD spokesman admitted. "Bearing in mind that the project has been going for seven years, we will now have a very quick but fundamental review of procurement options in order to come up with a robust and competitive strategy."

One strong contender is a new form of stand-alone prime contract, along the lines of Project MoDEL in London (see page 2). This is a mix of partnering and PFI. Under this model, the winning consortium raises finance to fund the building work and receives an income stream from rent over a negotiable period.

However, unlike PFI, which runs the services for 25 years, this model has a building and services compliance period of around five years, after which the MoD sets up its own services.

Another alternative model being considered involves the sale and lease back of facilities.

The scheme is expected to be advertised by the end of this year. To speed up the process the MoD will seek outline planning permission during the procurement period and look at ways of hurrying up the construction work.

Despite this litany of setbacks the MoD is confident there will still be ample interest in the scheme. "We are expecting a significant amount of interest from all the big players," an MoD spokesman said.

One leading defence contractor told CJ: "This is a victory for prime contracting over PFI. The MoD likes the fact it has greater control. I am sure we will see a lot more of these stand-alone prime contracts."