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Edinburgh tram PFI to cut contractor risk
10:14 18 May 2005
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A revolutionary £375m light rail PFI contract to be rolled out in Scotland could spark renewed interest in the tram sector following growing disillusionment in the construction industry.
The two-line Edinburgh tram scheme, which is still in its development stage, aims to take a substantial amount of risk away from the contractor. It may also offer the possibility of covering the substantial PFI bid costs incurred by the second place contractor.
Traditionally on light rail schemes, the contractor bore the brunt of risks such as revenue –
a situation which led to the construction industry turning its nose up at tram schemes or demanding substantially high costs in premiums to cover the risks.
However, interest from the industry is now expected to grow with the Edinburgh scheme, which is being co-ordinated by the Scottish Executive’s procurement body Tie, splitting the revenue risk between itself and the operator of the scheme on a 70:30 basis respectively.
The winning contractor responsible for the £150m construction element of the contract will only be expected to cover integration risks, which include issues on compatibility between parts of the infrastructure.
“The infracos are best placed to cover this sort of risk, but we are more than happy to sit down and discuss the situation with them,” said Alex Macaulay, Tie’s projects director. He added that because the procurement team will expect to keep at least two bidders in the running right until after the BAFO stage, to promote consistency and get the best option, bid costs could be covered by the client.
“We understand the amount of money it takes to bid for a project this size and we are considering whether we cover the bid costs,” he said. “We want to get this right and choose the best infraco. If this means keeping two companies in the running to weed out the strongest option, the investment will be worth it.”
A PIN for the contract is expected to be placed in the OJEU next month for the construction work, with tendering due to start next year as soon as the scheme’s business plan has been given Royal Assent by the Scottish Executive.
A tight construction period of two-and-a-half years is expected to start on site in 2007. Completion for the two lines is set for 2009.
The two-line Edinburgh tram scheme, which is still in its development stage, aims to take a substantial amount of risk away from the contractor. It may also offer the possibility of covering the substantial PFI bid costs incurred by the second place contractor.
Traditionally on light rail schemes, the contractor bore the brunt of risks such as revenue –
a situation which led to the construction industry turning its nose up at tram schemes or demanding substantially high costs in premiums to cover the risks.
However, interest from the industry is now expected to grow with the Edinburgh scheme, which is being co-ordinated by the Scottish Executive’s procurement body Tie, splitting the revenue risk between itself and the operator of the scheme on a 70:30 basis respectively.
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The winning contractor responsible for the £150m construction element of the contract will only be expected to cover integration risks, which include issues on compatibility between parts of the infrastructure.
“The infracos are best placed to cover this sort of risk, but we are more than happy to sit down and discuss the situation with them,” said Alex Macaulay, Tie’s projects director. He added that because the procurement team will expect to keep at least two bidders in the running right until after the BAFO stage, to promote consistency and get the best option, bid costs could be covered by the client.
“We understand the amount of money it takes to bid for a project this size and we are considering whether we cover the bid costs,” he said. “We want to get this right and choose the best infraco. If this means keeping two companies in the running to weed out the strongest option, the investment will be worth it.”
A PIN for the contract is expected to be placed in the OJEU next month for the construction work, with tendering due to start next year as soon as the scheme’s business plan has been given Royal Assent by the Scottish Executive.
A tight construction period of two-and-a-half years is expected to start on site in 2007. Completion for the two lines is set for 2009.
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