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POB(96)33 ; Copy No. ($C
POST OFFICE BOARD
BRINGING TECHNOLOGY TO POST OFFICES AND BENEFIT PAYMENT
ini ti .
1. This paper seeks Board authority for Post Office Counters Ltd (POCL), in conjunction
with the Benefits Agency (BA), to proceed to the contract award stage of the counter
automation project, and follows from MaPEC’s approval on 30 April (Minute MP96/45
refers).
2. The project includes the automation of all counter positions in all post offices, and the
new card based benefit encashment service. The business case shows that there are strong
strategic and commercial reasons for POCL to automate. The financial case, based on
supplier responses, has provides a positive net present value benefit over the life of the
contract, details of which are at Annex A.
3. Automation is a key enabler for POCL to maintain existing business and exploit its wider
powers to attract profitable new business; to secure continued efficiency improvements,
to deliver the political and commercial objective of maintaining a nation-wide network of
offices.
4. Total programme management costs for POCL to support implementation of £15.8m are
required, inclusive of £5.4m incurred to date.
Background
5. POCL, together with the Benefits Agency (POCL’s largest client), has established a joint
programme to provide automated services to support the end-to-end process of paying
benefits through post offices, together with existing and new POCL business. Ministers
expect these services to be procured through the Private Finance Initiative (PFI) and to be
available in all post offices. Each post office will have an integrated facility providing the
new card based benefit payment service, automated payment terminal, Electronic Point
of Sale (EPOS) capability, and provide the capability to support other functionality as
required.
6. The programme represents a major opportunity for POCL to modemise its operations
and position itself as the leading nation-wide provider of automation-based retail
services, It will provide a platform for POCL’s commercial strategy of growth, and will
_ enable POCL to exploit wider powers and help defend its position against existing and
new competition. A majority of the product development opportunities identified in
POCL’s business plan proposals require, or will be enhanced by, automation. Of planned
product development opportunities, 35% are considered to be highly dependent on
automation, and a further 45% have a medium level of automation dependence.
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7. The project also locks in POCL’s largest client, BA and realises two strategic goals. It
reduces the risk of anticipated volume and income decline from greater use by customers
of Automated Credit Transfers, and it eases pressure on POCL prices. As part of the
programme, POCL and BA have negotiated a back-to-back deal which provides for an
eight year contract. This includes a floor income level from BA, irrespective of actual
volume, a limited efficiency discount of 1% per annum and a sharing of residual fraud
liability risk.
8. Under the PFI the private sector will provide the initial capital outlay which ‘is
remunerated by the income stream generated over the life of the contract. POCL and BA
have defined the outputs it requires but the details of design, build and operation of the
system are the responsibility of the private sector. There is a requirement to demonstrate
transfer of risk from the public to the private sector. The nature of the PFI deal means
that POCL will only pay for the system as it uses it, and that there is no capital
investment by the Post Office.
9. Additionally, POCL sees this development as an opportunity to forge a strategic alliance
with the private sector service supplier. POCL expects to benefit from this by bringing in
private sector skills in product development and marketing, together with the potential
for the supplier to bring in products from their own and associated businesses to use the
service. However, in exploring these opportunities POCL has ensured it maintains
control over its key business processes, and the use made of the services.
10. Annex B sets out the non-negotiable elements of the deal agreed by the Board adopted
last November (POB95/1 16vii), and shows that each of them has been secured.
2) Vi
“11. The financial evaluation has considered the proposals of three suppliers (code named
“Tom”, “Dick” and “Harry”). These proposals have been evaluated against a base case in
which the expansion of automation would be limited and incremental. In this option,
POCL would get some limited benefit from new business such as bill payment. The base
case assumptions were independently reviewed by Coopers & Lybrand and are as robust
as possible.
12. For comparative purposes a Post Office funded investment was also evaluated. However,
in this scenario substantial greater risks would remain with POCL, and in practice it is
unlikely that Government would allow the project to proceed on a conventional public
sector funding basis.
13. The financial evaluation demonstrated that there was a positive return at 12% for all three
suppliers as follows, taking account of weighted risk values to key variables. /
NPV whole project life £m Tom Dick Harry
Best view 47 65 52
Including risk assessment 30 45 35
Ranking 3rd Ist 2nd
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n-financial evaluat:
14. The suppliers were also evaluated on the following:
¢ contract assurance: this reviewed suppliers’ bids to identify any non-compliances
and reach a conclusion on their significance. The review was supported by
commercial lawyers. It ranked the suppliers in the order (1) Dick, (2) Tom and (3)
Harry. It considered that Harry should not be awarded the contract because of its
unacceptable degree of non-compliance with contract requirements. Tom’s tender
was deficient against several key contractual requirements. Whilst this was
insufficient to rule it out completely, it would have to offer a considerable price
advantage to the proposal tendered by Dick.
¢ risk transfer: this considered the overall position (so as to reach a view on potential
PFI clearance) but also, given its importance to both sponsors, to look in more detail
at fraud risk. The review concluded (supported by Charterhouse) that the deal with
Dick was close to the risk transfer sought and would secure PFI clearance. Although
Harry was prepared to accept some fraud risk, the conditions associated with the
volume qualification and RPI linkage made the risk transfer position less clear cut.
The risk transfer in Tom’s tender was very limited and would not satisfy the
requirements for a PFI.
e non-financial characteristics: this reviewed suppliers’ performance against a
number of characteristics, including customer acceptability, reliability and support,
management capability, etc. All three suppliers exceeded the acceptable level with
the differences between them not significant for the purpose of discrimination.
e partnership: this reviewed the ability of the suppliers to be a partner for POCL in
securing future new business. The review concluded that all three suppliers were
satisfactory potential future partners.
Ap rroval Process
15. I The Programme Evaluation Board (PEB) recommended that, on financial and non-
financial criteria, the contract should be awarded to Dick. This recommendation has
subsequently been endorsed by the Joint Steering Committee (which includes DTI, DSS
and Treasury representatives).
Annex C (in the form of a minute to the co-chairmen of this Committee - the MD POCL
and the Chief Executive of the Benefits Agency - from the PEB) describes the
background to this decision. It highlights, in particular, those issues around
recommendations (including price), and risk transfer, which make Harry and Tom
unacceptable respectively.
16. I At MaPEC the recommendation was endorsed and approval to proceed granted, subject
to Board approval, with ‘in principle’ authority for programme implementation costs of
£10.4m, and subject to the following specific conditions:
¢ the finally negotiated contract terms should continue to generate a case with a positive
Net Present Value; if this was materially different (i.e., no better than the next best
bid) to that presented, the financials should be re-represented to MaPEC for approval;
¢ the risks continued to be at an acceptable level;
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there was a requirement to ensure that the proposed technical solution of the chosen
supplier was signed off in a revised Group IT Technical Concurrence prior to signing
final contracts, as to the supplier working within the overall Post Office IS strategy
(applications and architecture), and that POCL was not precluded from taking
advantage of standard software upgrades in the future;
¢ once the contract has been agreed/awarded, the financials should be re-submitted to
the Secretariat, with significant variances explained, for noting at MaPEC, which
should form the basis of future monitoring; and a six monthly report back to MaPEC
thereafter. To avoid separate sets of information, a standard format of this report was
to be used and should be agréed with the Secretariat;
e the individual assumptions detailed in both the base and PFI cases must be tracked
and reported through a benefits management plan, and continued throughout the life of
the contract;
¢ Counters Executive Committee (CEC) should assume the role of Programme Board to
oversee all future retail initiatives and the financial progress of the programme,
reporting back on key milestones, timescales and financials, ensuring that
benefits/costs are incrementally identified to the BA/POCL initiative;
e the risk management plan must include provision for identification, and avoidance of,
potential contract variations;
Risk management
17. I Managing the risks around the contract will be done in a number of ways:
preventative measures such as guarantees, break clauses and contractual service
levels,
joint working between POCL, BA and the supplier,
© commercial imperative for both POCL and the supplier on delivery.
However, unlike conventional procurement, under the PFI the onus rests on the supplier
who accepts and underwrites a far greater degree of risk, both in the short and long term.
Other risks
18. Some technical risks were identified with all suppliers, and in some areas, Dick was
considered to have higher technical risks than Tom and Harry. However these risks are
manageable through:
e a strong technical assurance function, with support from the Post Office IT
Directorate,
© rigorous testing at development, trial and roll-out stages,
e ensuring supplier contingency plans,
© apro-active technical management plan.
The risk relating to contracting parties was viewed by Charterhouse, and confirmed as
having the resources to meet contract commitments. This has been further endorsed by
the Chairman of the parent company direct to the President of the Board of Trade.
There is one further outstanding issue to be settled between POCL and the Social
Security Agency, who are responsible for the benefits payments in Northern Ireland, on
the back-to-back commercial terms. This has now been escalated politically, and an oral \
update will be given at the meeting on its latest status.
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19. In parallel with this submission, BA are seeking the necessary authorities to proceed
from their Secretary of State and the Treasury. As this is high profile procurement the
Prime Minister’s office is also involved. The planned timetable is:
Announcement by Secretary of State for Social Security 15 May 1996
Contracts signed End May 1996
Operational trials and linked ‘go live’ September 1996
Roll out commences Early 1997
Roll out complete in post offices Spring 2000
Recommendations
20. The Board is invited to:
e Note MaPEC approval subject to the conditions set out at paragraph 16 above, has
been obtained;
© Note proposed total POCL programme expenditure, inclusive of sunk costs, of
£15.8m;
¢ Authorise devolvement to MaPEC for full authority of future programme
management costs;
¢ Authorise POCL to proceed to full contracts with BA and the successful supplier.
May 1996
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ANNEX A(i)
SUMMARY OF PROJECT INFORMATION
GENERAL
Project Title: BA/POCL AUTOMATION
Project Sponsor: Richard Dykes/Stuart Sweetman, Managing Director
Programme Director: Andrew Stott, Programme Director BA/POCL
Project Controller (POCL): Paul Rich, Financial Markets Business Centre Director
FINANCIAL DATA Outturn £m
Capital -
Non-Recurring Revenue
Departure From Estimate
MAXIMUM AUTHORISED EXPENDITURE
Authorised in principle 10.4
Sunk Costs: Authorised 5.4
SUM TO DETERMINE AUTHORITY LEVEL 15.8
FORECAST RESULTS
Comparative NPV to base case
Based on an 8 year contract Base PO Tom Harry Dick*
procurement
NPV at 12% - Pre Tax &m (161) 124 47 52 65
NPV at 12% - Pre Tax including Risk £m (161) 50 30 35 45
COMPARATIVE EFFECTS ON TARGETS (* Preferred PFI Supplier)
Year O Year 1 Year 2 Year 3 -Cum 9 yrs
Pre Tax Profit £m (10.7) 6.7 25.6 3.1 90.2
EFL&ém (1.2) 79 23.8 10.2 108.5
RUC% (0.96) 0.6 2.3 0.3 N/A
SENSITIVITY AND RISK ANALYSIS
Sensitivity analysis has been undertaken by the project team, within the assessment of risk
programme. Whilst an NPV of £65m is expected, sensitivity analysis indicates a likely NPV of
around £60m.
KEY TARGET DATES
MaPEC authority to proceed
Board endorsement
Announcement by Secretary of State
Contracts signed
Commence Roll-out
Finalise Roll-out.
PIR date
CONCURRENCES
Strategic: Richard Dykes
Operational: Jonathan Evans
Financial: Roger Tabor
Commercial Richard Wheelhouse
Technical: Duncan Hine
Alan Shepherd
Basil Shall
Wendy Powney
OPTIONS
Sponsors have evaluated the responses to tender against the option of a minimal ‘do nothing’
baseline, and a Post Office public procurement route. The comparative financial data is
outlined in A( ii).
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30 April 1996
07 May 1996
15 May 1996
End May 1996
Spring 1997
Spring 2000
December 2000
Managing Director, POCL
Network Director, POCL
Finance Director, POCL
Commercial Director, POCL
Technology & IS Director, Group IT Directorate
Director of Research, Group IT Directorate
‘Group Head of IS Planning, Directorate
POCL Head of IS Strategy
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ANNEX A(ii)
SUMMARY OF PROJECT INFORMATION
NPV ém Base Case PO Procurement PFI Automation
(preferred supplier)
Income .
Benefits Agency 2119 2069 2119
Volume Change (203) 77 77
Price Change (196) 107 107
Sub Total 1720 2253 2303
DSS Girocheques 325 325 325
Volume Change (21) (188) (188)
Price Change 6 2 2
Sub Total 310 139 139
Other Clients existing & new = 17 17
Savings on existing - 40 40
automation
Sub Total = 117 117
Expenditure
Benefits Agency (1889) (2112) (2112)
Girobank (297) (140) (140)
Time Increases (15) (15)
Card Issue/back office 73 73
Training (23) (3)
Programme costs (sunk) (4) (5) (5)
Programme costs (future) (25) (25)
Fraud (1) - -—
Sub Total NPV before (161) 262 332
supplier charges & risk
Supplier Charges/Risk (122)
System Charges _
Benefit Encashment (BES) (145)
POCL (220)
Other — (177) (36)
VAT. = (27)
Total NPV (261) (37) (96)
Base PO Tom Harry Dick *
Case procurement
Sub Total NPV (161) 262 330 332 332
before supplier charges
System Charges (122) = = —
BES = (145) (145) ~ (145)
POCL (236) (233) (220)
Other (177) (36) (36) (36)
VAT _— = (27) (27) (27)
Total NPV before risk (163) (37) (114) (209) 196)
Assessment of risk = (74) (17) (17) (20)
Total NPV (161) (211) (131) (126) (216)
Net NPV Change before risk = 124 47 52 65
Net NPV Change = 50 30 35 45
* Preferred PFI supplier ‘
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NON-NEGOTIABLES
Acceptable business case for
POCL and Post Office
Customer perceive no worsening
of service
No damage to Post Office brand
POCL retains control of critical
operations and key commercial
relationships
Capability for POCL to automate
all clients and develop new
services
Automation of all post offices
within reasonable time
Chosen supplier has financial and
technical capability to develop and
deliver services
Comment
The business case shows a comparative
positive NPV of £45-65m at a 12%
discount rate
The proposed solution’s impact on
transaction times within acceptable
bounds
There is no immediate evidence that
PO brand damage will occur
Achieved
Achieved
All post offices should be automated
within 3 years
Evaluation conclusion is that these
conditions have been met
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ANNEX B.
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ANNEX C
RESTRICTED ~- COMMERCIAL
MINUTE FROM BOB PEAPLE TO RICHARD DYKES AND PETER
MATHISON, COPIED TO PSC MEMBERS
Purpose
1. The purpose of this minute is to inform you of the
substance of the meeting of the Evaluation Board which I
chaired yesterday to consider the report of the
evaluation team on the retenders submitted by #Tom, #Dick
and #Harry.
2. You will recall that the PSC approved the creation
of a Procurement Board to oversee the procurement
process, give guidance on policy issues and approve the
methodology by which the evaluation and selection for
shortlisting and eventual award would be conducted. In
its slightly reconstituted form as an Evaluation Board it
would receive an account of the work done by the
evaluation team and reach a selection decision.
3. The Board unanimously agreed that if a contract is
awarded it should be made to #Dick. I shall be seeking
. PSC’s endorsement of this decision at its meeting
tomorrow.
Background
4. Prior to issuing the Invitations to Tender (‘ITTs’),
the Evaluation Board had satisfied itself that all three
suppliers had achieved at least a satisfactory
performance in a number of areas that had been identified
as being essential to the award. These were closely
linked to the sponsors’ objectives in launching this
procurement:
a. the minimum service requirements acceptable to
the sponsors;
b. the minimum requirements for partnership with
POCL in the development of new business opportunities;
c. satisfactory arrangements on a number of
commercial aspects (e.g. an acceptable funding method and
financial structure) ;
d. no outstanding ‘show stopper’ risks arising
from examination of the prospective services on offer and
from the contractual negotiations;
5. On two hurdles a ‘forced clearance’ was imposed
through contract conditions included in the ITT:
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a. sufficient transfer of risk to satisfy the
conditions of the Private Finance Initiative, especially
in the area of fraud, where a minimum acceptable level of
fraud risk transfer was imposed. Following from this:
b. a draft contract acceptable to BA and POCL.
6. On 29 February we issued an Invitation to Tender
(‘ITT’) to three suppliers on this basis:
#Tom
#Dick
#Harry
7. On,21 March we received a total of five bids from
the three suppliers. All were priced at a level which
was higher than the indicative prices given with their
original proposal. This called into question the ability
of either BA or POCL to mount a convincing business case.
8. Having taken legal advice, the sponsors agreed that
the negotiating team should have discussions with all
three suppliers under the EC Negotiated Procedure with
the aim of drawing out the main cost drivers and
identifying possible changes in terms and conditions
which would offer better value for money and prices at a
level that business cases would support.
9. The discussions generated a list of options for
change, together with illustrative reductions in price
and (where relevant) offsetting impacts on in-house
costs. Sponsor directors reviewed each item of the list
and accepted those changes which offered the prospect of
better value for money without compromising business,
technical or commercial requirements.
10. On 16 April Invitations to Retender (*‘ITR’)
incorporating the sponsor decisions were issued to the
three suppliers. A strong preference for a retender
compliant with the ITR was expressed. However, we said
that suppliers could submit one variant retender and that
this could include any variation the supplier wished,
including changes previously rejected by sponsor
directors. We undertook to evaluate all retenders.
The evaluation and its results
11. Retenders were received on 22 April - one from each
supplier. All were variants, but the degree of non-
compliance with the ITR varied widely. The instances of
non-compliance included some which sponsors had
previously rejected and some which had not previously
come forward for consideration.
lo
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12. The Evaluation Team presented their findings to us
by reference to the various streams of evaluation. The
purpose of each stream, and the findings from it, are
detailed below.
13. Technical - to check that nothing in the retenders
affected the acceptability of the prospective service
offering. This found no reason why any of the service
offerings should be regarded as falling below the minimum
levels set by the sponsors. A good deal of work would be.
required with whichever supplier were chosen to devise
optimum procedures in the fraud area, especially given
some of the changes proposed by #Tom and #Harry which put
more responsibility onto the sponsors’ staff than had
previously been assumed.
14. Contracts - to identify any non-compliances with the
ITR and reach a conclusion on their significance. This
review ranked the suppliers in the order #Dick, #Tom and
#Harry. It considered that #Harry should not be awarded
the contract at any price, because of its unacceptable
degree of non-compliance with contract requirements.
#Tom’s tender was deficient against several key
contractual requirements. Whilst this was insufficient
to make it not worth taking at any price, it would have
to offer a considerable price advantage to be preferred
over #Dick’s.
15. Risk Transfer - to look at the overall position. (so
as to reach a view on potential PFI clearance) but also,
given its importance to both sponsors, to look in more ’
detail at fraud risk. The suppliers’ position on five
major elements of PFI risk transfer was summarised by the
review in the following table:
‘Supplier Wilarry Tom wDick-
PFI Risk Transfer
1 Fraud Risk Transfer 7 x v
Onus of proofon Authorities. I Tight limit of £10m pa for non
No cardholder verification _I cardholder verification fraud,
fraud, Zero for cardholder
Nocoverforunactioned stop I verification.
notice, nus of proof on Contracting,
Authorities
Vz Commissioning v 7 a
Risk in delays etc.
Ey Volume Change Risk x x 7
~ Requires volume verification I Requires 92% ofrevenueto I Relief for changes to benefit
atendofyear1ofrollout, I be guaranteed. frequency. Thisis
acceptable.
4. Inflation x x v
RPI-1%6pa offered, RPI protected. Bears RPI increases up to
Charges will increase Charges will increase. 606; share these above 6%
with Authorities.
3. I Operate the system to agreed x v v
standards Limit of £5m pa and £0.5m
per single event to penalties
for service failure,
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The review had concluded that the deal with #Dick
was close to the risk transfer sought and would secure
PFI clearance.
some fraud risk,
Although #Harry was prepared to accept
the conditions associated with the
volume qualification and RPI linkage made the risk
transfer position less clear cut. The risk transfer in
#Tom’s tender would be unlikely to satisfy the
requirements of PFI and the deal was more akin to an
operating lease.
17.
As noted in para 15, it was considered particularly
important to understand clearly the position on fraud
risk transfer.
The review had produced the
following table describing the key offerings by the
Service Providers:
Benefit card £ 200m over contract £200m over contract lifetime
lifetime.
Hacking by Supplier’s
employces or external third
partics,
Un-actioned stop notices NIL £10m pa I £200m over contract lifetime
Counterfeit Cards used with I £200m over contract NIL £200m over contract lifetime
valid accounts lifetime
Usc of unreported stolen NIL- NIL with verification I £200m
cards screens over
contract
lifetime
standard screens I Nil
False repudiations NIL NIL if shown to be Nil
false plus
standard
procedures
ifnotshownto I £200m
be false, or if over
verification contract
screens used lifetime
BA/POCL Internal and/or NIL NIL NIL
collusive fraud
Other fraud (POCL) NIL NIL £200m over the contract
lifetime
18. Financial - to calculate the total cost (i.e.
supplier changes plus internal costs) of taking the
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service for BA, POCL and overall. This evaluation, having
considered both direct and indirect cost implications,
had shown the cost of service from #Tom and #Dick to be
virtually equal. While the initial analysis showed that
#Tom had a slender lead the position was reversed when
adjustment was applied for some areas where it had not
been possible to complete definitive costing (i.e. the
on-costs of bearing the burden of proof and the
prospective savings achievable by purchasing receipt
stationery from a source other than the supplier).
#Harry was significantly more expensive than the other
two?:
Figures in £m - full life, 6% NPV #Tom #Dick #Harry
BAJSSA total 623 - 658 627 - 663 847 - 882
POCL total 403 378 410
Total costs 1026-1061 1005 - 1041 1257 - 1292
Ranking of financial position l= 1= 3
19. With adjustment for some areas #Dick was the
cheapest. Sensitivity analyses (e.g. variations in
workload) had shown that because #Tom’s charges varied .
least with volume, a reduction in volume produced a far
less than commensurate reduction in charges.
20. Value Factors - to review suppliers’ performance
against a number of non-monetary value factors which we
had told suppliers would be taken into account in the
evaluation. This had shown a close match between the
three suppliers in terms of the ‘external’ factors
affecting staff and customers (e.g. customer and staff
acceptability), the order within that being #Harry, #Tom
and #Dick.
21. While all met the acceptability threshold on
‘internal’ factors covering the soundness in terms of
service delivery (e.g. stability and coherence, fraud-
free method of payment) the order was again #Harry, #Tom
and #Dick, with the first two being some way ahead of the
third. The trend since issue of the ITT had been for
#Dick to improve in some of these areas, while #Harry and
#Tom had declined.
22. Partnership - the ability of the suppliers to be a
partner for POCL in securing future new business. The
review had concluded that all three suppliers were
satisfactory potential future partners.
* POCL note: the numbers include adjustments to cnable comparisons to be made on a common basis
without including the full impact on POCL's or BA’s business cases, They are, therefore,
reconcilable, but not identical, to the numbers in POCL’s Business Case.
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Evaluation Board discussion and conclusion
23. The Board identified a number of aspects of the
evaluation and its findings on which they needed further
information. Members of the team had been made available
for such an eventuality, and it was therefore possible to
hold immediate discussions. Satisfactory answers were
received on all of the issues that were raised.
24. The Board then considered the findings of the team
and the results of the related discussions in relation to
each supplier.
25. Their first decision was to conclude that #Harry
should be eliminated from further consideration. It
ranked first on the Value Factors and was thought to be.-
PFI-compliant. However, it was significantly behind the
other two on costs and its bid was regarded by the
Contracts Assurance review as unacceptable. Not only had
it been unable to make attractive the large number of
elements which sponsors had previously rejected, but
there were also a large number of provisions that would
enable #Harry to increase the costs to sponsors very
substantially over time.
26. As to #Tom, its tender showed a cost of service
virtually equal to #Dick. It had achieved a satisfactory
marking on both categories of value factors, and was
ranked second to #Harry on both.
27. However, there were significant shortcomings in
#Tom’s tender arising from the Contracts and Risk
Transfer assurance activities:
a. the Contracts review had recommended that #Tom
needed a significant cost advantage to be preferred to
#Dick. Generally, its contract offered less certainty
than #Dick’s, with elements left open to interpretation.
Its provisions on what were considered to be key elements
remained unattractive/unacceptable and had been rejected .
in the past by sponsors. In addition, it offered the
poorest deal on fraud risk transfer.
b. the Risk Transfer review had concluded that the
#Tom bid would not be regarded as acceptable in PFI
terms. It was more in the nature of an operating lease,
with the bulk of the risk on volume, RPI and fraud
remaining with the Contracting Authorities.
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28. The Board therefore concluded that #Tom should also
be excluded from consideration.
29. #Dick were to all intents and purposes equal with
#Tom on fully quantified costs, and bringing in
conservative estimates in a number of areas which it had
not been possible to.fully cost would swing the balance
in Dick’s favour.
30. The #Dick tender was by far the closest to what the
sponsors had sought to obtain, and its implications were
far more clear than the other two. Its provisions on
fraud risk transfer were the best on offer, and the view
of the contracts review was that only a considerable
price disadvantage could alter its ranking as the most
attractive bid. The Risk Transfer review had concluded
that it would be regarded as satisfying PFI criteria.
31. #Dick was close to the other two bidders on the
‘outward-facing’ value factors. Whilst there were some
aspects of the ‘inward-facing’ value factors where we
would be looking for improvement post-award, a
satisfactory score had nonetheless been achieved. #Dick
was regarded as a satisfactory future partner for POCL in
developing future new business.
32. The Board therefore unanimously concluded that,
subject to clearance of sponsor business cases, the
contract award should be made to #Dick.
33. The Board recognised that an award to #Dick would
imply a need for a proactive management stance by
sponsors, notwithstanding the improvement noted by the
Contracts Stream since the restructuring immediately
prior to ITT issue. It would also require sponsor staff
to work closely with #Dick on fraud prevention measures, _
although given the changes on fraud risk made by the
other two bidders in their retenders most of this work
was likely to be required whichever supplier were chosen.
Recommendation
34. I shall be strongly recommending tomorrow that PSC
endorse the decision of the Evaluation Board to award the
contract to #Dick. The procurement process has been
thorough and fair and in the view of the Board the
decision can be robustly defended against challenge from
any quarter.
IN STRICTEST CONFIDENCS
1S