APPENDIX 1
THE PFI CONTRACTS FOR
BRIDGEND AND FAZAKERLEY PRISONS (PAC/97- 98/234)
Supplementary Information
from HM Prison Service
Question 90
What was the overall effect (on costs) of having
to re-tender?
On the basis that the cost of re-tendering amounts
to the professional fees spent prior to the decision to take such
action, this was £108,000; £75,000 in respect of financial
advisers' fees (Lazards) and £33,000 in respect of the Treasury
Solicitor's fees (as the NAO report indicates Freshfields were
not appointed until after this decision).
Question 157
What Advice did the Prison Service receive from
HM Treasury abo4ut the appointment of Lazards and what procedures
were followed?
On 22 June 1994, Prison Service signed a contract
with Lazard Brothers and Co Limited which did not result directly
from a competitive tendering process. However, the Prison Service
was reassured that terms represented value for money because a
competition for the same advice on a similar PFI project (secure
training centres) had recently been concluded by the Home Office.
In the light of the subsequent extensions to the Lazards contract
with the Prison Service, brought about by the unforeseen increases
in the procurement timetable (due to the project's innovative
and complex nature) the Prison Service agree that it would have
been better able to demonstrate whether the contract represented
value for money if it had been let after a full competition. There
is no indication that Prison Service consulted HM Treasury.
All subsequent adviser appointments for the DCMF
programme have been made after competition.
Question 173 (a)
A note on risk.
The Prison Service decided that the risk of placing
responsibility for all 1,400 places with a single contractor was
too great for it to bear. Although there was financial compensation
through liquidated damages had the prison been delivered late,
we judged that this was insufficient if accommodation was not
available when needed either because of late delivery or operational
reasons. This was not primarily a financial calculation, although
the high cost of police cells, if a single contractor failed to
deliver the service, was a consideration. The Prison Service had
to be satisfied when evaluating proposals that the new prison
could be delivered on time and open in a manner that discharged
the contractor's responsibilities with regard to security, control
and providing a high quality regime.
Question 173 (b)
Are there innovative ways of transferring efficiencies
achieved in one project to another: for example by getting other
bidders to sub-contract into a successful approach?
Such an approach could easily fail, given the
contractual complexity of requiring bidders to adopt each
other's ideas (on a sub-contracted or other basis) and the difficulty
faced by the Prison Service in maintaining the risk transfer and
ensuring value for money is achieved through such an arrangement.
Instead in subsequent competitions, bidders have been encouraged
to use innovative ideas. The scope for locating catering facilities
outside the secure perimeter, the introduction of a separate vehicular
entrance and the introduction of design features developed to
produce a safer, easier to search and lower maintenance cost cell
have been drawn to their attention in recent invitations to tender.
It is then for the bidders, when reaching decisions about how
to construct a bid that offers the necessary quality at the most
competitive price, to make their own commercial judgement about
which ideas should be adopted and when to use them. In this way
the benefit of innovative ideas is being spread, and whether they
represent value for money tested in the competitive process.
HM Prison Service
25 February 1998
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