Conclusions and recommendations
1. There was confusion among potential bidders
about how much land was on offer in the second competition for
the sale of the Dome.
English Partnerships, the Department and their advisers believed
that to have made a clear, open offer of all the land that was
available at the outset of the second competition would have diminished
interest in the Dome itself. Instead they let information emerge
to each consortium in a piecemeal and unstructured manner which
did little to further the sale objectives. In running competitions
Departments should maintain openness and equality of information,
which will avoid unnecessary risks to the bidders, maximise competitive
tension, and optimise the likely outcome for the Exchequer.
2. This Committee and its predecessors have
consistently stressed the benefits of competitive tension when
negotiating commercial deals with the private sector (Figure 1).
The failed first sale competition meant that there was reduced
market interest in the second sale process, leading to weak competition
with few participants and only one viable bid. In these circumstances
it is difficult to be confident that the deal which was finally
secured offered the best value for money that could have been
achieved.
3. English Partnerships and the Department
were working within the policy set by Ministers and the local
Planning Authority to retain the Dome if a suitable use could
be found. Recognising this constraint,
English Partnerships might usefully have sought bids that showed
how much bidders were willing to pay for the Dome itself, as opposed
to the valuable land around and under it. The financial case for
its retention would then have been better presented with all credible
options transparently assessed.
4. In their evaluations of the value for money
of the Meridian Delta offer, the Department and English Partnerships
focused much attention on the potential risks to the deal. They
were less specific about the various potential additional revenues
that they had identified, such as from a possible casino in the
Dome. Whilst Departments should be prudent
by not overstating uncertain benefits in their investment appraisals,
they should still attempt to quantify the likelihood and nature
of such "upsides" so as to understand and manage the
project and maximise potential additional benefits to the taxpayer.
5. In deals as complex as that agreed for
the Dome, estimating possible future profits will never be an
exact science. So profit sharing mechanisms, with their inherent
scope for returns to be undervalued, are not the best way of achieving
a fair return for the taxpayer. Especially
where public bodies are not as expert as their counterparties
in specialist businesses, they should think in terms of taking
a royalty, or a percentage of gross takings, instead of a profit
figure. This approach would also be consistent with the principle
of allocating business risks to the party best able to manage
them.
6. Monitoring the successful delivery of this
regeneration programme will require a long term commitment from
English Partnerships to ensure it has a sufficiently detailed
understanding of the various constituent businesses.
For example, it will need to exercise its rights of access to
inspect and review the financial records of the joint venture
and be as fully engaged as its private sector partners in decision-making
over the speed and nature of development of the Peninsula. English
Partnerships should benchmark the various business activities
being undertaken by its profit share partners and watch that value
does not leak away from the taxpayer. English Partnerships will
need relevant specialist expertise in monitoring and managing
its continuing stake in this deal in the public interest.Figure
1: Previous recommendations of the Committee on the importance
of maintaining competitive tension, and of clear information to
bidders
| Recommendation
| Report
|
"It seems likely to us that the privatisation may have gained from more specific marketing of the subsidiaries that came forward for sale in the later stages."
|
9th, The Sale of the National Bus Company.
(HC 119, Session 1990-91), para 3
|
"In any case where public assets are sold in competition, it is essential that all bidders have a complete and clear understanding of the seller's requirements. We expect departments to proceed accordingly in all future cases".
|
19th, The Sale of the Skills Training Agency
(HC 117, Session 1991-92), para 4
|
"Departments must try to secure effective competition as the basis for any commercial deal, whether for privately financed projects, public private partnerships or for other types of procurement. Shortlisting too few bidders or failing to maintain competitive tension throughout negotiations, as in this case, will increase the risk of poor value for money."
|
42nd, The Skye Bridge (HC 348, Session 1997-98), para 17
|
"The achievement of good value for money is most likely where there has been competition among fully informed bidders. Providing comprehensive information about the business being sold will help stimulate imaginative, competitive bids….. Information should be made available on an equal basis to all potential bidders, or departments will risk undermining bidders' confidence in the integrity of the sale process."
|
61st, Getting Value for Money in Privatisations
( HC 992, Session 1997-98)
|
"Competition is essential if value for money is to be achieved. But on a number of deals we have examined, the department concerned received only one bid. The receipt of just one bid may indicate, for example, that the proposed project has been poorly designed."
|
28th, Delivering better value for money from the Private Finance Initiative (HC 764, Session 2002-03), para 13
|
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