Select Committee on Public Accounts Second Report

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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