The scheme is being reappraised after fears were raised internally over threats to national security while officials move into and out of temporary offices.
Bidders for the project – including teams led by Jarvis, developer Godfrey Bradman and Bovis – declined to comment. But they are understood to be livid about the impasse, and some are threatening legal action.
One industry source said: "The Home Office has completely bollocksed it up. It's a real mess and it's giving the private finance initiative a very bad name."
Officials' fears over the headquarters have been exacerbated by a National Audit Office report on a PFI project for the Home Office's Croydon base. The study, which was published last week, was critical of a plan to install a new IT system.
Project facing delay
Firms that have been working on the headquarters bid since August 1996 are furious about the decanting issue.
They sent in best and final offers late last year and were told to expect a decision on the winner on 17 February. They have since been told that there is a problem with moving staff and that there is no timescale for a decision. They were not told at the bid stage that decanting could cause difficulties, and have each spent millions of pounds on the PFI tender.
The Metropolitan Police and the Prison Service, as well as ministers, would be most affected if 1500 staff had to move out of the Home Office's Queen Anne's Gate office.
The Home Office's IT system is so complicated that only 150-200 people could be moved at a time to a temporary space, meaning the department would be in flux for eight to 10 weeks.
Officials fear that this disruption could be dangerous, and favour a Bradman bid that would put off a move for several years.
Bradman, working with Mace and Terry Farrell & Partners, is proposing bulldozing the DOE's former offices at London's Marsham Street and building new accommodation there. This would be ready in about four years, and would involve only one decanting manoeuvre.
Jarvis and Bovis are proposing far cheaper refurbishments of Queen Anne's Gate. These would involve the Home Office moving out this year and moving back after a limited programme of work is finished in about 2002.
Bidders are understood to be aghast that the Bradman bid might be picked because its solution offers less decanting.
Legal action threatened
The fact that firms had no opportunity to take decanting into account when preparing their bid evaluations has led to speculation that losers could sue the Home Office over its running of the competition. The alternative would be for the Home Office to ask Jarvis and Bovis to rebid with new-build options, so the bids can be rejudged on a like-for-like basis.
Whitehall sources confirmed that the issue is causing concern. One said: "It's delicately poised and Home Office officials are having difficulty making a decision. The project will go on but no one can say how."
The Treasury's PFI taskforce has been called in to help find a solution, but last week's NAO report only added to the pressure.
The Croydon PFI deal involved Siemens providing new IT systems to help the handling of immigration, asylum and citizenship cases.
But the project is running six months late, leading to fears that similar problems would occur at Queen Anne's Gate if its IT system was transferred.
A Home Office spokesman said: "No final decisions have been made on the project. We were hoping to say something at the end of last month, but it's been pushed on."