The Major Contractors Group and the Construction Confederation have been in talks with the Treasury's Office of Government Commerce over the possibility of bid costs being met by taxpayers.
Nothing has been agreed yet, but contractors warned this week that the state would have to start contributing if it wanted to push through its improvements to public services in time for the next general election.
"Bidding for PFI is a major investment," said one leading contractor this week. "And if the government doesn't make it more attractive, either by simplifying the process – which would cut costs – or contributing to costs, it will struggle to attract enough bidders."
A spokesperson for the Construction Confederation said: "Although there is no detailed discussion on alternatives to the current system, it seems the only obvious solution is to share risks so that the government guarantees to return a proportion of the bidding costs of contracts."
If government does not act, it will struggle to attract enough PFI bidders
The negotiations have been given fresh impetus in recent weeks as rising bid costs, more than 5% of the project's value in some cases, force contractors to become more selective about which projects they bid for. Amey, faced with huge bidding costs from the Tube public–private partnership, has said it is going to scale down its PFI involvement. Other contractors, such as Taylor Woodrow and Jarvis, are becoming more selective.
An additional factor is the new accounting rule that forces contractors to write-off bid costs as soon as they are incurred, placing more pressure on their balance sheets.
The government has, until now, refused to pay PFI bid costs, and any change of policy is certain to attract criticism from the unions.
Tim Stone, PFI consultant at KPMG, said there was an emerging debate across Whitehall about contractors' concerns on the PFI. He said the government would be unlikely to pay the whole of the bid cost, but the idea of subsidised bidding is being actively considered.