Health minister to hear complaints about plan for two-horse race to financial close.
Major contractors hinted this week that they may pull out of private finance initiative health deals over government plans to have two consortia working on bids until financial close.

A Major Contractors Group delegation led by Kier chairman Colin Busby has arranged to meet health minister John Denham on 18 March to express contractors’ concerns that the system will be more costly.

Under the new proposals, firms say the losing bidder will incur extra costs of up to £600 000, and they want Denham to introduce a reimbursement system.

Busby said: “I think this is premature. If bidding seriously means risking that type of money, we would all have to think twice about PFI.” The MCG has already met the Ministry of Defence to air its concerns about a similar system.

The health guidelines say that the two final bidders must produce full designs and give guarantees about finance, including rates of interest, before submitting final bids. Previously, firms have not had to give such guarantees.

The Department of Health believes the rules will make PFI projects more competitive – consortia would not be able to up their bids and banks would be forced to keep interest rates as low as possible to stay in the bidding.

But contractors are outraged by the proposal. Busby said: “What you are talking about here is real money that one consortium will pour down the drain. The half a million banking due diligence would have to be added to design costs, where you wouldn’t get much change from a hundred grand.

If bidding means risking that kind of money, we would all have to think twice

Colin Busby, Kier chairman

“We’ve all complained about PFI costs before, but more than ever here there is a real case for reimbursement.” The system is to be introduced for the construction of three hospitals where shortlists of six have been picked, including a £60m plan at Dudley (pictured). The contractors want the government to agree a compensation system when these projects reach two bidders and for this to become standard practice.

Alfred McAlpine chief executive Oliver Whitehead said: “There is real alarm about the incredible costs both consortia would incur only for one to get dumped. What a waste of talent around the industry.” MCG director Jennie Price said: “There is a lot of concern about the cost of this, which would be enormous. A way through might be for the Department of Health to start paying for a good proportion of bid costs.

“Major contractors are taking this very seriously. No firm would be able to sustain many bids on this basis.” The MCG has held one meeting with the department over the rules. Executives from Alfred McAlpine, Amec, Tarmac and Taylor Woodrow met officials a fortnight ago.

The MCG has welcomed departmental efforts to sort out the issue of wasted work on design, with a protocol due to be agreed over what work has to be done at each stage of the bidding process.

But the question of the financial costs is what concerns them most and this will be discussed at the Denham meeting. He has succeeded Alan Milburn as minister in charge of PFI hospitals.