RICS report sparks debate over whether government should pay back bid costs to shortlisted firms

Two leading authorities on the PFI this week clashed over how the private sector and government should tackle bid costs.

In a report written on behalf of the RICS, and published on Tuesday, Dr David Eaton of Salford University said that the government should pay back bid costs to shortlisted firms that fail to win contracts.

But this suggestion has been opposed by Robin Herzberg, Carillion’s managing director of private finance, who said it was not a practical solution.

Eaton told Building that industry bodies including the RICS, RIBA and Chartered Institute of Building should lobby the government to pay up to 50% of bid costs incurred.

“It is too easy at the moment for the government to keep piling up these costs and not recognise that it is having a negative impact on the process,” he said.

However, speaking at the launch of the report, Herzberg responded by saying bid costs should be reduced at the outset.

Herzberg said it would be difficult to persuade the Treasury to pay up, and added it was not the best way to encourage firms to bid for contracts. This would lead to reduced competition and, therefore, reduced value for tax payers.

“The alternative rationale is to get those bid costs down in the first place,” he said.

Herzberg said that protracted negotiations hike up costs, and cited two schemes where this had been a “serious barrier” for Carillion as a bidder. The competition process on the two schemes, a defence project and a judicial court, have been running for more than six and four years respectively.

Herzberg said other problems included design costs and high legal fees.

“Legal fees are one of the two major causes of high bid costs. I am pleased with what the Treasury has done to standardise contracts, but it is essential lawyers abide by that.

“The other, frankly, is design costs. To reduce these, we need to limit the requirements set out by government at the competition stage.”

He suggested that for a hospital scheme, a contractor should be required to provide no more than a site plan, a masterplan, and 100-200 drawings of the critical area, rather than repeated drawings of each area.

  • The RICS report also said that, as PFI was increasingly on the agenda in other countries, the UK should position itself as the natural leader on an international platform, seeking representation on the relevant UN body. Dr Eaton recommended that that the UK develop an internationally recognised PFI practitioner qualification.

He quoted statistics from the National Audit Office that showed 76% of PFI projects were delivered on time, and 79% on budget.