13 February 2003 | Robin Parker
An IT contract that more than doubled in price during six years of negotiations is a model of how not to do private-finance initiative (PFI) deals, government watchdogs have warned.
The Libra project, to unite IT for the UK's magistrates courts, will cost £390 million, compared with supplier ICL's original estimates of £156 million.
The National Audit Office (NAO) said in a report that negotiators failed to keep the procurement competitive because they were locked in by one bidder that had already run into problems on a separate project.
Sir John Bourn, head of the NAO, said departments should take it as a warning sign that they will be unlikely to pull off PFI deals if few bidders show initial interest, and urged them to put in place strong and up-to-date contingency plans.
Bourn criticised the Lord Chancellor's Department for approaching a few IT providers rather than conducting a full market survey of its proposals.
ICL became the only bidder when its rival, EDS, dropped out in 1998. Its bid was renegotiated twice after contract signature, after ICL admitted overestimating revenues and underestimating the contract costs.
The firm now delivers only the basic infrastructure, and the department is in the process of signing a separate contract with STL for the core software.
Edward Leigh MP, chairman of the House of Commons public accounts committee (PAC), reiterated concerns about comparisons between PFI and conventional procurement.
As the PAC published its report on the PFI redevelopment of the Ministry of Defence's main building, Leigh said purchasers should use broader comparative criteria than just cost.
"Too much emphasis seems to have been placed on a minuscule cost difference," he said.
"As these costs are nothing more than estimates, it is spurious to present them as having a high degree of accuracy."
However, chancellor Gordon Brown last week reaffirmed his belief that PFI provides "the most cost-effective infrastructure for our public services".