24 April 2008
A public procurement project to upgrade electronic road signs overran and cost £10 million more than expected.
The project involved a 10-and-a-half year PPP deal, where the supplier was paid £3.9 million a month, subject to service. A report into the process by the National Audit Office (NAO) found that the Highways Agency had managed to transfer risks such as excessive costs and time overruns to its supplier.
But the project took more than twice as long as anticipated, and the agency spent more than £10 million extra on advice than planned.
Tim Burr, head of the NAO, said: "The procurement identified the risks of the project and successfully transferred them to the private sector, conducting negotiations with the preferred bidder well. It did, however, take a lot longer than planned and only two bidders remained through to the end of the competition."
Despite being left with only two suppliers at the end of the tendering process, LINK and winners GeneSYS, the NAO said the agency had maintained a competition. And during final negotiations, GeneSYS' price actually fell by £2 million.
But because of policy and operational changes to the project, the agency spent £15.5 million on legal, financial, commercial, technical and project management advice. The delays and extra cost were due to the agency requiring highly detailed contract documents.
However, the NAO recommended other public sector bodies follow the agency's thorough examination of bid prices, to be able to judge value for money.
A spokesman for the agency said it was right to extend the length of the procurement, to ensure success, even if this meant some bidders left the process.