Sir John Bourn, head of the National Audit Office, today reported to Parliament on the £1.2 billion expansion of the PRIME contract, that DWP had succeeded in getting the deal it had set out to achieve. The decision to proceed via a non-competitive negotiation with LST was the right one. DWP introduced competitive tension into the negotiations, and the outcome was £220 million cheaper than a credible commercial alternative.
In 1998, the former Department of Social Security transferred its estate under a PFI deal known as PRIME (Private Sector Resource Initiative for the Management of the Estate) to a private sector consortium, now Land Securities Trillium, LST. Following the 2001 election, and the creation of the Department for Work and Pensions, this contract was expanded by the Department to take in property of the Employment Service.
The Department decided on a non-competitive negotiation after considering a wide range of options and other factors including the capacity of the incumbent contractor and their delivery on the original contract.
The Department was aware of the need to achieve and demonstrate value for money in the absence of true competition and used an appropriate and reasonable model of what costs a private provider should be expected to charge – as a check in negotiations. It also had an alternative viable commercial strategy to pursue had negotiations not met the Department’s objectives.
The contract gives the Department flexibility on the amount of accommodation it pays for in the future, by giving it the scope to buy and sell the right to vacate property. The Department also used the negotiations to lever improvements to the original PRIME contract, including incentives for improved contractor performance, a new approach to the management of the contract and relationships, and the right to voluntarily terminate the contract.