Bid Costs and Overheads

The duration of the PPP/PFI concession contract, typically 30 years, means that a complex framework of risk allocation, enshrined in an interlocking series of agreements and subcontracts must be developed, agreed and in place at the outset of the concession period.

The development and agreement of bidders’ proposals in response to the public sector authority's output specification, the complex contract documentation, and the multi-stage competitive bidding process itself, often results in a lengthy bid period.

Bid costs for PPP/PFI projects are therefore largely a function of the length of the bid period. A typical timescale for a project is six months from pre-qualification to the submission of a full bid; three months to best and final offer; three to six months to preferred bidder; and up to a year, and sometimes longer, to financial close.

The resulting high cost of bidding PPP/PFI projects, places large, well-capitalised contractors such as Balfour Beatty at an advantage. Bidding costs are recouped in successful bids from the concession company at financial close.

Historic Bidding Spend And Recoveries

	To 2000 £m	2001 £m	2002 £m	2003 £m	2004 £m	2005 £m	2006 £m	2007 £m	Total £m
Bidding spend	(30)	(9)	(15)	(16)	(14)	(25)	(28)	(33)	(170)
Recoveries	22	-	-	19	-	6	21	23	90
Net bidding spend	(8)	(9)	(15)	4	(14)	(20)	(7)	(11)	(80)

Accounting For Bid Costs
Bid costs incurred prior to preferred bidder are written off to the income statement as they are incurred. Bid costs incurred subsequent to preferred bidder status are capitalised. Bid cost recoveries in respect of costs incurred prior to preferred bidder are credited to the income statement over the period of the concession, amortised on a straight-line basis.

	To 2000 £m	2001 £m	2002 £m	2003 £m	2004 £m	2005 £m	2006 £m	2007 £m	Total £m
Bidding spend and overheads	(30)	(9)	(15)	(16)	(14)	(25)	(28)	(33)	(170)
Preferred bidder costs capitalised	19	2	7	8	4	14	11	9	73
Amortisation of deferred bid cost recoveries	-	-	-	-	-	-	-	-	-
Bid costs and overheads expensed	(11)	(7)	(8)	(7)	(10)	(12)	(17)	(25)	(96)

Analysis of bid cost recoveries

	To 2000 £m	2001 £m	2002 £m	2003 £m	2004 £m	2005 £m	2006 £m	2007 £m	Total £m
Recovery of preferred bidder costs capitalised	19	-	-	17	-	6	17	15	73
Pre-preferred bidder costs recovered and deferred	3	-	-	2	-	-	4	8	17
Total recoveries	22	-	-	19	-	6	21	23	90