While the audit office praised the level of service provided by LVL it has hit out at the MoD three years after the deal was announced. In 1996 when the five-year outsourcing deal was signed the MoD predicted savings of £17 million. But the audit office now says the savings will be more like £5.8 million.
Head of the audit office, Sir John Bourn, said the MoD had failed to take advantage of standard good practice for Private Finance Initiative deals by contracting the fleet maintenance work on an out-sourcing basis. He said this restricted the ministry to inviting tenders against a detailed specification, limiting the scope of negotiation with bidders. Bourn says the MoD also judged the bids on the basis of the number of vehicles supplied, rather than how well the bidders were able to meet transport requirements.
He said: 'Together, these missed opportunities meant that the procurement process did not test fully the scope for innovation and risk transfer from the ministry to the private sector. Had these aspects been tested a better deal might have resulted.' The audit report includes a long list of recommendations for future PFI deals, which the MoD has taken on board for five further contracts for non-combat vehicles.
Peter Harris, director of Lex Service responsible for the contracting with the MoD, said: 'As far as we are concerned the savings are being made, at the price agreed, and according to the MoD we are even exceeding expectations in some areas. This was a pioneering deal, and there have certainly been lessons to learn, and if it was done again things would have been done differently, but that was the point of the project.'