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The proposals could signal an end to existing private finance initiative models — and at worst see potential bidders simply refusing to bid.

'It is such a ridiculous proposal,' said Clive Groom, chief executive of major PFI player Interserve. 'It is a completely unnecessary waste of contractors' time and money.'

A delegation of Construction Confederation members met with European Commission representatives on 26 June over the issue and have been left in no doubt that the proposed changes would undermine the PFI process. The new rules would make it more difficult for the government to push ahead with financing ambitious programmes for schools and hospitals — an issue which has been approached with unrelenting determination by Tony Blair.

Under the terms of the changes in the consolidated procurement directive, which have sent shock waves through the market, the client will be prevented from selecting a preferred bidder and finalising details about the contract with the supplier.

The commission believes that the preferred bidder approach stifles competition and allows the client and contractor to agree terms that may change the original requirements of the contract between themselves on an exclusive basis.

'In the case of particularly complex contracts in areas that are always changing, purchasers are well aware of their own needs but do not know in advance what is the best technical solution for satisfying those needs. Discussion of the contract and dialogue between purchasers and suppliers is therefore necessary in such cases,' the proposal document states.

It is the current lack of ongoing dialogue in existing award of public sector contracts that the commission says leaves 'little scope for discussions during the award of contracts' — making them inflexible.

Commission proposals suggest that all bidders should negotiate the contract until it is awarded, a change that has, unsurprisingly, been met by a negative response from contractors.

'It will be so hard and difficult, and could result in all suppliers refusing to co-operate,' says David Walker, managing director of another PFI contractor Chesterton Workplace Management.

’IT IS A COMPLETE WASTE OF CONTRACTORS’ TIME AND MONEY’

Clive Groom

Citex chief executive, Oliver Jones concurs that contractors will not bid under the proposal terms as they stand because of the increased risk.

The cost of bidding at present is on average £1m and such changes would increase the cost of bidding to between £2m and £5m according to the Construction Confederation's European affairs director, John Bromley.

'We are concerned that this process could lead to a situation where the costs of PFI projects becomes prohibitive,' says managing director of WS Atkins Investment, David Clements.

Groom believes that the only way that this could be made an attractive offer for contractors is if the client reimburses companies that fail to win.

In the absence of such a compromise the government may have to rethink the PFI system.

Walker believes that if the changes really create problems for the government and contractors, then at least it would precipitate much needed reform of the system.

Clements noted that under the current regulations there is already a large element of risk that will increase along with costs if the proposed amendments are passed.

Although PFI projects are becoming more prominent in Europe, particularly in the Netherlands, Portugal and France (which is looking closely at the Anglo-Saxon model), Clements remains concerned that much of Europe has yet to wake up to PFIs or PPPs, which may lead to the UK losing out to a majority vote in the EU.

'The rest of Europe is interested in what we are doing in the UK, so this could help us, but they must understand if they want to go down our route this [voting for the proposed amendments] will cause problems,' Clements continued.

‘CONTRACTORS SIMPLY WILL NOT BID UNDER THE NEW TERMS’

Oliver Jones

In contrast, Jones is less concerned — a large number of European countries including Greece are adopting PFI models, he said.

It appears that the commission believes that by making changes to existing regulations it will enable clients to compare bids more easily.

But commentators in the marketplace, who are all too aware of the difficulties of comparing bids, maintain that the proposal will only exacerbate an already complex situation.

'Under the existing system, it is impossible to compare bids as PFI by its very nature drives different bidders down different routes,' said Clements.

The planned amendments appear to have been sparked by those the commission proposes to make to the 1993 Utilities Directive, which includes procurement in the water, energy, transport and telecommunications sectors.

The proposal document states: 'In the light of the gradual liberalisation in those sectors, it is also necessary to amend some provisions contained in the public sector directives.'

The commission has been looking at the current procurement regulations since 1996, which as Clements noted 'predates the big burst in PFI'. So why is there still a need for change?

In 1996, the Commission published a Green Paper — 'Public Procurement in the European Union: Exploring the Way Forward'. It drew almost 300 responses from various economic sectors.

The main theme to emerge from the Green Paper debate was the need for a simplified legal framework.

The commission aims to achieve this by 'clarifying provisions which were obscure or complex, and by amending legislation where the problems could not be solved through interpretation'. The commission maintains that its most recent proposals will meet these objectives, making the process more flexible and ensuring clients and contractors can negotiate at all stages.