Armstrong, G; (2005) Preferred bidder price creep in the UK PFI market. Doctoral thesis , UCL (University College London).

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Abstract

This report investigates the extent of, and reasons for, price creep in the preferred bidder stage of UK PFI procurement. This is done firstly through the assemblage of a dataset of ninety English PFI projects focusing on four key sectors: Healthcare, Education, Custodial Services and Roads. Comparative price and time analysis identifies both extensive sectorial divergence and historical variance trends in relative price creep, at once confirming and confounding organisational learning hypothesis. Secondly, evidence from semi structured market interviews provides insight into the issues surrounding price creep in the market generally, and various projects specifically. A primary trinity of contributing factors is identified as scope, risk and inflation. The links between these and price creep, together with complexity as a fundamental driver, is explored. The ex ante bilateral relationship between the public sector client and private sector preferred bidder is interrogated in the confines of the gradual fundamental transformation as it transpires during the preferred bidder phase, with contingent reference to the preceding bidding stages as required. The integrated use of Transaction Cost Economics, Principal Agent theory and Relational Contracting is also used as a lens with which to view the preferred bidder price creep dynamic. Finally, the report draws conclusions about the efficacy of the PFI preferred bidder phase with respect to the reduction in economic efficiency that price creep engenders.

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