FT Article
The £3bn contest to run the UK’s helicopter search and rescue services for up to 13 years has been reduced to a race between two operators, after the government threwout a bid that would have cost the taxpayer a fifth more than at least one other. The Department for Transport told British Columbia-based CHC Helicopter last month that it was no longer in the running. The company was underbid by 20 per cent by one of its shortlisted rivals – Bond Offshore Helicopters, based in the UK, or New York-listed Bristow Group. According to a provision in the invitation to tender, this big a difference triggers dismissal.
One person close to the process said he was surprised by the size of the difference, given that all the operators should be able to secure financing for a similar cost, and that the prices of the helicopters were also unlikely to vary significantly between groups.
However, equipment usually represents just 20-30 per cent of search and rescue (SAR) costs, meaning bidders have scope to undercut one another in other areas. They will be looking for savings in the way they run bases, for example, or on whether training is conducted in or out of house and in the way pilots’ employment contracts are structured.
Moreover, because the DfT did not specify howmany aircraft it would require to replace the Sea King fleet retiring in 2016, some operators may have submitted plans that use fewer helicopters, bringing down annual costs.
Louise Ellman, chair of the transport select committee, has previously questioned the lack of public consultation, asking whether the privatisation plans could lead to more deaths at sea. OnMonday, she said those fears had not yet been allayed by ministers. “I amconcerned about howthe service might be affected,” she said.
This is not the first time CHC has come close to, but missed out on, the chance to run the bulk of search services in the UK. It led a consortiumthat was selected as the preferred bidder in a 2010 attempted privatisation. But that process – led by the Ministry of Defence – was cancelled after allegations of fraud; an investigation is under way.
Operating margins for such a service could be as high as 30 per cent, according to Gregory Lewis, an aviation analyst at Credit Suisse in New York. Groups interested in the UK contracts may opt for higher bids because of the level of risk they are taking on.
As well as the right to terminate a contract irrespective of performance and levy unspecified penalties, the government is imposing liabilities – if something goes wrong– at a minimum of three times the contract’s annual revenues, or about £300m, according to the person close to the talks.
That compares with much smaller provisions for rail contracts – although whether rail liabilities were sufficient was one of the questions in the scandal over the West Coastmain line bidding.
“There’s a lot of optionality built into the [SAR] contracts, so bidders will take a viewthat they should be conservative,” the person said.
CHC currently runs some SAR services for the UK government – in Scotland and on the southeast coast. The DfT is expected inMarch to select a winning bidder for the longer contracts, and is aiming for a completely privatised service by 2017.
The three shortlisted operators were selected froma list of 10 over the summer.
Last edited by jimf671; 8th Jan 2013 at 20:13.
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