5.33 The ultimate test of financial flexibility is the ability of a procuring authority to terminate a contract where the PFI service provision no longer meets the procuring authorities public service needs, for example following a material policy change. Under SOPC3, the costs of terminating a contract by AVT can be significant, particularly in respect of compensation for equity, breakage costs on interest rate hedges or prepayment penalties on bonds (the Spens clause).
5.34 Procuring authorities should consider the effects of the financial structure that is put in place at the time of contract signature when valuing their AVT option. Additional guidance will be issued in due course to help value this option when evaluating the benefits of the funding structures available to a project in procurement.