1.50 The funding competition reduced the first year unitary payment by £974,000 or 7% (some £13 million in net present value terms). This saving includes the benefits of the capital markets identifying a cheaper form of funding (an index-linked insured bond) than had been previously offered by Exchequer Partnership (a fixed rate insured bond) as well as improving the terms on which the index-linked bond financing package was arranged. It is uncertain, in the absence of the competition, whether or not Exchequer Partnership would have funded the project with a fixed rate or index-linked bond. It is certain, however, that the benefits of the competition to provide the index-linked bond resulted in significant savings for the Treasury. The figure used to calculate the 7% saving are at the top of Appendix 5.
1.51 The unitary payment at financial close of £14.037m is higher than the £13.981m in Exchequer Partnership's Best and Final Offer bid of May 1999 (in March 1999 prices). The increase in the final unitary payment reflected adverse movements in the gilt rate and the bond margin (or spread), and the additional cost of agreed variations to the project specification. The difference between the final Ambac bid of £13.007m and the financial close unitary payment of £14.037m is detailed in the reconciliation at Appendix 5.