5.4 In concluding that the PFI deal offered the best economic solution GCHQ also considered that the relative business benefits of the two approaches would be significantly greater in the PFI case as compared to the conventionally financed alternative. These include the whole of GCHQ being located ultimately on one site and for staff therefore to be able to work more closely together in a modern environment. There were also likely to be the advantages of getting the building completed on time and in transferring the risks of managing the serviced building largely to the contractor. GCHQ also considered that it offered the best opportunity for upgrading all of the Signals Intelligence architecture to standards required for it to continue in the foreseeable future to provide the required service to its customers.
9 |
| Key PFI Characteristics of the deal |
The Figure shows how key characteristics of PFI deals are dealt with under the contract
PFI Characteristic | New Accommodation Programme PFI Contract |
Risk allocation | Risks transferred |
| ■ IAS is responsible for design and construction of the building |
| ■ IAS has financial incentives to complete the building and be ready to provide services on time. Full Unitary Payment starts when full services are being provided |
| ■ There are additional financial incentives if IAS complete the building ahead of the programmed date |
| ■ IAS must ensure the building will provide the required services |
| ■ IAS is responsible for the physical move of GCHQ's papers and staff effects to the new building |
| ■ IAS must ensure the building is maintained and repaired throughout the contract and there are procedures to ensure the building is handed back in good condition |
| ■ IAS must provide a wide range of services to agreed standards |
| ■ IAS will mange the security guard force |
| Risks retained |
| ■ GCHQ has retained the risk of technical transition to the new building, due to security issues and the unique nature of the business |
| ■ GCHQ will be responsible for security policy |
| ■ GCHQ will be responsible for furniture and fittings and any utilities cost's not covered by the Unitary Payments |
Performance measurement system | ■ Service requirements are specified under the contract. This provides for deductions to be made in Unitary payments for failure to meet the service requirements defined or for unavailability of all or parts of the building as defined in the contract |
| ■ A Compliance Monitoring regime allows GCHQ to monitor the performance of IAS to ensure it is meeting GCHQ's requirements under the contract |
| ■ Continued poor performance can lead to contract termination |
Incentives for achievement of value for money | ■ There are mechanisms to control pricing of variations in the contract. GCHQ can request variations to the contract. These may be minor variations, and absorbed under existing payments, or qualifying variations, which result in a change to Unitary Payments |
| ■ The contract includes arrangements for competitive tendering for works on large variations or other major works |
| ■ The contract provides arrangements for benchmarking and market testing of services. Tested services will be reviewed at five yearly intervals starting at 15 years after contract start. This allows GCHQ to benchmark service prices and consider whether it believes they continue to offer value for money |
| ■ Refinancing. The deal is largely financed by a bond, so refinancing is less likely than it would be if financed by bank debt. However, in the event of refinancing, the contract ensures that IAS' equity return following refinancing does not exceed an agreed rate |
| ■ There are clawback arrangements whereby any additional profits from the sale of land included in the deal is shared between IAS and GCHQ |
Source: NAP Project Agreement