An up-front payment by the private sector may be desirable for a number of reasons. It ties in private sector funders, since they have capital invested in the project and can only earn this back over time through the Unitary Charge. It also ensures that risk is transferred, and will bring in debt providers whose monitoring of the deal to protect their investment is aligned with the departments' interests. For these reasons, bidders were required to include an up-front payment in their bids for PRIME. In STEPS, bidders were required to include an up-front payment of £220 million but could also offer variant bids with lower or nil capital payment, as long as they provided equivalent security for the transferred assets and better value for money. A figure of £220 million was used, as this was a similar proportion of the estate valuation9 to that used for the up-front payment in the PRIME deal. The market had also indicated to the Departments that it was content with this figure. When the bids were analysed, there was only a marginal difference in the net present cost to the Departments under the two scenarios. The £220 million up-front payment option was chosen.
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9 The STEPS estate was valued at £370 million. In addition to the upfront payment of £220 million, the balance of the value of the estates (£150 million) will be received by the Departments through a reduction in the unitary payments over the term of the contract.