It took some time for the new policy to be adopted, but better refinancing arrangements are now being secured, with most contracts sharing benefits 50/50

2.24  The OGC was not able to issue final formal guidance until the detail of all the new model contract terms had been fully agreed with both departments and the private sector. However, throughout the past two years the OGC and PUK have been encouraging departments and their advisers in other ways to seek approval rights and 50/50 sharing arrangements in new contracts. This included the interim guidance and informal discussions referred to in paragraphs 2.2-2.7.

2.25  68 per cent of all new contracts signed since the publication of the NAO report on the Fazakerley refinancing in June 2000 reported a mechanism for sharing refinancing gains. This proportion is on the increase, with 91 per cent of contracts signed since June 2001 having such mechanisms (Figure 10). These are substantial increases over the comparative figure of 26 per cent for contracts signed prior to June 2000. In addition, arrangements for approving refinancings have been strengthened in contracts signed in the past two to three years (Figure 11).

2.26  Before publication of our report on the Fazakerley prison refinancing in June 2000, most contracts (74 per cent) did not have explicit arrangements to share refinancing gains. In the year following our report, more new contracts had sharing arrangements. In most cases these provided for the department to receive a share of between 1 per cent and 30 per cent of the refinancing gains. Since June 2001, however, the new policy of seeking 50/50 sharing of refinancing gains has been widely adopted by departments, with most new contracts (75 per cent) having this arrangement (Figure 12).

2.27  The results shown in Figure 12 show that although 50/50 sharing is now being widely adopted by departments in new contracts it took some time for this new policy to become established. The OGC considers that there were inevitable lags in the new policy becoming effective. It attributes this to the following factors:

■  Although the OGC was encouraging departments to seek 50/50 sharing in new contracts where possible in the year to June 2001, this was still an aspiration that was being researched to see if it could be delivered.

■  In deals that were at an advanced stage of negotiation, departments had to take a view as to whether it would be value for money to insist on a 50/50 arrangement. There were deals where insisting on 50/50 sharing arrangements may have delayed the deal closure significantly or caused the contractors to seek an improvement to the contract price or other terms of the deal that would not have produced value for money.

2.28  As noted in Part 1 most PFI contracts to date were let before these new arrangements came into force. Where the contracts do not have sharing arrangements the new code of practice described in Part 1 will apply which is intended to generally secure 30 per cent of future refinancing gains for departments.