2.13 In 1999 the Treasury published a set of standard contract terms which had been developed in consultation with departments and contractors. The aim was to make the procurement process faster and cheaper as departments would not have to develop each PFI contract from scratch and there would be relatively few parts of the contract that would need to be negotiated on each deal. The Department agreed with the need for standardising PFI contracts but, recognising that it was managing a large number of PFI projects and that various contractual issues were unique to health projects, it decided to develop a standard NHS PFI contract. This new contract (the standard contract) was being finalised during 2000 in discussions with contractors on the West Middlesex and other second wave PFI Hospital deals. It incorporates standardised guidance and wording on key legal issues such as compensation on termination, change of law, and uninsurable risk.
2.14 When the West Middlesex contract was being finalised in late 2000 and early 2001 the OGC had started the process of updating its guidance on how refinancing should be treated in new contracts following our report on the Fazakerley PFI prison refinancing12. The Department's policy at this time was to seek a 30 per cent share of refinancing gains in the absence of explicit revised guidance from the OGC. The Trust succeeded in agreeing a 30 per cent share of refinancing gains with Bywest, which was accepted by the Treasury.
2.15 Around this time the OGC, pending the development of revised guidance for new contracts, was informally encouraging departments to negotiate an equitable share of any refinancing gain for new contracts and, where possible, to seek a 50/50 share13. However, the OGC recognised that deals at an advanced stage of negotiation, such as West Middlesex, would risk delay and that there would be increased likelihood of an increase in price if departments sought a higher share than was being achieved in the market at the time of the preferred bidder appointment. The Department considers that the terms on refinancing which were negotiated in the West Middlesex deal helped to establish the NHS's rights to obtain significant shares of refinancing gains. This enabled the Department in autumn 2001 to change its policy to expect a 50 per cent share of refinancing gains in all new PFI contracts, which was consistent with draft guidance on new contracts which the OGC issued at this time14.
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12 The refinancing of the Fazakerley PFI prison contract: NAO Report HC 584 1999-2000.
13 In respect of existing signed contracts, the OGC issued guidance to departments in November 2000 stating that they should seek a 50/50 share of refinancing gains where the contractor was obliged to seek authority approval to refinance a project.
14 Revised general guidance on Standardisation of PFI Contracts, including new provisions on refinancing, was published by the OGC in July 2002.