10 The fundamental reason for the termination was that the original private sector design of the new buildings was deficient. The Department had concerns with the design at several stages during the project. During the procurement, the Department considered that Laser would overcome the Department's concerns and so did not insist on Laser demonstrating that its design could work. Following the award of the contract, the Department did not seek to resolve its concerns by imposing a design solution on Laser because the Department wished to ensure that responsibility for delivering satisfactory performance remained unambiguously with the private sector. The Department expected Laser and its contractors to recognise that their best interests were served by resolving concerns about the design, and would be able to act accordingly. The Department also aimed to avoid costs to the taxpayer and, initially, keep the value of the buildings off its balance sheet.
11 However, the private sector parties also missed opportunities to reduce project risk. Laser did not prove key features of JLC Ltd's design before construction commenced. JLC Ltd was slow to heed concerns expressed by the Department's expert advisers and the Independent Certifier. Also, although Serco Group plc stood to lose its investment in Laser, it was unable to persuade JLC Ltd to make changes when problems materialised.
12 Notwithstanding the obligation on JLC Ltd under the design and build contract to comply with Laser's obligations under the PFI contract, the payment schedule in the design and build contract reimbursed JLC Ltd mainly for making progress with building work rather than showing that the completed buildings met the specification. As a result, by autumn 2001, Laser had already paid JLC Ltd £76 million of a fixed price of £82 million, although only 9 out of the 16 modules were finished and John Laing plc estimated that completing the facilities would cost at least a further £45 million. John Laing plc told us that it had seriously underestimated the cost of constructing the buildings and lost £67 million on the contract, and at least a further £12 million of losses were borne by its sub-contractors.