PART ONE The parties agreed to terminate the PFI contract

1.1 The National Physical Laboratory (NPL) is one of the world's leading laboratories working on the measurement of physical properties such as time, length and mass. It sits at the pinnacle of the UK's National Measurement System (NMS) for which the Department of Trade and Industry (the Department) is responsible. The NMS comprises the national infrastructure of measurement laboratories and scientific programmes that together establish conditions that produce world-class science and technology in the field of measurement. The NMS provides traceable and increasingly accurate standards of measurement for use in trade, industry, academia and government. In industry, the NMS supports innovation and increases in productivity by: enabling the benefits of new products and processes to be measured; improving processes and quality controls; and stimulating advances in measurement instruments. Measurement underpins a wide range of public goods, including consumer protection, forensic science, environmental controls, safe medical treatments and food safety regulation, as well as the technical standards that foster barrier-free trade.

1.2 On 31 July 1998, the Department and Laser, a special purpose company jointly owned by Serco Group plc and John Laing plc, signed a 25-year long, Private Finance Initiative (PFI) contract, under which Laser would redevelop the NPL facilities and provide property management services. Laser estimated that the capital cost of the project would be approximately £96 million. In exchange for use of the new facilities and the related property and other services, the Department agreed to pay Laser £11.5 million (1998 prices) a year, which would be increased annually by a factor based on the increase in retail prices. At the end of the contract, ownership of the facilities would revert to the Department. Appendix 2 provides background information about the project. Figure 1 shows the main parties involved and Figure 3 overleaf shows the key events in the life of the project.

1.3 Construction of the new facilities proved problematic and, as a result, there were long delays to completion. Events culminated in the Department and Laser, with the approval of Laser's lenders (Abbey National Treasury Services plc and Bank of America, NA (the Lenders)), signing a termination agreement on 20 December 2004. The termination was the first termination of a major PFI contract in which there were serious non-performance issues.

1.4 Under the agreement, the Department paid Laser £75 million for its interest in the new buildings and its liability to pay the unitary charge ceased. The Department became responsible for completing the facilities and expects substantially to complete them by March 2007. Laser passed the payment in full to the Lenders and is currently being wound up.

3	Key events affecting the project

Date		Event
1993 - March 1994		Prior Options Review into the future of the Department's research laboratories.
October 1995		The Department awarded Serco Group plc the contract to provide scientific research services at the NPL.
Spring 1996		The Department decided to redevelop the NPL site through the PFI.
August 1996		The Department invited parties to express their interest in the project.
February 1997		The Department issued Invitations to Negotiate to three consortia.
August 1997		The Department selected Laser as preferred bidder.
July 1998		Site preparation began. The project agreement was signed.
Summer 1999		Laser confirmed that difficulties in complying with some specified environmental outputs would delay completion of the first construction phase.
March/April 2000		Adjudication of the dispute about the interpretation of the specification governing the most stringent temperature control requirements.
November 2000		John Laing plc announced that it planned to withdraw from major construction projects.
March 2001		Original contractual completion date for all modules. Only seven out of 16 modules actually completed.
April 2001		The Department signed a "Technical Arrangement" revising the specification for the most stringent temperature control requirements.
July 2001		JLC Ltd withdrew all previously agreed delivery dates due to the extent of mechanical and electrical problems.
October 2001		John Laing plc sold its construction business, including JLC Ltd, to a competitor for £1. John Laing plc took direct responsibility for the conduct of JLC Ltd under the NPL design and build contract.
15 November 2001		Laser and JLC Ltd signed a Supplemental Deed to the design and build contract without the Department's consent. The deed released JLC Ltd from several of its obligations under the original contract. Laser's obligations to satisfy the Department's output specification remained unchanged.
31 August 2002		"Long stop date" - The date specified in the contract when failure to complete construction of the new facilities (including car parks) would constitute a default that entitled the Department to terminate the contract subject to any extension to the date and Laser's failure to remedy the default. Only nine out of 16 modules were actually completed.
April 2003		Serco Group plc paid John Laing plc £800,000 for its interest in Laser.
February 2004		Laser notified the Department that it did not have funding to build out the project or meet long term requirements of the project. To improve its cash flow, Laser did not pay £2.2 million liquidated damages to the Department and became liable for interest charges.
5 July 2004		The Independent Certifier signed off completion of the last of the modules. Contractually, all building modules were complete. Construction of the car parks remained outstanding.
7 July 2004		The Department received proposals from Laser and the Lenders suggesting three ways forward including negotiated termination.
October 2004		The Department referred to adjudication two disputes about the appropriateness of the Independent Certifier's completion certificates for three construction phases.
30 November 2004		The Department, Laser and the Lenders agreed in principle to a termination payment of £75 million.
3 December 2004		The Adjudicator found in favour of the Department on one dispute and overturned two completion certificates. The Department halted proceedings on its other dispute.
20 December 2004		The Department paid the termination sum and the PFI contract was brought to an end.

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