15. After the contract was signed, ICL came back to the Department twice for more money, indicating that it would walk away from the deal if its demands were not met. In October 1999, some ten months after contract signature, ICL formally requested the Department to renegotiate the Libra contract on the grounds that ICL's cash flow forecasts showed a £39 million deficit over the life of the deal. ICL said that it would be unable to continue with Libra if this gap could not be closed. The Department agreed to renegotiate the contract and a revised contract for £319 million over 14.5 years was signed in May 2000.15 This price compares with the original December 1998 contract of £184 million over 10.5 years.
16. In the Spring of 2001 ICL informed the Department that it was in financial difficulties with the renegotiated contract signed in May 2000. It was predicting a maximum potential loss on the project, if it continued to 2013, of £200 million. ICL said that its parent company, Fujitsu, would repudiate the contract unless the Department negotiated to cover the loss. The Department again agreed to renegotiate the contract but could not reach agreement for ICL to continue with the whole project. In July 2002 the Department signed a revised contract for ICL just to provide the infrastructure element of the Libra project. The contract price was £232 million for just 8.5 years of service.16
17. Both the Department and ICL considered that the original 1998 contract was underpriced. After 1998 the Department had twice been faced with a situation where ICL was having real financing problems because of the length of time it was taking to develop the software. It recognised that ICL had a contractual commitment to deliver the Libra project for the price agreed, but nevertheless believed that renegotiating the contract was the best option for ensuring delivery.17
18. One of the suggested benefits of the PFI is that project risks are allocated to those best able to manage them. Private sector contractors should expect to suffer financially for failing to manage the risks that they have agreed to take on. Yet despite its acknowledged poor performance on the Libra project, ICL repeatedly asked for more money to cover its losses. ICL told us that it had not made money on the project. The software development had not continued and it had had to write-off some £32.5 million spent on this work.18
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15 C&AG's Report, paras 2.22-2.25
16 ibid, paras 2.33, 2.40, 2.56
17 Qq 2-4, 17, 124
18 Q 14