2.6 Where the private sector has increased debt on refinancing in order to accelerate shareholder dividends, it is possible that the public sector will face the prospect of increased termination liabilities as, in certain circumstances, the termination liabilities may be linked to the amount of private sector debt.20 It will then be for the authority to assess whether the refinancing proposals represent value for money taking account of the likelihood that it might wish to terminate the contract at some stage during the contract period. However, assessing such a likelihood is difficult because the changing nature of public service delivery over time means that an authority could change its view on the desirability of continuing an existing contract in future years. An authority should, therefore, be very cautious about accepting increased termination liabilities because high levels of termination liabilities could act as a disincentive to end a contract where other factors would suggest this is the correct strategy.
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20 Under current guidance, in terminations due to contractor default, the termination liabilities are calculated by reference to the market value of the project, not by the outstanding debt.