2.13 We were informed of three hospital projects where contract extensions had been agreed by the public sector at the time of the refinancing. The contract extensions had been proposed by the private sector to enable their debt to be repaid over longer periods, thus increasing the refinancing gains (Figure 14).
14 | Contract Extensions on refinancing | ||||||||
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PFI Project | Contract Extension1 | Length of extension | |||||||
Darent Valley Hospital | 28 to 35 years | 7 years | |||||||
Bromley Hospital | 30 to 35 years | 5 years | |||||||
Norfolk and Norwich Hospital | 34 to 39 years | 5 years | |||||||
Source: National Audit Office Survey | |||||||||
NOTES 1 In each case the minimum period of the contract was extended. The authorities had the option to continue the contracts for longer periods. 2 Barclays and Innisfree were the lead investors on all three projects. | |||||||||
2.14 There are various issues which could affect the value for money of a contract extension. In our report on Darent Valley Hospital we noted that the financial case for extending the contract was not as clear cut as the Trust had believed.23 In each of the above projects where the contract had been extended, the authorities were committing themselves now to paying for further services in over 30 years' time. The changing nature of public service delivery makes it difficult to be certain now that such services will be needed so far into the future. Authorities must therefore carefully assess both the benefits and risks relating to any suggestion that the contract period should be extended as part of a refinancing with the decision being taken on operational and value for money factors. The Application Note advises authorities over the need to justify on sound value for money terms a contract extension.
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23 See NAO Report Darent Valley Hospital: The PFI Contract in Action HC 209 February 2005 paragraph 2.24.