The Prison Service received £1 million from FPSL as compensation for increased termination liabilities | ||
8 The Prison Service did not seek to place a cap on the level of increased termination liabilities that it was prepared to accept, though it did discuss with FPSL other refinancing options which would avoid creating extra risk for the Service. In the event, FPSL decided not to pursue these alternatives, and instead negotiated a sharing of the benefits on the basis of its original refinancing proposals. | ||
9 Rothschild estimated that the potential financial consequences for the Prison Service of accepting the additional termination liabilities could, based on a cautious assumption of a 10 per cent probability of the contract being terminated early, amount to between £0.9 million and £1 million. On the basis of this calculation and a consideration of other options open to FPSL, the Prison Service accepted compensation in the form of a £1 million share of refinancing benefits, having initially rejected lower offers from FPSL of £100,000 and £300,000. This level of compensation represented approximately one fifth of the refinancing benefits for which FPSL had sought the Prison Service's consent. | ||
10 The Prison Service acknowledged that, in other respects, the refinancing benefits were a reward to FPSL for taking risks in managing this first PFI prison project successfully. This has helped the Prison Service to progress the PFI prison programme which has produced over five thousand new prisoner places more quickly than would have been achieved under conventional public procurement. | ||
11 The Treasury proposes to issue expanded guidance on refinancings because of the complex issues involved. The Treasury expects the guidance to continue to recognise the private sector's rights to receive refinancing benefits as a reward for the successful management of risks where these are appropriately priced. It will also describe the circumstances where the public sector may be justified in seeking a share of refinancing benefits along with appropriate sharing mechanisms. | ||