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Other learning points |
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14 As a result of this examination we have identified the following points for future projects which are either covered by existing Treasury guidance or are expected to receive expanded coverage in the next update to this guidance (paragraph 11). They are that: |
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1) early on in the procurement process, when preparing an Invitation to Tender and when developing the PFI contract, departments should give careful consideration to refinancing issues. They should address whether they should establish within the PFI contract the right for them to share in refinancing benefits; |
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Paragraphs 1.13 to 1.21, 3.24, 3.25 |
2) departments should set out unambiguously in their PFI contracts the circumstances in which they would be required to consent to part, or all, of a proposed refinancing. These should include any situation which may have adverse consequences for departments, for example by increasing their termination liabilities; |
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3) as in the case of Fazakerley, when faced with the refinancing of an existing project, departments should enlist the help of experienced legal and financial advisers. This can assist departments in understanding the full implications of the refinancing proposals and in establishing the best way to approach any negotiations; |
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4) where departments are likely to be exposed to increased termination liabilities as a result of a refinancing, in the absence of reaching an acceptable agreement on the sharing of refinancing benefits, they should consider whether to limit their risk. They may be able to achieve this by placing a cap on the level of termination liabilities they are prepared to accept, or by requiring the private sector to underwrite the risk themselves or through a third party; |
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5) where a department has the flexibility to negotiate over refinancing benefits, it should ensure that it prepares a robust but reasonable negotiating strategy. This should be grounded on sound principles and should contemplate the alternative, for both the public and private sector parties, in the event that a negotiated agreement cannot be reached; and |
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6) departments should consider linking at least part of their advisers' remuneration to the outcome of any negotiations to which the advisers contribute. This will create an incentive for the advisers to help departments achieve the best possible outcome. |
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