The Prison Service has made its approval rights clearer in other contracts
1.23 In the case of the contract for the Fazakerley prison, there was uncertainty as to the need for the consent of the Prison Service to aspects of the refinancing. The contract for the Bridgend prison (which was contemporaneous with Fazakerley) appears to have been rather clearer on the issue, and the Prison Service now ensures that all contracts unambiguously require its approval to any refinancing proposals which increase its termination liabilities.
Figure 4 |
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| Factors influencing the Prison Service in its negotiations |
| Reasons for refinancing benefits to go to Prison Service |
| Reasons for refinancing benefits to go to FPSL |
♦ the Prison Service faced substantially higher termination liabilities should the contract be terminated | ♦ FPSL had taken risks in developing this novel project from which a refinancing was a potential source of reward |
♦ it was seeking reasonable compensation for its increased liabilities | ♦ the Prison Service had no explicit contractual right to share the refinancing benefits |
♦ the Prison Service knew that £5.5 million of the refinancing benefits were conditional upon its consent | ♦ the Service accepted the benefits arose partly from successful management of the construction and operation to date |
♦ the Prison Service could be criticised if it did not negotiate a share of what might appear to be substantial benefits to FPSL | ♦ the Service taking a large share of the refinancing benefits might deter bidders on future PFI prisons contracts |
This figure shows that the Prison Service identified a number of reasons why the refinancing benefits should go to the Prison Service and also reasons why the benefits should go to FPSL. Source: National Audit Office |