1.25 The Prison Service did not seek to place a cap on the level of increased termination liabilities that it was prepared to accept as a result of the refinancing. It did, however, discuss with FPSL the option of having the increased termination liabilities underwritten not by the Prison Service but instead by FPSL's shareholders or a third party insurer. Another suggested approach was for FPSL to simplify the refinancing proposals so that they would not cause an increase in termination liabilities per se. In the event, FPSL decided not to pursue alternatives, and instead negotiated a sharing of the benefits on the basis of its original refinancing proposals.
1.26 The Prison Service initially rejected offers of compensation from FPSL of £100,000 and £300,000. Although the Service judged that there was only a low percentage probability of a premature termination of the contract, these offers of compensation were not commensurate with Rothschild's calculation of the Prison Service's likely increased costs (Figure 5, page 19).
1.27 The Prison Service asked FPSL for a significantly greater share of the refinancing benefits without disclosing its calculations on how the risk of increased termination liabilities had been valued. FPSL, which was by then seeking to close the refinancing negotiations, increased its offer to £1 million, which the Prison Service accepted.