1.31 The Prison Service was engaged in negotiations with FPSL over other matters relating to the PFI contract at the same time as it was negotiating the refinancing arrangements. These negotiations concerned the amounts which the Prison Service had, in accordance with the contract, deducted from the service payments to FPSL because FPSL had not met its contractual obligations in respect of the required service delivery. In addition, the Prison Service and FPSL were in discussions about the role of the prison and the impact this had on the payment deductions which the Service had made. As a result of these discussions, both parties agreed amendments to the contract covering the payment deduction criteria, the service specification and the sharing of occupancy risk.12
1.32 In finalising the discussions over the service payment deductions, the Service took account of the additional occupancy risk taken on by FPSL and agreed to waive £500,000 of the deductions. The Prison Service allowed FPSL to offset this refund against the £1 million payment FPSL was due to make to the Service following the refinancing.
1.33 At the end of November 1999, the Prison Service and FPSL entered into one new legal agreement which dealt with both the refinancing and the other contractual matters. This new agreement makes reference to the other contractual changes being in consideration of the Prison Service accepting increased termination liabilities arising from the refinancing. Both the Prison Service and FPSL say, however, that they agreed to deal with all these matters together in one agreement for convenience, but in all other respects the negotiations on the refinancing were kept separate from the other contractual negotiations.
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12 By sharing occupancy risk, FPSL will not be paid in full should the Service not make use of certain prisoner places.