3.11 The shareholders in FPSL derived £2.6 million of refinancing benefits from the reduction in the lending margin (paragraph 2.7). This reduction was the result of two factors. First, it reflected the fact that FPSL had successfully overcome the construction risks of the project and had established a track record of operation. Secondly, it reflected the keener pricing of finance for PFI prison deals generally available by late 1999, and therefore brought the cost of finance for the Fazakerley project into line with more recent PFI prison contracts. For example, financial savings, together with construction and operational savings, contributed to the lower pricing of the Lowdham Grange PFI prison contract let in November 1996. This contract price was 36 per cent cheaper per prisoner place than Fazakerley25. The Prison Service notes that the lower price on the Lowdham Grange contract was also attributable to the prison having a lower security classification than the Fazakerley prison. The price per prisoner place of the Agecroft prison, which is similar to the Fazakerley prison and was let in July 1998, was also 36 per cent cheaper than Fazakerley. The Prison Service considers that, in addition to general improvements in financing terms, the price reductions on later PFI prisons reflect the success of its procurement strategy which has developed from the original Fazakerley and Bridgend competitions.
3.12 There were no provisions in the original contract for the Prison Service to use benchmarking to align FPSL's price with market rates.26 Benchmarking principles may, nevertheless, have helped the Prison Service identify how much of the reduction in the lending margin on the Fazakerley project was attributable to the improvement in financing terms for PFI prisons generally. In the absence of other negotiating stances, it could then have pressed for a share of the refinancing benefits on the grounds that some of these benefits were extraneous to FPSL's success with the Fazakerley contract. This would have rewarded the Service for the risks it had borne during the early stages of the PFI prison programme, although FPSL could argue that its success with Fazakerley brought knock-on benefits for the Prison Service by increasing lenders' confidence in subsequent contracts.
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25 The National Audit Office report on the PFI Contracts for Bridgend and Fazakerley prisons paragraph 1.27 (HC 253 1997-98).
26 The National Audit Office report on the PFI Contracts for Bridgend and Fazakerley prisons paragraph 2.42 (HC 253 1997-98)