1 The National Audit Office examined the extent to which the Prison Service achieved its objectives in the refinancing negotiations with FPSL and whether there were any general lessons to be drawn for such negotiations in the future.
2 The National Audit Office used an issue analysis approach to design the scope of the examination and this identified three main issues, namely:
i) whether the Prison Service achieved its objectives for the refinancing;
ii) whether further cases of refinancings are likely to recur; and
iii) whether there were general principles which departments can apply to refinancings.
3 The main areas of analysis carried out by the National Audit Office were:
■ Financial models relating to the refinancing in November 1999 and the PFI contract award in December 1995 (supplied by FPSL's advisers PricewaterhouseCoopers) were compared to produce an analysis of the sources of the benefits that had accrued to FPSL's shareholders since December 1995 as a result of the refinancing and other factors (Figure 7, page 25);
■ Calculations of the impact of the refinancing on the Prison Service's termination liabilities and the expected additional costs arising for different probabilities of contract termination (supplied by the Prison Service's advisers Rothschild) were reviewed (Figure 3, page 15 and Figure 5, page 19); and
■ the contract between the Prison Service and FPSL was examined to identify what rights the Prison Service had to share refinancing gains and approve FPSL's refinancing proposals.
4 The National Audit Office team for this examination included staff who had previously worked in the field of project finance. The National Audit Office was also advised by solicitors Theodore Goddard in respect of legal issues relating to the refinancing.