29. Authority voluntary termination is unique in that under the terms of SoPC the MOD not only has to pay out senior debt but also junior debt and equity. As a result of a refinancing, it is possible that the level of senior debt may increase but this may be counterbalanced by the fact that the Department has a reduced exposure to junior debt. As such it is important that a detailed assessment of the Department's exposure over the contract length is undertaken and the possible impact of breakage costs (costs incurred if senior debt - whether bank or bond - is repaid early) is fully understood. The counterbalancing effect means that it should be possible to construct a refinancing proposal that does not increase termination liabilities, and this should be the MOD's default position. However, where there is an increase in termination liabilities the MOD must carry out a full value for money analysis of the gain compared with the likely cost of a termination event should it occur. In order to do this the private sector is required to produce a refinancing proposal with increased termination liabilities and also another scenario without.
30. Thus far, the emphasis of the evaluation has been on the quantitative assessment of any gain against the increased termination liabilities, but there are also qualitative factors that need to be considered. At the outset, the Department will have placed a value on the option to terminate the Contract as a result of changes in policy. The increase in termination liabilities will reduce the value to the Department of this option. In the military, there is also invariably the possibility of operational change, which will affect service provision that had not been envisaged when the Contract was let. Such change may place undue stress on the Contractor and the MOD may consider termination a more suitable option than negotiating a difficult change. The increased termination costs reduce this flexibility.