Positive review for prison PFI

29 Jun 00
The Prison Service is £1m better off following a refinancing of the sector's first Private Finance Initiative deal, the contract to build and run Altcourse Prison in Liverpool.

30 June 2000

Altcourse, with 700 inmates, is managed by a consortium comprising Group 4 and Tarmac. It negotiated a refinancing deal with lenders based on the fact that the prison has operated effectively since it opened in 1997 and risks have become fewer.

Shareholders in the consortium will benefit by an expected £10.7m, of which £1m will return to the Prison Service.

A report on the issue by the National Audit Office points out that further refinancing of PFI contracts is likely to occur. It says that government departments should consider what provision they should make to share in some of the financial gains.

At Altcourse, the original contract did not state that the Prison Service would have a right to a share of the benefits of any future refinancing. But it did require the service's consent for changes which could increase liabilities if the contract were terminated early.

This persuaded the consortium that it should seek a deal with the Prison Service. It made initial offers of £100,000 and £300,000 before the final settlement was agreed.

'There is a message here to departments, that they really do need to think about refinancing at the outset,' said NAO Assistant auditor general Jeremy Colman.

He said that Treasury guidance on refinancing needed to be 'amplified' to help departments. 'The effects of that will be to bring refinancing clauses into contracts more often than they are now.'

  • An NAO report on the PFI contract to build and operate a new British Embassy in Berlin found that the Foreign and Commonwealth Office had been unaware of a potential conflict of interest. It had not realised that two short-listed bidders were using the same company to provide services. But generally the FCO is praised for having managed the procurement effectively.


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