Headlines: November 7th, 2002

Companies bidding for contracts funded through the public finance initiative will now have to agree to a 50/50 sharing with the public sector client of any gains from cheaper finance secured after the contract has started. This follows an investigation by the National Audit Office which revealed that 61% of PFI contracts did not have contractual arrangements to share refinancing gains. The Office found that in 12 contracts where refinancing benefits had been shared the total gain to departments was 65m pounds.Re-financing is a standard practice where the private sector contractor re-negotiates the cost of borrowing capital from their lenders once the initial risks of introducing the required service have been dealt with. Better financing terms can also be obtained because the PFI market has become established. The investigation showed that some re-financing deals had taken place without the knowledge of the client department. The NAO is critical of the level of PFI contract expertise in departments.

In an attempt to get a better deal for departments the NAO secured the support of the CBI to a code of practice that will help to secure 30 per cent of future refinancing gains on most early PFI deals.