A Treasury note dismissed a claim from the Public Accounts Committee that it was ‘therefore not clear whether the returns being made are reasonable in relation to the risks being born’.
The government said it did not accept that their financing costs were less than fully transparent, adding that part of the bidding process they required both bidders to submit detailed and fully transparent models which enabled the National Audit Office to prepare a detailed analysis.
The minimal savings were projected after pressures increased the price of the deal with Modus by £99m, of which £60m was attributable to financing costs.
The MoD said it was satisfied the PFI contract for the redevelopment of their main building was an effective procurement providing secure, modern and efficient working accommodation in central London at an affordable price.
It admitted it ‘had always been clear that PFI and conventional procurement were similar in cost terms’ and said the factors which tipped the balance in favour of PFI had to do with the fixed price, risk transfer to the contractor and incentives to deliver on time.
The note said: ‘The gap between the public sector comparator and the final deal was reduced to £100,000 as a result of tough last minute negotiations by the Department’s negotiators with Modus, which secured a reduction of £4m.
‘This was a creditable achievement, in taking advantage of the negotiating pressures on the final day.’
The financing issue concerned switching at the last minute from bond finance to bank finance.
The Treasury claimed the deal includes a value for money clause coming into effect after year 15 and a process under which the MoD can insist on a share of any refinancing gains.
The response admitted that as a result of as belated discovery of a need for 500 additional staff in London, the MoD is having to occupy a third building in central London claiming it is cheaper than moving them back out of London or including them in the PFI deal.
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