PFI deal praised for getting risk allocation right

8 May 2002
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09 May 2002

A Ministry of Defence (MoD) construction deal under the controversial private finance initiative has been praised by the National Audit Office (NAO).

It said the MoD arranged "an appropriate allocation of risk between itself and its private-sector contractor" in the project to redevelop the department's main building in Whitehall.

It said the cost of the deal - £746.1 million - was similar to what would have been paid using conventional processes.

The contractor, the Modus consortium of engineering and construction firms, will lose its entire fee if 90 per cent of accommodation falls short of the required availability standards, and a further £1 million for each month after 30 November 2004 that the building is unoccupiable.

The NAO's findings contrast with its recent report on the new parliamentary building Portcullis House, purchased in the conventional way, which went £15 million over budget.

SMmay2002

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