Securicor and the private finance initiative
A Securicor case study

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Page 3: Securicor's strategy

Securicor 5 Image 3The Government first announced design, build, manage and finance PFI projects for prisons in 1993. One of the attractive elements was the prospect of a 25 year contract with a secure income from the public sector. From the outset it was important for Securicor to be involved with the development of the PFI concept. In order to do so, it investigated best-practice in prison design and operation by looking at prisons within the UK, Holland and the USA.

Securicor led a consortium of companies, each with its own expertise, to tender for HMP Parc. For example, specialist prison designers from the USA were called in to assist in the design of the prison. The bid included elements that would bring innovation to prison design and operation such as IT systems that would integrate security, control, prisoner management and management reporting systems for the first time in the UK. After successful selection by the government, The Consortium created a special company called Bridgend Custodial Services to protect the interests of the consortium members over 25 years and manage the investment. The consortium comprised:

  • Securicor
  • Costain
  • Skanska
  • WS Atkins
  • Seifert Architects

Financial support for the investment came from NatWest Bank as the lead arranger and other lenders such as Lloyds, Credit Agricole and the Bank of Scotland supported this. Work on the site began in December 1995, and in November 1997 the prison received its first prisoners.

Risk transfer

Securicor 5 Image 5Risk occurs where the future outcomes of current actions are unknown. Planning highlights the risks associated with a project. It is important to ensure that the expected financial return adequately compensates for the risks involved, though this can be difficult with a long-term investment like a prison. The likelihood of such risks materialising can be estimated, based upon knowledge of both past and current events. One of the problems of these early PFIs was that there was little past or current evidence as these types of projects had not been undertaken before within the UK.

There were many issues to be considered. For example, originally the government wanted to transfer occupancy risk within a PFI prison to the private sector. This meant that income would vary according to the number of prisoners rather than places available within prisons. As it would never be possible for a private contractor to control the number of prisoners admitted to prisons, banks would not lend on this basis and the government had to amend its requirements and pay for availability of prisoner places. This provided a better balance of risks between the private and public sector.

Over the 25 year period even availability presents challenges. To guarantee that 800 places would always be available, routine maintenance needed to be planned to ensure flexibility in managing the prison population. One of the primary risks facing the consortium was opening the prison on time. The prison opened one month ahead of schedule in November 1997.
Had it not opened on time, the consortium would have had to pay the government approximately £50,000 per day to compensate for the lack of available prison places and cover the cost of alternative prisoner accommodation.

Another risk was that the reputation of members of the consortium and banks could be affected if the project failed or was associated with bad publicity. Securicor is a household name. Any damage to its reputation could affect other parts of the business such as the Cash and Guarding services. It was important, therefore, to assess the possibility of incidents occurring within the prison, consider how these could affect the reputation of Securicor and develop appropriate contingency plans.

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