Freshfields' PFI deal aborted

Freshfields has expressed bitter disappointment at the Government's decision to cancel the £500m Private Finance Initiative (PFI) deal to redevelop the Treasury, which it was advising on.

The Paymaster General, Geoffrey Robinson, terminated negotiations with a consortium led by property developer Stuart Lipton to redevelop the Treasury's Whitehall headquarters even though the consortium had signed heads of agreement with the Treasury, advised by Berwin Leighton property partner Carol McCormack, in January this year.

David Lewis, the property partner leading the Freshfields team advising Lipton's consortium Exchequer Partnership, said: “We're extremely fed up after a lot of work.”

Freshfields had been acting for Exchequer since December 1995 and helped it submit its eventually successful bid in January 1996.

“We'd already sorted out all the prinicipal issues, it was just a case of sorting out the details,” said Lewis. “All the risk was being borne by the contractor… All the treasury advisers, we think, were happy with the scheme in financial terms.” Last week Exchequer indicated it had not ruled out the possibility of suing the Government.

However, Freshfields disappointment has been tempered by the Government's decision to give the go-ahead to another pathfinder PFI project which the firm is advising on.

Robinson has selected a consortium led by Goldman Sachs – another Freshfields client – to manage and service the Department of Social Security's 700 offices around the country in a deal worth £4bn – the largest single PFI deal so far.

Property partner James George along with finance partner David Ereira is leading the Freshfields team advising Goldman Sach's consortium Partnership Property Management (PMP). George said: “I don't know why one was stopped and the other proceeded with.”

DSS officals had told him the last two weeks had been “nerve-wracking” for them, implying the DSS scheme had also been in the balance.

Freshfields' appointment to PMP was probably helped by the fact that it had already acted for Annington Homes, the consortium which bought the Ministry of Defence's entire married quarters earlier this year.

George said that this deal was in some ways more complex since PMP was taking on a mix of freehold properties and leases. Paying rent and dealing with lease clauses would all be the problem of PMP, he said, while the DSS merely paid PMP a pre-arranged annual fee.