PSA Projects (Hansard, 25 November 1992)

§ Mr. Redwood

Final details of the sums paid in respect of the purchase of PSA Projects will not be available for some considerable time as this will depend on the number of transferred staff remaining with the business for more than five years from the date of the sale.

When contracts were exchanged for the sale of PSA Projects to Tarmac, the negative consideration payable to Tarmac at completion was estimated at £49.75 million, subject to changes in the net liabilities to be transferred which should be finalised by October 1993. The most recent changes will mean that at completion Tarmac will receive the benefit of a cash subscription for shares in the privatised company of £44.4 million and a cash asset of £13.3 million for which Tarmac will pay the Government £2.8 million—a negative consideration of £54.9 million.

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The net cash asset of £10.5 million relates to the excess of the estimated value of amounts owed by PSA Projects to sub-consultants and others for work done up to the point of sale over the estimated value of assets being transferred to Tarmac.

These assets exclude the estimated £40 million owed by customers to PSA Projects at the point of sale which will be collected by PSA and retained in Government. In addition to the net liabilities at the point of sale, the negative consideration reflects PSA Projects' requirements for financing working capital, investment in new systems, marketing and training and forecast losses on existing work pending PSA Projects restructuring itself to become fully competitive.

The negative consideration will be adjusted pound for pound upwards or downwards as appropriate, after preparation of a completion statement to compare actual net liabilities at the point of sale with the estimate o f£10.5 million. It will be further increased by between £3.1 million and £6.3 million after one year depending on the number of ex-civil service staff still in the business. The sale agreement also provides for the completion statement to be reopened for up to two years after the sale in the event of late submission of sub-consultant bills for which accruals were not included in the completion statement as the income for any related work would have been retained within government.

The Secretary of State's liability for severance payments to PSA Projects staff now in the business, whether or not they transfer to Tarmac, is limited to £40.33 million. Of this, severance payments by the Government to staff not willing to transfer permanently with the privatised business are likely to fall in the range of £30 million to £35 million and therefore the balance of payments to Tarmac to reimburse severance payments for up to approximately 165 ex-civil servants who did transfer are expected to fall in the range £5 million to £10 million.

The Government have previously announced their commitment to guarantee the redundancy entitlements of transferring staff against the purchaser's bankruptcy for up to five years post-sale. The maximum value of this contingency liability is now estimated at £30 million. The departmental minute laid on 26 June 1992 indicated that the maximum contingent liability to be undertaken in the course of sale negotiations was estimated not to exceed £70 million.

The replacement pension scheme will be fully funded as at the point of sale. The value of the bulk transfer from the principal civil service pension scheme is not yet known, as it depends on the number of staff opting to transfer their pension rights to the new scheme. PSA will add 6 per cent. of the transfer value to the pension fund to take account of differences in the forecast average retirement age and commutation arrangements.