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Contractors face heavy penalties if they fail to deliver prison projects on time as the government scrambles to relieve prison overcrowding.

The prison service is in talks with contractors on the framework for its 拢2.3bn prison building programme over altering a damages clause that would come into effect if schemes overrun.

The exact penalties are yet to be agreed, but sources involved in the talks said the service was looking to recoup the costs of housing prisoners elsewhere if a prison is not finished on time.

It costs about 拢350 to house a prisoner overnight in a police cell. This means that if a 300-place extension overruns by a fortnight, damages could amount to 拢1.5m.

Currently, the service can try to claim for financial loss owing to delays on a contract, but it has to prove the amounts involved on an individual basis. The new mechanism will pre-set levels of damages.

The framework contractors are Kier, Wates, Willmott Dixon, Shepherd, Caledonian, Interserve, Shaylor and Morrison.

We鈥檙e talking about a level of damages we don鈥檛 have on any other contract.

Framework Contractor

A director at one described the penalties as 鈥渆xtremely onerous鈥�. He said: 鈥淲e鈥檙e talking about a level of damages that we don鈥檛 have on any other contract.鈥�

A source at another said: 鈥淭hey are stiffening up the contracts. The trouble is it costs the prison service a lot of money to keep prisoners in police cells, and it鈥檚 under pressure to get some of this back.鈥�

The move comes amid growing pressure on the prison service by the Home Office and Ministry of Justice to ease the overcrowding of jails. The government wants 10,500 extra prison places by 2014 and 16,000 by 2016.

The government is also considering the option of three Titan prisons. Each would house 2,500 offenders.

A spokesperson for the National Offender Management Service said: 鈥淲e鈥檙e not changing the terms of the contract as we have had a clause in it to deal with late delivery from the outset. Our aim is to have prisons built on time and on cost.鈥�