The PFI contract to build the Channel Tunnel Rail Link was awarded in 1996 and was based on optimistic estimates of the performance of Eurostar. In 1997 it was realised that there was not sufficient finance and the contractor asked for an increase in the £1,730 million of state funding. A deal was then agreed with DETR that restructured the project so that it could go ahead without a material increase in the size of the government grant. This report looks at the reasons for restructuring the deal rather than choosing other options, the implication of the restructured deal and the justification for direct grants. Some of the conclusions are: revenue forecasts for start up businesses are subject to great uncertainty and should be independently evaluated; bidders should not be encouraged to be over-optimistic; equity capital invested in a project should reflect the risks of that project and there are substantial risks if public sector assets are transferred in advance of the raising of external finance. If a deal goes wrong the private sector partners should take their share of the risk, in this case the contractor's shareholders have retained an interest in the project whilst avoiding the full financial consequences of the near collapse.