The development of the super-prison at Thornton Hall will be delayed by at least 18 months if the developers continue to insist they cannot proceed without another €80 million from government.
The Léargas consortium of developers has told the state it will have to contribute an extra €80 million to the north Dublin project, which is being built as a public private partnership (PPP), if it is to go ahead. This would bring the cost of building the prison to €480 million.
The consortium, which includes Bernard McNamara, Barclays Private Equity and GSL, the international prison operator, was selected as the preferred bidder nearly a year ago after submitting an original budget of €400m.
It is in negotiations with the National Development Finance Agency (NDFA) and the Irish Prison Service (IPS) over details of the prison's construction but has now insisted it needs another €80 million to go ahead.
It has blamed the credit crisis on the rising cost, saying banks that were willing to fund the development are no longer willing to extend credit. However, prison service sources say there is "no more money available".
The consortium is insisting that, to stay within the original €400 million budget, plans for the prison would have to be radically scaled back.
If negotiations break down, the prison service will have to re-tender for a firm to design, build, finance and maintain the new jail. This would delay the project by 18 months. Thornton Hall was scheduled to open before the end of 2010.
Formal contracts between the government and Léargas have yet to be signed but negotiations are at an advanced stage. Under the provisional deal, Léargas will design, finance and build the prison and then receive fixed payments from the state over 25 years.
In June, the Dáil passed a bill to allow for the building of a new prison at Thornton Hall to replace Mountjoy jail.