The VfM quantitative assessment is based on a comparison of the quantifiable costs and benefits arising under PFI procurement (the PFI Option) with those arising if a project or programme of projects is conventionally procured (the PSC Option).
The PFI Option involves procurement via the UK's Private Finance Initiative, where the public sector lets a design, build, finance and operate (DBFO) contract to the private sector for the long term delivery of a service.
The PSC Option is where procurement is through a conventional approach, using direct payments for capital. For the purpose of the VfM analysis it is assumed that the public sector body (or Authority) lets separate construction and operation contracts and that a greater level of risk resides with the public sector than under the PFI Option3. Whilst the provisions contained within the Environmental Protection Act 1990 (EPA) mean that an Authority is not able to both own and hold a waste management licence to operate a waste treatment facility, there is a provision in the Act which enables the Secretary of State to override the Act and permit a project to be procured conventionally. Furthermore the Clean Neighbourhoods Act has been enacted and this will repeal relevant provisions of EPA when it comes into force. We understand from DEFRA that this is likely to be repealed before April 2006. This will in theory enable Authorities to implement all aspects of waste projects in house. Accordingly, conventional procurement of waste projects represents a viable alternative to PFI and must be compared when assessing VfM.
Alongside the Mandatory Guidance HMT has produced a generic Excel model (the PFI Quantitative Evaluation Spreadsheet (the VfM "Model")). This is used to capture the relevant values, determine the total cost differential between the two procurement routes and enable sensitivity testing. The Model employs a number of simplifying assumptions, and there is a high degree of aggregation. The next section provides assistance with determining the appropriate Model input values.
It should be noted that whilst advisers to a Local Authority may provide assistance with populating the Model, it is important that Local Authorities are familiar with the assumptions underpinning the model as well as how the Model inputs have been determined.
_________________________________________________________________________________________________
3 Conventional procurement could be based on a DBO contract, substantially similar to the form of a DBFO contract with the Authority paying for capital upon achievement of key milestones.