| Conventional Procurement Option - High Investment in Lifecycle Costs | Conventional Procurement Option - Low Investment in Lifecycle Costs |
Net present value of Lifecycle Costs | > 50% of PFI Option | < 50% of PFI Option |
Net present value of Residual Cost | 35% of initial Capital Expenditure (including Optimism Bias) stated in real terms. | 70% of initial Capital Expenditure (including Optimism Bias) stated in real terms. |
1.102 The Spreadsheet introduces the value of the Residual Cost as a terminal value in the final year of the Contract Period. In effect, the value of Residual Cost is determined by values introduced elsewhere in the Spreadsheet and therefore, its VfM impact does not require Procurement Authorities to make any other specific assumptions. The value of the various hardwired Residual Value related assumptions tabulated above have been set at a level such that a "premium" is payable in the event that the periodicity and magnitude of on-going maintenance are inadequate leading to an excessive deterioration in the underlying asset.