1.105 Transaction Costs are the costs incurred by the Procuring Authority and the private sector in reaching contractual agreements under the different procurement methods. Given the lack of comparability between the managed and contractual arrangements that would be in place following contract signature, the Spreadsheet ignores any difference that may arise in costs in providing the asset and/or associated service following contractual agreement.
1.106 The Spreadsheet assumes that total Transaction Costs for the PFI Option will be higher than the Conventional Procurement Option Transaction Costs. This reflects higher levels of expenditure both by the public sector ("Public Sector Transaction Costs"), through, for example, the involvement of users in the more rigorous design development process completed prior to contract signature and by the private sector ("Private Sector Transaction Costs") through, for example, the introduction of third-party funders, leading to increased levels of technical and legal due diligence.
1.107 For the PFI Option, both Public Sector and Private Sector Transaction Costs accrue. The Public Sector Transaction Costs of the PFI Partner are subject to a minimum amount of £750,000. This represents the Spreadsheet's assumed minimum level of cost for the public sector when entering into PFI contracts. It reflects the fact that these costs are semi-fixed in nature and will increase only loosely in line with project size. The Spreadsheet also includes Private Sector Transaction Costs for the PFI Option at 1½% of Capital Expenditure. This broadly represents the average level of private sector transaction costs for a number of PFI projects.