The purpose of this section of the business case is to:
1. Construct robust financial models for the project based on the best available cost estimates and capital markets information. Two cash-flow based models are constructed for this element of the P3 business case:
a| The first cash-flow model models the cost of the project on the basis that it is developed and financed by the sponsor under the traditional approach used by the sponsor to deliver such projects (usually Design-Bid-Build). This is known as the Public Sector Comparator, or "PSC";
b| The second cash-flow model models the cost of the project on the basis that it is developed by the private sector for the sponsor. This is known as the "Shadow Bid". There may be more than one version of the Shadow Bid depending on the number of P3 project delivery models still under consideration at this stage of the business case;
- The sponsor should provide PPP Canada with an accessible, usable financial model for analysis. Financial models should be designed to be highly flexible and should include functionality that allows PPP Canada to see the impact of varying its financial contribution to the project.
2. Undertake a focused quantitative risk assessment of the project and allocate these risks between the sponsor and a private partner in a commercially prudent manner for each short-listed project delivery model identified in Section 3.0 of the business case; and
3. Adjust the net present costs of both the PSC and Shadow Bid to reflect how risks are allocated between the sponsor and the private partner for each short-listed delivery model. The difference in the risk adjusted net present cost between the PSC and the Shadow Bid(s) is what is known as the Value for Money ("VFM") assessment.
This section of the P3 business case is important because it:
• Provides a clear description of the risk allocation model and the quantitative benefits brought to the sponsor from this risk allocation model; and
• Demonstrates that the sponsor understands the project risks and has thoroughly considered the risk transfer benefits and financial costs associated with executing the project as a P3.