The Authority and the PB need to consider in detail which roles and which elements of the anticipated financing solution(s) should be competed as part of the PBDFC process. It should be the Authority's objective to identify the key drivers of potential economic benefit of each possible financing solution, and, where possible, ensure that the PB establishes competition amongst each of these drivers.
For a typical financing solution, this might include:
■ capital structure (i.e. gearing levels and cover ratio requirements)
■ risk margins and other associated fees;
■ reserve requirements;
■ repayment structures; and
■ hedging requirements3.
It is likely that the PB will wish to compete (via the PBDFC process) other elements of the financing solution that may have no direct impact on the Authority. Such elements might include conditions in respect of shareholder distributions, borrower default and support obligations in respect of the subcontracting arrangements. If this is the case, care must be taken to ensure that the evaluation framework addresses these issues in a manner that acknowledges any legitimate concerns of a bidder (eg support obligations) but does not detract from the principal objective of securing the best value financing solution.
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3 Separate guidance has been issued on interest rate and inflation rate risks in PFI contracts. Within the context of a PBDFC, competition should be used to achieve the best overall outcome from hedging e.g. in terms of choice of hedging instrument, pricing, and execution