1.16 Fundamental to any procurement decision will be a realistic affordability calculation, which refers to what is affordable within the department/procuring authority's spending allocation or expected future settlements. The affordability calculations, which are estimated separately to the VfM quantitative assessment, should also be included as part of the OBC. Projects estimated unaffordable should not be pursued and must not be brought to market. It is vital that in drawing up specifications procuring authorities are mindful of their affordability envelope, and the future resource implications for a project. Procuring authorities need to prudently assess their ability to meet the payment commitments arising under their PFI contract to ensure upfront that their project is affordable. If a Spending Review settlement has just been finalised, procuring authorities should confirm that the project envelope remains affordable.
1.17 Procuring authorities and departments should note that the accounting treatment of a PFI project does not form part of the VfM assessment. The decision to undertake PFI investment, once affordability has been confirmed, is taken on VfM grounds alone. Whether the investment is on or off-balance sheet is a decision taken by independent auditors and is not relevant to the VfM of the procurement route. To ensure integrated and informed decisions on PFI are made as part of the capital spending allocation, departments should consider the consequences of the PFI being treated as a capital asset for accounting purposes. The assumption should be that projects will be on-balance sheet, unless there is significant historical record to suggest otherwise.
1.18 The manageability of the budgetary impact of accounting should be assessed early on as departments should not cancel a procurement judged to be VfM simply due to a change, later in procurement, of the accounting treatment. It is important that procuring authorities do not compromise VfM by transferring risks unnecessarily in order to get particular balance sheet outcome: risks should be held by those parties best able to manage them. This should reinforce the emphasis on taking account of both near and longer-term capital and resource commitments made as part of any investment decision.