15. The Treasury also updated its value for money guidance for PFIs to include uplifts of costs for optimism bias. In its guidance, it argues that optimism bias applies to two stages of contracting. Optimism bias up to the point when contracts are signed, and optimism bias of how costs and time will change after the contracts are signed.
16. The Treasury's guidance and template model applies optimism bias to both the counterfactual Public Sector Comparator and the PFI costs up to the point contracts are signed. This allows for how estimates changes between their initial proposal and actual contracting, and especially for how project costs and times develop over the tendering period.
17. But the Treasury's guidance and template model only apply optimism bias to the Public Sector Comparator, and not the PFI project, to take account of potential increases in cost and time of the Public Sector Comparator that would arise after the contracts are awarded. The guidance assumes that the fixed price PFI contract will deliver to time and budget once the contract is signed, but that the Public Sector Comparator will not. It does not address the issue of whether there may be optimism bias built into expected private sector performance, including the delivery of social benefits that have a non-cash value.
18. The Treasury thus assumes optimism bias will be greater for conventional projects and requires public authorities to adjust their estimates of VFM accordingly. If they did not have these adjustments, it would be less likely that public authorities would estimate that their PFIs would be cheaper than their Public Sector Comparator.