A.7 When preparing their Outline Business Cases (OBC), Authorities also need to plan for flexibility with regard to:
• project costs, including underlying construction, service costs and the terms and costs of finance;
• inflation assumptions; and
• the financial resources available to the Authority at the time of contract award and through the life of the project.
A.8 An appropriate range of assumptions in these areas should be reflected in the sensitivity analyses and/or optimism bias assumptions considered in the OBC.
A.9 In relation to the detail of contract design and risk allocation, for many areas there is standard drafting set out in departmental standard form contracts and SoPC42. Authorities should assume that these positions will not change, but if there are particular areas where an Authority may want to derogate from these positions they should seek input from their sponsor department as early as possible. Authorities should be careful not to undermine the risk transfer inherent to the PFI model, which relies on incentivising contractors to design a sustainable construction and service model.
A.10 Where an Authority is considering making a capital contribution to a project, this should be considered as part of the OBC in both the affordability and VfM assessments. Capital contributions should be considered sufficiently early in the procurement to allow any issues to be dealt with under competitive tension.
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2 http://www.hm-treasury.gov.uk/ppp_standardised_contracts.htm