4.11 Should-cost models are another type of financial model, which are used to assess bids. They are independent calculations of the expected costs of delivering the same technical solution as proposed by a bidder. But the preparation of should-cost models can be tricky and data hard to find. The Police Information Technology Organisation could not find reliable cost information for new technology equipment for its should-cost model of the Airwave radio communication contract.67
4.12 Public authorities often use should-cost models if there is only one bid. When the Department for Work and Pensions decided it would ask its incumbent contractor, Land Securities Trillium, to extend its contract to manage its property, it used a should-cost model to assess the bid, and obtained a high degree of transparency and openness from the contractor, enabling it to demonstrate VFM.68 Treasury has generally argued that competition provides better assurance on VFM than a should-cost model, but the two are not incompatible. The Ministry of Defence used its PSC as a should-cost model to assess bids for its main building.69
4.13 In our view, where it is feasible to put together a should-cost model, they are a very helpful additional source of assurance and challenge to bidders' proposals. Under the Competitive Dialogue process used for most PPPs, each bidder offers a different costed solution to the output specification that are often difficult to compare to one another. Should-cost models help the public authority to assess the merits of each bid, within a competitive process.
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67 Ibid.
68 The PRIME project: the transfer of the Department of Social Security Estate to the private sector, National Audit Office (HC 370, 1998-99).
69 Redevelopment of MoD main building, National Audit Office (HC 748, 2001-02).