A4 Below are some examples of the criteria that should be considered as part of a value for money appraisal of a PFI project in a reformed PSC at outline business case stage and before procurement commences, at the project stage:
• the scale, nature and scope of the project. For example, adding a new wing to an existing hospital (that has not been procured under PFI) would be an unlikely candidate for PFI procurement, whereas expansion of Design, Build, Finance and Operate (DBFO) road is likely to be more suitable;
• build on initial quantitative assessments, including confirmation of capital values and operational costs of the project, factoring in target service and usage levels;
• identification and quantification of the key risk transfer elements, potential tax impact, and optimum bias estimates specific to the project. As details on projects are developed, Departments will need to look to producing greater detail on appraising the benefits and costs of the relevant value for money issues, for example, for a pathfinder PFI, broader benefits including the workforce, strategic or environmental impact will need to be considered;
• identification of non-market impacts where feasible, such as strategic considerations, timing implications, health benefits, design quality, approach to innovation, and health and safety;
• assessment of the affordability of options, including upfront transaction costs, in addition to the economic costs and benefits;
• early establishment of an approach to project and risk management, and an evulation of the make-up and experience of the project team;
• assessment of the financing costs of a PFI scheme and competition issues, including preliminary expectation of competitive interest and quality of potential bidding parties having considered the current market situation;
• updating the framework for pre-tender dialogue; a key evaluation approach is to ensure a level playing field for the competition to facilitate the appraisal and decision making process and flexibility to take into account of bidder input during the bid process.
A5 The supporting financial analysis will include:
• cost estimates. This will assist future sensitivity analysis;
• adjustments for optimism bias. The Green Book recommends that optimism bias adjustments should be made to each major category identified based on the best empirical evidence relevant to each stage of the appraisal;
• the quantification and probable impact of the different taxes, such as stamp duty, VAT, employment, corporation tax liabilities and other relevant tax regimes; and
• identification of the benefit categories, financial (for example, operating costs reduction) and non-financial (quantitative, such as reduction in road accidents, and qualitative, improved staff skill level).