The raw cost estimates for the public sector comparator are based on the reference project and are generally derived by the technical advisors in consultation with the agency. To build up the raw costs for the public sector comparator , the terms of reference for this work by the technical advisors include, among other things:
• to estimate each cost in accordance with the scope of the project, detailing assumptions used for each cost category and the breakdown of the costs in each cost category
• to provide the cost estimates as at an agreed date
• to provide details on inflation/indexation of costs for each cost category over the project term. For example, labour rates/wages usually rise faster than consumer price index, and construction materials may also inflate at different rates. Guidance should also be sought directly from Queensland Treasury and the Department of Infrastructure and Planning for inflation assumptions relating to long-term projects
• to reflect the true financial cost of the project to government rather than the cost to the agency (this may be different, for instance, when a GOC is the traditional delivery mechanism)1
• estimation of the timing of construction costs over the construction period
• to detail the assumptions regarding the payment terms of the contractor, i.e. are there any holding costs included in the raw estimates
• assumptions used in the derivation of the discount rate
• details of foreign exchange assumptions
• insurance assumptions
• estimation of the replacement cost capital items and when they occur over the project term
• to detail and separate out the costs relating to revenues to government
• to ensure that the costs provided correlate with the scope of the reference project, and that any changes to the reference project are reflected in amended cost estimates.
GST
GST is paid on most services at a rate of 10%. Agencies are entitled to a GST refund from the Australian Tax Office for any GST paid. The Australian Tax Office advise that they aim to refund GST within 14 days of the lodgement of the business activity statement. As such, the cost of the timing lag between the remittance of GST and the Australian Tax Office refund of GST is not considered material, and therefore, the public sector comparator is usually calculated net of GST.
However, the GST has a minor working capital cost resulting from the timing lag between the payment and collection of GST. For budgeting purposes, the GST position of the agency should be checked, as it may be different to that described above.
The treatment of GST for the public sector comparator and the partnership model should be the same for consistency and comparability purposes.
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1 It is important to note that binding bids must include all revenues to government that may be imparted by the project including payroll tax, stamp duty, land tax, etc. These will be adjusted as part of the value for money assessment.