Once PSC capital costs are estimated, efficiencies may be included to adjust the Shadow Bid as competition and innovation from the private sector can result in lower construction costs under PPP procurement.
The estimation of potential efficiencies needs to ensure that there is no double-counting of risk that would be addressed in the risk transfer analysis (discussed below), and that any estimated efficiencies are reasonably precise in order to have validity. Due to the variability of potential efficiencies that can be realized, efficiency estimates should be expressed as a range rather than as a single point estimate. Furthermore, estimated efficiencies should be determined based on specific capital components of a project, rather than being applied globally to the entire capital cost. Finally, estimates should also consider the unique characteristics of the particular PPP model chosen for the Shadow Bid that would support such efficiencies.
To achieve a reasonable estimate, it is necessary to define amounts under consideration as either an efficiency or a risk in order to avoid duplication. A general distinction is that efficiencies in the construction phase are the product of competitively bid design and construction approaches that can result in a lower cost than the estimated base cost. This lower cost would result in an adjustment to the base cost budgets. In contrast, a transferred risk may be added as a contingency in a bid and are evaluated separately through the risk analysis discussed in Section 4.2.