This paper presents Partnerships BC's current approach to quantitative analysis of procurement options, based on incorporating its guidance in the areas of cost estimation, financial modelling, risk analysis, and appropriate discount rate methodology.
Quantitative analysis is used during the business case stage as an essential part of the MCA process that brings together various analytical techniques to evaluate a range of project characteristics, options and potential impacts. This evaluation includes both quantitative and qualitative factors. The purpose of quantitative analysis is to identify which procurement option is most likely to provide quantitative value for money.
Quantitative analysis during the business case stage is based on developing and comparing the PSC and the Shadow Bid models that take into account several key factors including: capital and operating cost estimates, capital and operating cost efficiencies, financing costs, the discount rate, risk transfer, and competitive neutrality adjustments.
The PSC and Shadow Bid models are developed on a cash flow basis, and the appropriate discount rate is estimated in order to discount the cash flows of both models to their NPC. The cash flows of the models include capital, operating, rehabilitation, and financing costs for the Shadow Bid. Risks are identified, analyzed and quantified where meaningful, and then allocated to the private partner or retained by the owner based on the proposed risk allocation of the project. Competitive neutrality adjustments are then made for insurance and taxation. Finally the models' results are presented in the form of a standardized value for money table that compares the alternatives based on their NPC, to determine which procurement method delivers quantitative value for money. To derive the overall value for money, both quantitative and qualitative benefits are assessed in the MCA analysis, and summarized in the MCA table.
The application of the quantitative analysis does not end with the approval of the business case. The PSC and Shadow Bid are dynamic procurement tools and are updated during the procurement process to reflect any new information, in support of a rigorous procurement evaluation.
The methodology for the quantitative analysis presented in this paper reflects current knowledge based on the approach used on projects in B.C., in addition to ongoing monitoring and interaction with other jurisdictions. As such, the process will continue to be refined and will evolve to ensure that Partnerships BC is applying the most effective techniques for measuring value in public infrastructure procurement.