The calculation of the PSC should reflect the total range of outcomes for the public sector. As most risks ultimately rest with the public sector, in a PSC the calculation is relatively straightforward, all the more so in that the owner's team is likely to be built around individuals with public sector experience.
The calculation of the Shadow Bid is more challenging. It is a combination of:
a) Those risks to which the public sector continues to have exposure (because the risk may be shared or retained), and
b) Those risks that are transferred to the private sector.
When calculating the risk value for Shadow Bid risks, the following considerations must be taken into account:
• Is the risk exposure the same for the private partner?
• Does the project agreement change how the risk is valued?
• How will the private partner apply the risk value to their base cost (part of base contingency or additional)?
It is not acceptable to pro-rate all PSC risks by the some factor (e.g., 35 per cent) to arrive at Shadow Bid values. The owner's team may not have the private sector experience to adequately address the above considerations and outside experts may have to be called in.