The financial evaluation of options in the business case included final updated estimates of nominal construction costs for each option and a preliminary public sector comparator (PSC) for each option in net present cost terms. Figure 4C provides a summary of these figures.
| Figure 4C | ||
| Option | Estimated nominal construction cost | Preliminary risk adjusted PSC (net preset cost) |
| Docklands | 959 | 1042.5 |
| New west | 856 | 985.9 |
| New west variant | 823 | 979.4 |
| West integrated | 796 | 984.8 |
| East integrated | 898 | 1047.8 |
Source: Victorian Auditor-General's Office, using data provided by DHS.
The nominal estimated construction costs were based on expert external advice and had been refined from the preliminary estimates provided to government in October 2005.
The preliminary PSC estimated the hypothetical risk-adjusted net present cost if the project were to be financed, owned and implemented by government. The PSC incorporated both capital construction costs and lifecycle facility maintenance costs over a 25 year period together with a risk adjustment based on the nature of risks associated with each option.
The 'new west variant' option, which was recommended in the business case, had the second lowest estimated nominal construction cost and the lowest preliminary PSC.
We were generally satisfied with the level of documentation and analysis supporting the nominal construction costs and preliminary PSC for each option in the business case.
The inflation and discount rates used to calculate the preliminary PSC for each option were consistent with relevant DTF and Partnerships Victoria guidance. However, the following process and documentation issues were identified in relation to the preliminary PSC:
• DHS engaged a consultant to develop the preliminary PSC analysis but did not perform their own quality assurance review of the preliminary PSC financial model produced by the consultant
• unlike the 'new west variant' option, DHS was unable to provide documentary evidence to support the construction cost assumptions included in the preliminary PSC financial model for the other four asset options.
We have noted similar issues in other recent reviews of PPP projects and believe that DTF should amend its Partnerships Victoria guidance accordingly.