GLOSSARY

Added value	Added value, also 'value for money' means higher quality for the same money or the same quality for less money.
Ancillary revenues	Additional income generated by the project which was not part of the original specification.
Benchmarking	A procedure for testing whether the standard and price of services is consistent with the market standard (if any), without any formal competitive tendering.
Bidder	A respondent to a request for Expressions of Interest or an invitation to submit a bid in response to a Project Brief. Typically, a bidder will be a consortium of parties, each responsible for a specific element, such as constructing the infrastructure, supplying the equipment, or operating the business. Government normally contracts with only one lead party (bidder) who is responsible for the provision of all contracted services on behalf of the consortium.
Business case	The business case sets out the overview of the rationale supporting a Partnerships Victoria approach and a preliminary view on how the project will be delivered. It also provides an analysis of the various impacts of the project and an indication of the likely level of market interest. The business case provides information allowing government to decide whether to support a proposed project, before significant resources are spent on its development.
Competitive neutrality	Competitive neutrality adjustments remove any net advantages (or disadvantages) that accrue to a government business simply by virtue of being owned by government.
Concession	The exclusive right granted to a commercial organization to exploit a specific project for a defined period of time.
Concession period	Duration of the contract.
Consortium	The group of parties which may act together as the Private Partner to tender for the contract. Commonly a consortium will include a builder, operating company and an equity funder.
Contract management	In the context of Partnerships Victoria projects, contract management incorporates all the activities required to identify, monitor and mitigate all risks over the life of the project contract to maximise value for money.
Contract risks	Contract risks are those risks which may cause actual public sector outcomes to differ from those expected when a Partnerships Victoria contract is entered into. They include project risks and other risks that government faces in Partnerships Victoria contract management.
Default	The failure of a party to perform a contractual requirement or obligation, including failures to meet deadlines, to perform to a specified standard, to meet a loan repayment or to meet its obligations in relation to a materialised risk.
Departure schedule	A departure schedule is prepared by a tenderer and lists all departures from the project brief and standard contract issued by the government. The departure schedule lists the reasons for the departure, materiality thereof and suggested amendments, all of which enable issues to be resolved prior to the incurring of legal costs in redrafting a contract.
Discount rate	The rate used to adjust for the time value of money (lost opportunity cost of tying up cash).
Discounted cash flow	A general term for analysis which discounts a stream of future cash flows in order to calculate a net present value.
Discounting	A method of comparing cash flows by adjusting them for expected inflation and time preferences (and associated risks).
Due diligence	The process by which a party to the contract seeks to verify statements, information and other material.
Equity	The capital contributed by the shareholders of a project company. The value of the equity is the value of a company or project after all liabilities have been allowed for. The equity is owned by the shareholders.
Expressions of interest (EoI)	A call by a government department or agency for expressions of interest from the private sector in a project. Responses to Expressions of Interest are used to evaluate the capability of bidders to deliver a project and may be used to gather some information from bidders on particular approaches that may be accommodated in the Project Brief. Based on the information presented in responses to an Expression of Interest, bidders are short listed to provide a final submission.
Financial models	Spreadsheets designed to predict the most likely financial outcome of a particular set of estimated costs, revenues and fixed and capital charges for delivering a service over time.
Force Majeure	Act of God. An event that is outside the control of either party to a contract.
Hidden costs	Hidden costs are costs which are incurred, but which cannot be allocated directly to the project because they are part of the fixed costs or overhead.
Infrastructure	Fixed capital assets, such as schools and hospitals, which support the provision of services. Infrastructure can also refer to a network of reticulated services such as roads, energy services, rail, airports, etc.
Input specifications	Criteria set for the technical realization of the project.
Intellectual property	Legally protected intellectual property (copyright, patents, registered designs etc.) and ideas and information which are protected as confidential information at common law or under contract.
Internal rate of return (IRR)	The IRR is the discount rate at which the present value of the investors' receipts from a project equals that of their repayments, including their initial investment. The IRR percentage return aggregates a series of annual percentages. It does not mean the investors will receive the IRR rate as a constant return each year.
Net present cost (NPC)	The equivalent cost at a given time of a stream of future net cash outlays (calculated by discounting the actual values at the appropriate discount rate).
Net Present Value (NPV)	NPV is calculated by aggregating the discounted values of a series of future cash flows with the initial investment.
Nominal dollars	Refers to financial date expressed 'in the price of the day' and which is not adjusted to remove the effects of inflation. Nominal dollars do not allow for inter-year comparisons because reported changes may reflect changes to financial levels (prices and/or expenditure) and adjustments to maintain purchasing power due to inflation.
Off-balance sheet	Financing activity that is not disclosed in the balance sheet of an entity or government.
On-balance sheet	Financing activity that is disclosed in the balance sheet of an entity or government.
Optimism bias	The systematic tendency of project appraisers to underestimate capital costs and overestimate benefits.
Output specification	The output specification sets out the range of services that government is seeking to procure and the performance levels required for each of those services.
Peppercorn lease	Very low or nominal lease payments, such as $1 per annum for long term leases of up to 99 years for Crown land.
Private party	The private sector entity with which government directly contracts. Traditionally the private party has been a special purpose vehicle created specifically for the purposes of the project. The private party is not limited to this form and can be set up under a number of structures, including a joint venture and a trust structure. Behind the contracting party, however, there may be a number of private sector interests at play, seeking to be represented through the contracting party. (See also special purpose vehicle.)
Probity	Uprightness, honesty, proper and ethical conduct and propriety in dealings. Used by government to mean 'good process'.
Probity auditor	An independent expert retained to audit the bidding process at critical stages, assessing and reporting whether the process has been conducted according to the required standards of probity. Before a contract is executed, the probity auditor reports to the departmental Secretary or agency chief executive and the project steering committee on the bidding process.
Public interest test	An assessment of the impact of the project on the following elements of public interest: effectiveness, accountability and transparency; affected individuals and communities; equity; consumer rights; public access; security; and privacy.
Public Sector Comparator (PSC)	The Public Sector Comparator (PSC) represents the most efficient public procurement cost (including all capital and operating costs and share of overheads) after adjustments for Competitive Neutrality, Retained Risk and Transferable Risk to achieve the required service delivery outcomes. This is used as the benchmark for assessing the potential value for money of private party bids in Partnerships Victoria projects.
Raw Public Sector Comparator	The base costing under a public procurement where the underlying asset or service is provided directly by the public sector on the same terms and defined performance standard required under the output specification. It does not include any allocation of value for risks and contingencies which may affect cash flows.
Real dollars	Refers to financial data measured in prices from a constant base year to adjust for the effects of inflation. Real dollars allow the inter-year comparison of financial levels (prices and/or expenditure) by holding the purchasing power constant.
Refinancing	The process by which the terms of the funding (which are put in place at the outset of a PPP contract), are later changed during the life of the contract, to take advantage of reduced risk in the project and often also improved terms and conditions from a more mature PPP funding market usually with the aim of creating refinancing benefits for the consortium.
Refinancing benefits	The benefits to shareholders of increasing and/or bringing forward their returns from the project as a result of changes to the financing structure of the consortium.
Risk	The chance of an event occurring which would cause actual circumstances to differ from those assumed when forecasting benefits and costs.
Risk allocation	The process of assigning operational and financial responsibility or specific risks to parties involved in the provision of services under a PPP.
Risk assessment	The determination of the likelihood of identified risks materialising and the magnitude of their consequences if they do materialise.
Risk category	Risk can be allocated into broad categories such as site risk, financial risk, network risk, operating risk, market/demand risk, sponsor risk and industrial relations risk.
Risk management	The identification, assessment, allocation, mitigation and monitoring of risks. The aim is to reduce their variability and impact.
Risk matrix	A method of presenting all possible significant risks likely to be encountered, the magnitude and likelihood of the risks occurring, their areas of impact, and the risk mitigation techniques to be employed.
Risk premium	The amount required to compensate an investor for assuming a particular risk attached to an investment proposal.
Scope	Extending or reducing the definition of the project, for example, whether or not to include parts of the infrastructure.
Sovereign risk	The risk that there is no remedy available at law to prevent government from legislating to affect the rights of the private party. Sovereign risk is a category of legislative and government policy risk.
Special purpose vehicle (SPV)	In establishing a project consortium, the sponsor or sponsors typically establish a private party in the form of a special purpose vehicle (SPV) which contracts with government. The SPV is simply an entity created to act as the legal manifestation of a project consortium. The SPV itself has no historical financial or operating record which government can assess.
Step-in	Government's election to assume all or some of the service delivery obligations of the private party under the contract for a period of time. The circumstances where government may have the right under the contract to exercise rights to step in may include a need to: prevent or mitigate a serious risk (to the environment; the safety of persons or property); guarantee continuity of an essential service; discharge a statutory duty; or deal with a default by the private party under the contract.
Time value of money	The principle that cash today is worth more than cash in the future.
Transaction costs	The costs associated with the development of the initial option studies, tender documents and contract models.
Transferable Risk	The value of those risks (from government's perspective) that are likely to be allocated to the private party under a Partnerships Victoria delivery method.
Turnkey (public sector)	A project procured through private design and construction, according to public sector specifications and objectives. When the project passes completion tests, the public sector reimburses the private party/parties for design and construction.
Unitary charge	The single periodic payment due from the government to the consortium in respect of the provision and operation of the asset.
Value for money	The achievement of the optimum combination of whole life cost and quality to meet the user's requirements.
Variable costs	Costs that change in proportion to volume levels, reflecting the direct relationship between cost and volume. May be off-balance sheet, net present value, capital asset pricing model, BAFO's, social infrastructure.