The 'value for money' concept is central to the Partnerships Victoria policy, yet a precise definition of the concept is not outlined in the policy documentation. The United Kingdom National Audit Office defines value for money as the achievement of the optimum combination of whole-of-life cost and quality to meet the customers requirements.239 At its broadest level, value for money could be assessed on the basis of cost effectiveness analysis, with the degree of progress made towards socially oriented goals investigated. Such analysis would not attempt to place a value perhaps on the lives saved through safety improvements. If economic concepts were adopted, economic welfare improvements could be assessed against economic costs through a cost-benefit analysis. The tools for such analyses and a range of criteria indicating the degree of economic success achieved, are readily available. These include net present value methods and internal rate of return.
From a narrower perspective, financial analysis could compare the cost of undertaking an infrastructure project through private funding of infrastructure with the cost of undertaking the same project through alternative government funded infrastructure with, for example, the private sector designing and constructing the infrastructure.
Cost effectiveness and economic analyses would therefore indicate in the broadest context whether value for money has been achieved. Alternatively, financial analyses could compare privately funded infrastructure with publicly funded infrastructure. Of course such comparisons would assume the use of traditional competitive bidding techniques in order to get the cheapest bid for set criteria.
Value for money can be interpreted as absolute performance in terms of high value for the community, or relative performance compared with alternative infrastructure provision options.
The Partnerships Victoria policy outlines several forces that are considered to 'drive' Victoria's pursuit of value for money. These include risk transfer and innovation.240 Added to these drivers are incentives for high performance and competition in bidding.
By necessity, most of the value for money methods noted are predictive and based on estimates of what might be achieved in the future, rather than on actual costs or benefits experienced in practice. Only experience would give an accurate indication of the degree to which value for money is actually obtained. As experience has shown, with the Cross City Tunnel in New South Wales, for example, both economic projections and financial business cases can be notoriously unreliable when judged before the event.241
Value for money requires contracts to be effectively formulated, managed and enforced.
A wide range of issues is likely to influence the achievement of value for money in projects together with several considerations central to the measurement of value for money. As the Fitzgerald report identified, assessments of value for money are inherently dependent, for example, on the effectiveness of risk transfer between parties and other factors including the assumed discount rate used for long term contracts.242
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239 National Audit Office, (UK), Examining value for money of deals under the Private Finance Initiative, 1999, p.66
240 Department of Treasury and Finance, Partnerships Victoria, Guidance Material, Overview, July 2006, p.8
241 Joint Select Committee on the Cross City tunnel, Report on the Cross City Tunnel and Public Private Partnerships, Second Report, pp.25-26
242 P Fitzgerald, Review of Partnerships Victoria Provided Infrastructure - Final Report to the Treasurer, January 2004, p.22