The general notion of a public sector comparator (PSC), or a standard against which various options for providing public infrastructure can be tested, is a good, although theoretical, one. The PSC has been the subject of intense debate. A central issue in assessing value for money through the PSC is the actual basis against which privately financed projects are compared. Unfortunately the precise nature of both this traditional 'public delivery' mechanism and the financial methodology used to characterise this delivery mechanism are unclear.
There is considerable guidance material available on constructing a PSC. The Partnerships Victoria Guidance Material, Public Sector Comparator, Technical Note, p.6) explained that the PSC is the hypothetical risk-adjusted cost of public delivery of the output specification of a Partnerships Victoria project. The Partnerships Victoria policy states that:253
The PSC is intended to reflect the costs and budgeting imposts of the project as if government were to deliver it. The reference project used as a basis for the PSC should be a real alternative, capable of public sector implementation.
The Public Sector Comparator Technical Note guidelines further explain that the PSC 'estimates the hypothetical risk-adjusted cost if a project were to be financed, owned and implemented by government … and is based on the most efficient form and means of government delivery'.254 In theory, this is the true and full cost of government meeting the output specification according to the guidelines. In reality, however, it is a hypothetical calculation based on assumptions of risk transfer and on the principal of competitive neutrality, which removes any net competitive advantage government may have by virtue of its public ownership. The guidelines explain that: 'in many cases, the public sector delivery method may involve a significant element of outsourcing or third party contractor involvement, including a variety of design and construct (for example, turnkey), operation and maintenance agreements'.255
In conducting a value for money assessment, factors other than the PSC are also taken into account, such as other bid evaluation criteria and costs and risks not included in the PSC or in bids.256 Some of the evaluation criteria in the project brief, for example, will take into account non-financial and non-quantifiable factors.257
The Committee noted that as well as the development of a PSC, Partnerships Victoria guidelines require major infrastructure projects to be subject to a full cost-benefit analysis to establish the economic viability of a project. In constructing the PSC, it is critical to be clear about both the basis for the calculation (since this is clearly a hypothetical case rather than actual payments made) and the physical alternative delivery option used, representing 'the most efficient form and means of government delivery'. These most efficient forms involve the private sector delivering much of the project, and experience has shown that through the use of competition, the private sector play a key role in infrastructure delivery. It would not, presumably, involve the private sector financing (or part financing) the project and would usually involve a smaller, more traditional risk transfer than might be considered under Partnerships Victoria.
Government officials in Ireland briefed the Committee on the differences between processes under traditional delivery and under PPP arrangements.258 They explained that, for their jurisdiction, a competitive tendering process followed the preparation of contract documentation with both traditional procurement and PPPs, but that a range of differences existed for each of the project phases (identification, option appraisal, statutory process, procurement, construction, operation and review).
see: www.ppp.gov.ie/ , accessed 19 September 2006
In Victoria, it appears that the major differences between Partnerships Victoria model and the traditional public sector procurement model include:259
• the availability of initial private sector funding for the project;
• a long term (whole-of-life) contractual arrangement;
• output based specifications;
• different competitive tendering arrangements;
• the promise of transfer of risks over this period;
• payments begin once the asset is commissioned;
• private contractor responsible for construction time and cost overruns;
• state may or may not operate the facility;
• state manages one contract over the life of the facility;
• performance standards in place, payments may be abated if services not delivered to contractual requirement; and
• useful life and handover quality defined.
These differences also result in longer term implications for infrastructure delivery choices, and bigger financial flows to pay for longer term responsibilities and risks borne.
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253 Department of Treasury and Finance, Partnerships Victoria Guidance Material, Practitioners' Guide, June 2001, p.61
254 Department of Treasury and Finance, Partnerships Victoria guidance Material, Public Sector Comparator, Technical Note, June 2001, p.6
255 ibid., p.8
256 Department of Treasury and Finance, Partnerships Victoria Guidance Material, Practitioners Guide, June 2001, p.63
257 ibid., p.63
258 Department of the Environment and Local Government, A policy framework for public private partnerships, Ireland, November 2003, p.34.
259 Department of Treasury and Finance, Partnerships Victoria Guidance Material, Overview, July 2006, p.5