7.1  The role of a Public Sector Comparator

A PSC is a model of the costs (and in some cases, revenues) associated with a proposal under a Government financed method of delivery. A PSC:

•  Is based on the most efficient likely method of providing the defined output currently available to the public sector

•  Takes into account the potential impact of risks on the costs (and revenues) associated with a proposal over its life

•  Is expressed in terms of the net present cost (or benefit) to government of providing the output, over the life of the proposed contract period

•  The PSC reference project will be defined and costed to provide the same level and quality of service expected of the private sector.

The reference project may include elements of private sector provision and risk transfer, such as provision of the facility under a design and construct contract or a maintenance contract, with the private sector. These approaches are consistent with current methods of delivery.

However, the PSC will not include private financing of the project over its life.

Given that the PSC is a valuable tool for Government in determining value for money, it is important that it is prepared carefully and comprehensively. However, the PSC is a quantitative benchmark with inherent limitations because:

•  It requires costs and revenues to be forecast over the life of the proposed contract period. It is difficult, even for the most skilled experts, to make accurate estimates over such a long time-frame

•  Estimating the impact of risks on costs (and revenues) over the life of an asset is a complex and often subjective exercise.

The PSC therefore provides Government with an approximate measure of the range of outcomes that Government is likely to face in delivering a project under traditional methods. To maintain its usefulness as a tool, the PSC will be:

•  Accompanied by qualitative considerations in determining the potential value for money of a private finance arrangement

•  Subject to sensitivity testing and scenario analysis to determine the robustness of its underlying assumptions, and their impact on the PSC’s results

•  Sufficiently flexible to allow new information to be incorporated as it comes to light, enhancing the integrity of the PSC as a benchmark while maintaining the probity of the project development and tender assessment processes.

•   The qualitative considerations that will support the PSC include:

•  Risks not easily or confidently quantified

•  The identity, credit standing and proven reputation of the bidder

•  Differences in the deliverable service not able to be quantified or adjusted for

•  Any wider net benefits or costs that a private finance arrangement may entail. For example, wider social benefits may include earlier or more flexible provision of important infrastructure services than would be possible under a public procurement, or the establishment of better benchmarks for publicly delivered services.

The Government is flexible about disclosing a summary of a PSC in tender documents. Disclosure is more likely to happen where it is obvious that this will assist the private sector’s bid preparation process and result in higher quality and better value bids to the Government. The results of the PSC will ultimately be publicly available in the contract summary.

Table 7.1 Differences between economic and social infrastructure delivery