Apparent savings

The result was that in each case the cost of the public sector comparator exceeded the net present cost of the private sector bid.

The results of the analysis for the first contract gave a range of public sector comparator costs from a 'worst case' of $152.6 million to a 'best case' of $134.3 million with the 'most likely' or 'mean' outcome being $141.8 million. This included a 'cost' of $10 million for risk assessed to have been transferred to the private sector. The cost of the public sector comparator exceeded the net present cost of the winning bid, which was $131.4 million (including a 'saving' of $3.2 million due to revenue from childcare centres).

The results of the analysis for the second contract gave a range of public sector comparator costs from a 'worst case' of $203.3 million to a 'best case' of $185.5 million with the 'most likely' or 'mean' outcome being $193.8 million. This included a 'cost' of $18 million for risk transferred to the private sector. This exceeded the net present cost of the winning bid, which was $148.7 million (not including a 'saving' of $3.1 million from the childcare centres).

In each case the 'saving' is accomplished with the help of the estimated cost of risk transferred to the private sector, as shown by the following table.

NSW Treasury oversighted development of the public sector comparator and provided key economic assumptions, including the discount rates. As the evaluation of the PSC was significantly affected by assumptions and estimates, we looked to see if these were reasonable.