Q7. What happens if no bid betters the PSC?

It is important to recognise that the evaluation of the bids against the PSC is not a pass/fail test. Any Partnerships Victoria proposal needs to be subjected to a sensitivity analysis to see whether different assumptions (e.g. risk allocation) would alter the value for money balance. It is also important to consider government's overall exposure to risk. The PSC is often quoted as a single-figure estimate which does not capture the inherent uncertainty that exists in the PSC, in particular with respect to the accuracy of cost estimation and the valuation of risk. In other words, if government implemented the reference project, the outcome would almost certainly not be the mean single-point PSC estimate. 

In complex projects, it is very important that consideration is given to government's overall exposure to risk and uncertainty. It may be desirable, for example, to proceed with a Partnerships Victoria option even where, based on single-figure estimates, little or no value for money is evident (and vice-versa). For instance, it is possible that a bid that lies above the single-figure PSC estimate could be considered to offer value for money in comparison with the PSC, because the Partnerships Victoria delivery mechanism provides greater cost certainty and decreases the State's risk exposure. A separate issue that must be considered in financial assessment of bids against the PSC, particularly in social infrastructure projects, is the impact (either positive or negative) that bid designs may have on the efficiency of State delivery of core services.