Under Treasury rules, public authorities must subject their private finance plans to a value-testing exercise, part of which is based on a public sector comparator (PSC) - an estimate of what the project would cost under public finance. In theory, where a PSC concludes that private finance does not represent value for money, a public procurement method should be chosen. In practice, PPP almost always comes through the PSC exercise as the more efficient option, and this has been presented by the Treasury as good evidence that the model is cost-efficient (HM Treasury 2000).
Since the logic of PPP is that it leads to greater cost efficiency through the private sector managing more effectively project risk, the principle is that risk should be added to the PSC to make this comparable with the cost of PPP. However, this process has been fundamentally discredited by academics and auditors (Gaffney et al 1999; Price and Green 2000; NAO 1999), who point out that the accounting-driven advantages of PPP strip these appraisals of any objectivity.
For example, Gaffney et al (1999) note "a tendency" for public authorities engaged in the PSC process to ascribe risks to PPP consortia that they will never in fact be asked to bear, and thereby artificially inflate the cost of the PSC relative to the PPP. For example, on one hospital project, one of the risks supposedly transferred to the private sector was that targets for clinical cost savings would not be met. The cost of this risk was estimated at £5 million and added to the PSC figure. However, the consortium had no responsibility for ensuring such savings would be made, and faced no penalty if they weren't. The authors conclude that the PSC process was "often spurious".
Jeremy Colman, former deputy general of the National Audit Office, the supreme public sector audit institution in the UK outlined a similar conclusion in comments made to the Financial Times (since confirmed by Colman in a personal communication with one of the authors). Mr Colman noted that many appraisals were guilty of "spurious precision", based on "pseudo-scientific mumbo-jumbo". He noted the perverse incentive facing authorities to manipulate appraisals, in a context in which private finance is usually the only funding source available: "If the answer comes out wrong you don't get your project. So the answer doesn't come out wrong very often" (Timmins 2002).