Stages in the procurement process

2.5 For the purposes of this chapter, a PPP procurement can be seen in terms of four stages:

• firstly, the sponsoring organisation identifies that there is a potential need for capital investment in order to meet its healthcare strategy. For all proposed schemes, demonstration of this is required in an Initial Agreement (IA);

• secondly, the sponsoring organisation identifies its preferred solution. For all schemes, demonstration of this is required in an Outline Business Case (OBC);

These two stages are part of work undertaken by NHS bodies in the Project Level Assessment stages in accord with the Scottish Govt PPP VFM Assessment guidance.

• thirdly, the sponsoring organisation identifies its preferred financing solution using private finance and fully develops its contract terms. For all schemes, demonstration of this is required in a Full Business Case (FBC);

This will be undertaken in the Procurement stage again in accord with the Scottish Government PPP VFM Assessment guidance.

• fourthly, a Full Business Case Addendum (FBC(A)) which is prepared immediately following financial close and confirms the terms of the deal concluded and an audit trail of any changes from that proposed within the FBC.

2.6 Risk analysis features throughout the procurement and informs the decision making process. It is an iterative, ongoing process. Project sponsors should ensure that its level of detail is commensurate with the stage of the procurement process.

2.7 Figure 2.1 sets out the specific objectives of risk analysis at each stage of the procurement process, a suggested methodology and the output required from the relevant business case. Figure 2.1 is supplemented by:

• the rest of this section which provides further detail on the approach to be adopted at each stage of procurement; and

• Appendices 1, 2 and 3 which provide examples of the methodologies and outputs required.

2.8 The relationship between risk assessment/quantification and Optimism Bias should always be carefully considered. Health specific guidance on Optimism Bias as well as generic guidance (e.g. Mott MacDonald, HMT Green Book, Scottish Govt PPP VFM Assessment guidance, New supplementary guidance on optimism bias) should be referred to.

Figure 2.1 Risk analysis and the procurement process

Identification of need for capital investment

Objective of risk analysis

Suggested methodologies/ sources of information

Output

Enables NHS Board/Scottish Government:

• To assess strategic risks;

• To become familiar with potential breadth of risks associated with the project;

• To identify those risks retained and those transferred;

• To be clear about scheme affordability.

• Risk audit interviews;

• Brainstorming;

• Optimism Bias studies and models;

• Rules of thumb.

IA (where required) should set out:

• Strategic risks;

• Potential breadth of project risks;

• Risk allowance;

• OB allowance

Risk Registers should be produced.

Identification of preferred option in Outline Business Case

Objective of risk analysis	Suggested tools/ sources of information	Output
To enable the NHS body to arrive at a preferred option.	Risk identification • Risk audit interviews; • Brainstorming; • Standard risk categories; • NHS Estates database.	OBC should show: • High level risk assessment; • Risk adjusted NPC of short-listed options (where risk profiles differ).
	Risk quantification • Weighting and scoring; • Rules of thumb; • Single point probability analysis; • NHS Estates database.	• Risk adjusted NPC of the preferred option
To demonstrate the sensitivity of the preferred solution to changes in key variables.	• Sensitivity Analysis	• 'Switching values' analysis
To demonstrate procuring entity's requirements for publication in Memorandum of Information/ITN.	Risk allocation • Standard Risk Allocation Matrix	• Risk allocation matrix

Development of Full Business Case

Objective of risk analysis

Suggested methodologies/ sources of information

Output

To inform the demonstration of value for money and affordability of scheme

To demonstrate that the procuring entity will manage risk

Risk analysis should build on work done at OBC stage: Possible further analysis includes:

• Statistical techniques (e.g. multi point probability analysis);

• Further sensitivity analysis;

• Further weighting and scoring.

FBC should show:

• NPC of risk retained by the public sector;

• Risk allocation matrix (referenced to contractual agreement);

• Risk management strategy;

• Description table for each individual risk.