2.13 The purpose of this part of the process is twofold. The procuring entity should aim to arrive at a proposed method of meeting its strategic needs which is affordable and represents best value for money. It should publish this as its preferred option within the Outline Business Case (OBC). OBC production/approval is the key point of Project Level VFM assessment.
2.14 For the purposes of considering risk analysis, this part of the process comprises the following tasks:
• identification of the preferred option (paragraphs 2.19 to 2.24);
• testing of the preferred option's sensitivity to changes in key variables (paragraphs 2.25 to 2.26); and
• demonstration of the procuring entity's requirements for publication in the ITPD (paragraphs 2.27 to 2.31).
2.15 Throughout this part of the process, the undertaking of detailed risk analysis helps ensure that the procuring entity makes informed decisions. In order to demonstrate the value for money and affordability of its preferred option, the NHS body should aim to identify and quantify both the retained and transferred risks inherent in the project. In order to achieve optimum risk transfer, the NHS body should allocate potential risks between the public and private sectors in accord with the Standard Form Contract, i.e. based on the principle of who is best placed to manage the particular risk. In addition, it is paramount that NHS bodies work up and maintain an internal Risk Management Register and mitigation plan.
2.16 The following sections discuss the type of risk analysis that should be undertaken up to and including the ITPD and dialogue stage and outlines how the analysis should be presented in the OBC document.
2.17 Throughout the following sections, reference is made to the categories of standard PPP risks. These categories are based on experience from completed PPP schemes and are broken down into component individual risks in Appendix 1. Experience to date suggests that the NPD project structure achieves the same levels of risk transfer as other PPP structures. It is essential that project teams consider each category of risk, since this will facilitate a more systematic and consistent approach to risk identification and assessment. The ten categories of risk are:
• design risk
• construction and development risk
• availability and performance risk
• operating cost risk
• variability of revenue risk
• termination risk
• technology and obsolescence risk
• control risk
• residual value risk
• other project risk.
2.18 Project managers should include project specific risks in the Other Project Risks category. Project managers should aim to undertake risk analysis based on the above categories of risk once the need for capital investment has been established. They should, however, guard against double-counting, especially in respect of those risks which are inter-dependent. The relationship between Optimism Bias, contingency and specific project risk uplift must be carefully considered (refer to Appendix 7 of the Scottish Govt PPP VFM Assessment guidance. It is important to note, however, that control risk is specific to a PPP procurement and can only be considered in detail from the ITPD onwards. Typically, technical and commercial advice will be required in assessing risk.