2.38 Application of the Scottish Govt PPP VFM Assessment guidance is mandatory. Within the FBC, the focal point of quantified VFM assessment is the economic analysis which shows the risk adjusted net present cost of both the publicly and privately funded options.
2.39 Given the nature of PPP, the demonstration of quantified value for money will often hinge on the level and cost of the risk transferred to the private sector. It is therefore essential for the risk analysis to be up to date, technically sound and informed by reliable assumptions.
2.40 The risk analysis undertaken for the FBC will build on that carried out at the OBC stage and that continued over the course of the dialogue phase. It will generally entail quantification of all risks which are retained by the procuring entity under both the publicly and privately funded solutions. It is vitally important that the risk analysis reflects the risk allocation achieved in negotiations with the private sector partner. As such, the transfer of risk should always be demonstrated via reference to the relevant part of the PPP contract.
2.41 In some circumstances, the range and expected value of risk will have changed. Given this, the risk analysis in the FBC should reflect:
• any additional risks that have become apparent;
• any risks that may no longer be appropriate;
• any changes in expected value resulting from greater certainty/availability of more accurate information.
Full consideration of Optimism Bias (pre and post FBC) will need to be given and reference to the risk section of the Scottish Govt PPP VFM Assessment guidance and New supplementary guidance on optimism bias should be made.
2.42 At the FBC stage, the procuring entity should continue to quantify those risks that are inherently quantifiable. Such techniques may include those such as multi-point probability analysis or Monte Carlo sampling. The purpose of such techniques is explained in Appendix 2.
2.43 Finally, the NHS body should aim to analyse or as a minimum all risks and for that matter benefits that are inherently non-quantifiable (e.g. the risk of changes in government legislation), doing so via such methods as weighting and scoring approaches. The NHS body should provide assurance to approving bodies that it has considered all risks (including non-quantifiable risks) and has a strategy for dealing with them if they should materialise. It should be noted that such analysis is of particular importance where the VFM decision is marginal.