7.1 In the majority of cases the OBC will indicate that scheme affordability is likely to be a key determinant in securing SGHD approval and where the qualitative assessment indicates that there is significant scope for the project to attract private sector interest, it will be necessary to undertake a quantitative and "cost" assessment of the likely cost of a privately financed solution. This should confirm that the outcome of a positive qualitative assessment can be supported by a cost profile which, when compared against a publicly funded solution, offers value for money to the NHS. Applying the Scottish Government PPP VFM Assessment guidance will be a key aspect of this process.
7.2 It is possible at this stage to assess the likely value for money and affordability of a PPP when compared to the NHSScotland body's Conventional Procurement Assessment Model (CPAM). To calculate this, a range of key financial inputs are fed through a high level model which estimates a likely tariff based on that input - this is called the shadow tariff. These inputs would include:
• Capital Costs (including equipment if it is proposed to be included in the scheme);
• Lifecycle costs;
• FM costs (incorporating scope of proposed FM service provision);
• SPV management charges;
• Price indexation;
• Senior debt / junior debt / equity ratios;
• Rates of return (senior debt / subordinated debt / equity). Under NPDO there will be no return to equity however, assumptions will require to be made regarding the level of forecast donations;
• Interest rate buffers; and
• Funder debt and loan cover ratios.
These elements are also used in the standardised VfM assessment model.
7.3 Incorporating all of the inputs required to develop a shadow PPP tariff is a specialised exercise requiring the application of a sophisticated financial model to determine the impact different inputs have on the shadow tariff. Furthermore, funders have different requirements in relation to outputs, specifically, cash management, which required detailed interpretation of the model to ensure that their likely requirements are not breached.
7.4 A key factor in the delivery of a successful project is demonstrating value for money (VFM). To show VFM, part of the SGHD assessment process requires that the Net Present Costs (NPC) of the preferred option through PPP, be compared to the NPC of a traditional procurement as projected in the CPAM.
7.5 It is important to stress that PPP providers may make significantly different assumptions when structuring their solution and as such the shadow tariff may be materially different to bids actually received. Bids received will, of course, be based on the PPP provider's own assessment of cost (based on their design solution), timetable, financial structure and risk.
7.6 Consequently, the shadow tariff is intended for use in assessing the likely value for money and affordability of the scheme for OBC purposes and prior to receipt of bids.