13. In modelling the impact of a potential capital injection, Procuring Bodies must consider the private sector delivery structure and take account of potential VAT and other tax issues. All wider issues and consequences need to be factored into VfM considerations and assessed against related affordability benefits. In general, Procuring Bodies should fully consider any accounting requirements (for example revenue and capital classifications), any impact on Executive funding, VAT, taxation and issues such as Stamp Duty (if applicable).
14. Procuring Bodies will need to establish that relevant accounting rules (for example the Code of Practice on Local Authority Accounting in the United Kingdom - A Statement of Recommended Practice) allow proposed funding streams to be used in this manner. In addition, if it is anticipated that some or all of the Procuring Body's contribution or injection is covered by funding from external sources, such as the Scottish Executive and other grant awarding bodies, the Procuring Body should confirm early on that their proposals are acceptable to the relevant funding or grant awarding body.
15. In circumstances where wider development proposals involving parties to the contract are linked to but not directly part of the PPP project, or where co-financing has been proposed, the principles of this guidance will still apply. Procuring Bodies that are considering any non-standard project models (outside the traditional PPP/PFI structures) or possible co-financing proposals are therefore encouraged to discuss these at an early stage with the Executive.
16. If proceeds from land sales are realised prior to completion of relevant milestones, or if the Procuring Body can make other funds available in advance, it should consider depositing proceeds in a ring fenced interest bearing or sinking fund account, until such time when the appropriate milestone has been reached and the required contribution can be transferred from this fund. This arrangement should provide for improved project affordability without breaching the guidance in this note. The FPU can further discuss this option with advisers and Procuring Bodies.
17. Procuring Bodies should ensure that any contributions paid are applied directly against works costs and not used to meet advisory or bid costs or other indirect SPV costs such as equity return.
18. When capital injections from a Procuring Body are structured into projects the related commitments of the Procuring Body will require underwriting. This process should be discussed with legal advisers with particular reference to paragraph 4 of this note.
19. Procuring Bodies should also note that any capital injection mechanism will receive special scrutiny as part of the Key Stage Review process. For the sake of clarity, these reviews do not replace the requirement to notify and seek separate agreement from the Executive to the use of capital injections as detailed in paragraphs 7 and 8 of this note.
20. Further information and advice is available from the Financial Partnerships Unit on (0131) 244 7500.
Financial Partnerships Unit
February 2006
www.scotland.gov.uk/ppp