1.14 The VfM Assessment Guidance application note should be applied by Procuring Authorities, Agencies and Directorates planning to undertake privately financed investments (in whole or part) in Scotland. The application of these principles should be made in conjunction with the economic assessment methodology outlined within HM Treasury Green Book. Application will be relative to the stage in the project lifecycle which the project is at but will be consistently applied in each case. The guidance reflects:
• best practice procedures applicable to Scottish investment programmes;
• the approvals process for capital projects in Scotland;
• Scottish governance requirements such as the SG / STUC Staffing Protocol;
• where a decision on the use of a revenue financed approach has not already been taken at SG level, the requirement to use a Conventionally Procured Assessment Model ("CPAM") (see Quantitative VfM Assessment Guidance for further detail). This is a risk adjusted financial model which estimates the cost of the public sector procuring a project directly. It provides a quantitative VfM benchmark for the development of projects up to the point at which actual bids are received. This evaluation model will assist Procuring Authorities, Agencies and Directorates to help ensure that best value is achieved, and provide an audit trail of the VfM implications of a project throughout the procurement process. Separate guidance is available in the Quantitative VfM Assessment guidance note.
• where a decision has already been taken at SG level that a project will only be offered revenue funding, the requirement to produce a revenue financed base case for the value for money assessment. Further guidance on this is in the Quantitative VfM Assessment guidance note
• in addition, qualitative VfM elements should be reviewed throughout the procurement process.
1.15 This note also refers to the application of Optimism Bias and risk analysis in VfM assessment. More detail on this aspect of the assessment is available in the Quantitative VfM Assessment guidance. A key concept is that better risk analysis (and in particular evidence-based analysis) should operate to reduce the level of Optimism Bias over time.
1.16 The requirements of this guidance note are mandatory for public bodies in Scotland. Where applicable, its requirements are included in relevant Key Stage Reviews ("KSR") completed by Procuring Authorities, Agencies and Directorates. Undertaking the KSR (or similar external review) process in Scotland is mandatory for all privately financed projects. In addition, Gateway reviews are now mandatory for other publicly procured capital investments which exceed £5 million and which are assessed as being high risk and/or mission critical.
1.17 The default assumption for privately financed projects is that these will be funded through NPD (Non Profit Distributing) arrangements, however this guidance can be applied to all infrastructure projects including those procured under alternative structures such as hub and joint ventures. For sectors where it is viewed that NPD is not suitable, consultation with the Scottish Futures Trust is required in order to determine the appropriate private finance model to test.
1.18 The NPD model has been developed in the Scottish market as a means of capping the returns earned by investors on public sector procurement at a level aligned with the corresponding risk transfer. The structure has been successfully implemented in the schools sector and is also being introduced to the health and transport markets. The NPD model is discussed further in the NPD Explanatory Note available online at: http://www.scottishfuturestrust.org.uk/docs/439/Explanatory%20Note%20on%20the%20NPD%20Model.pdf
1.19 Any clarifications in respect of this guidance should be referred centrally to the SFT. NHSScotland Bodies should refer to the SGHD Finance Unit / SGHD Property and Capital Planning Unit.