2.3 Initially the public sector (and as applicable Procuring Authorities, Agencies and Directorates) should identify investment options, appraising these options by applying the principles of the Green Book therefore enabling the prioritisation of capital projects.
2.4 Investment programmes and projects should then be assessed in terms of considering their most appropriate procurement route to deliver Scottish Government policy objectives. Where a conventional procurement route is considered this can be tested for VfM against the Assessment Criteria and Qualitative VfM tests laid out in the appendices to this guidance. Procuring Authorities, Agencies and Directorates should follow any sector / Directorate specific guidance as required. However the generic principles conveyed in this guidance, particularly around qualitative assessment will apply to all projects irrespective of procurement route. Procurement disciplines and risk transfer mechanisms which enhance the investment outcome should be factored into the assessments made procurements by project teams.
2.5 Guidance on the qualitative evaluation of options can be found in the Green Book and sector specific guidance for example, SGHD SCIM guidance. In particular consideration should be given to the availability of capital and the efficiency of funding arrangements.
2.6 guidance on the quantitative VfM assessment at the various stages is contained in Appendix J.
2.7 The following appraisal process, which will be undertaken at three stages, is applicable for those projects considered suitable for private finance / DBFM procurement approaches:
| Stage 1: Programme Level Investment Review |
2.8 This entails testing the VfM of procurement options when overall strategic investment decisions are being made. The key aims of Stage 1 are:
| Aims of Stage 1: Programme Level Assessment • to ensure that investment decisions in Scotland are appropriate for the relevant sector and that investment programmes are viable, desirable and achievable; • to recognise that a private finance (NPD) solution is only one of a number of options and should be used when appropriate and demonstrates potential for VfM; • to ensure that investment decisions demonstrate VfM at a strategic level and to consider that there is potential budget flexibility to accommodate any subsequent decision not to use, for example NPD to deliver investments (for example, utilising the Prudential Funding regime or public capital as an alternative to private funding and related procurement); • to ensure programme investments are affordable. |
2.9 This stage will be carried out as part of the overall planning of the investment programme. In most circumstances, this stage will be undertaken centrally by the Scottish Government. Where Procuring Authorities, Agencies and Directorates are in receipt of central funding, they are required to adhere to this guidance which will normally mean complying with Stage 2 onwards.
2.10 Stage 1 involves assessing the suitability of a programme (or a typical project within a programme) for privately financed procurement (typically NPD), using both qualitative and high level quantitative assessment techniques which produce programme level outputs which are robust and can underpin decision making.
2.11 Where the use of NPD already been determined to fulfil national policy objectives, the high level quantitative assessment of a typical project in a programme, this stage will require a Project Bespoke Shadow Bid Affordability Model. This forecasts the costs and therefore the affordability implications of undertaking the project as, for example, an NPD. This will form the base case for the preferred options against which VfM can be assessed and will enable NPD / DBFM outputs to be driven from the affordability model.
2.12 SFT should be consulted in advance of such work being conducted to ensure that the methodology is robust and uses a standardised approach where appropriate.
2.13 The quantitative assessment at the investment programme stage will inevitably be conducted using only high-level estimates supported by appropriate evidence and should be used only as an indicator of whether there is potential to achieve VfM through the use of private finance. Other quantitative data that should be considered on a programme basis include:
• Economies of scale and efficiency gains across a programme;
• Programme set up and transaction costs of public and private sector participants
• relevant to financial / non financial benefits of the programme;
• Continuous improvement and related cost savings; and
• Transfer of risk through standardised contracts.
2.14 Separate evaluation of programme level affordability should be undertaken during the Stage 1 Assessment.
2.15 Note, the VfM of different procurement options is tested at this stage across the investment programme. Where an investment programme includes projects with significantly different characteristics, values or outcomes, then several examples may have to be analysed.
| Stage 2 - Project Level Investment Review |
2.16 Stage 2 covers the Project Level Assessment which includes the analysis of individual projects to ensure that they deliver VfM at a project level. In order to confirm this, programme level conclusions from Stage 1 should be re-tested in the context of the specific projects.
2.17 The key aims of Stage 2 are:
| Aims of Stage 2: Project Level Assessment • review and confirm the VfM viability, desirability and achievability of potential individual projects prior to making the decision to proceed with the procurement. This forms the basis of the qualitative analysis and assessment. • review and confirm the quantitative evaluation of VfM for the individual project. VfM is typically tested by using a risk adjusted CPAM as an economic comparator against a shadow bid financial model (a proxy private finance structure). • assess and confirm the affordability of the project (which a Shadow Bid Affordability model would inform). Projects must not proceed if affordability is not fully tested; • test the competitive interest for the project and the market capacity to bid and deliver the project effectively and within the projected affordability envelope. Consideration should be given to:- • the likely project procurement processes and proposed timetable (for example to minimise transaction costs, promote market interest and minimise market failure in procurement etc) • Market capacity and optimal market launch timing should be reviewed with the relevant approving centre prior to project launch. In Scotland, Procuring Authorities, Agencies and Directorates will co-ordinate views on market capacity through the SFT. NHSScotland Bodies should refer in the first instance to the SGHD Capital and Facilities Division. |
2.18 If the results of the Project Level Assessment indicate that improved VfM may be obtained by alternative procurement routes these alternative routes should be considered further by the Procuring teams.
| Stage 3 - Procurement Level Investment Review |
2.19 Stage 3 involves the procurement period from issue of OJEU through financial and commercial close to the operations of the project. During this period Procuring Authorities, Agencies and Directorates should continue to demonstrate that the private finance investment decision represents VfM and that the project is affordable.
2.20 Robust competition will be a key indicator of VfM throughout this stage.
2.21 The key aims of Stage 3 are documented in the table below:
| Aims of Stage 3: Procurement Level Assessment • to ensure that the project is affordable, value for money and deliverable; • to reconfirm that the qualitative VfM areas of viability, desirability and achievability still apply (i.e. qualitative retesting); • to determine whether there is market failure or market abuse and to protect against it; • to assess best value of private sector bids by comparing them to previous and other current privately financed solutions, and where applicable against a conventional procurement option; • to ensure that at all stages of the procurement process a VfM audit trail is maintained which supports the approvals process |
2.22 Given that the potential suitability of the project for a privately financed procurement will already have been assessed in Stages 1 and 2, it is anticipated that in most circumstances this will produce a positive VfM outcome. If the project does not demonstrate a positive VfM outcome, the reason for this should be assessed and the factors should be reviewed to assess if the project should proceed and if so on what basis.
2.23 The three VfM Assessment Stages are considered in more detail in the following chapters of this guidance and within the supporting pro-formas detailed in the appendices.