2.27 Previous studies have concluded that other forms of procurement could secure many of the benefits that private finance delivers and further that it could be inferred that decisions in favour of privately financed procurement may be driven by stereotypes of poorly performing alternatives rather than good evidence of demonstrable benefit. Having genuine choice in procurement route should foster intelligent decisions which are likely to be in the best long term interests of both public and private sectors. Therefore the benefits of maintaining a mixed economy of procurement options should be realisable. It should be noted that the opportunity to capture the benefit from private finance is not present to the same degree in every project and some benefits are more strongly associated with particular project phases.
2.28 One of the key aspects of the approach to assessing VfM is the need to ensure that the quantitative VfM analysis is not considered in isolation - qualitative assessment, wider VfM factors and evidence based examples are central to decision making. It will be necessary to take account of previous delivery and experience of privately financed projects when Procuring Authorities, Agencies and Directorates are promoting the future procurement of infrastructure assets. It is recommended that referral is made to available project databases and reports maintained or published by the Scottish Government, Infrastructure UK, Audit Scotland and HM Treasury. Going forward, Procuring Authorities, Agencies and Directorates must put in place mechanisms for collating, retaining and sharing information to build an evidence base of relevant privately financed projects information (e.g. input cost rates, percentage risk uplifts etc). A full and transparent audit trail at each stage must be maintained to facilitate and influence future investment decision making.
2.29 In respect of the overall VfM judgement the following should be noted:
• Marginal results: At either a Programme or individual Project level, where the difference in the assessments of the conventional option and the privately financed option are marginal (small positive for or against) the outcome should not be interpreted as sufficient evidence for or against the use of revenue finance as a procurement route. In such cases more weight should be given to the qualitative rather than the quantitative assessment.
• Uncertainty and sensitivity analysis: Where there is a high level of uncertainty around inputs, or outputs are highly sensitive to the input variables, it is appropriate to place greater weight on the qualitative assessment or to invest more time and money in establishing higher confidence in the most critical assumptions. Procuring Authorities should in any event undertake appropriate sensitivity analysis.
In all cases, the overall assessment must note an appropriate and thorough explanation and justification of the leading factors in both the quantitative and qualitative analyses, plus wider VfM factors in coming to a decision, especially where the two assessments do not appear supportive of one another.
2.30 This guidance includes a framework for evaluating the appropriateness of revenue financed procurement (e.g. NPD) as a procurement route and subsequently providing Value for Money audit trail for privately financed investments. It must be applied to all privately financed procurements in Scotland. At each stage, appropriate sign off on Value for Money must be provided by the Scottish Government and the relevant procuring authority.
2.31 Studies and assessments have demonstrated that the level of competition in the market for a privately financed project impacts directly on VfM. Therefore strong competition is a fundamental requirement for project delivery in Scotland. This should be facilitated by adopting the appropriate scope and scale, level of risk transfer, timing of launch, promotion and marketing of programmes and projects.
2.32 Within the following sections of this guidance we review:
• The approach to be adopted in Stage 1 the Programme Level Assessment
• The approach to be adopted in Stage 2 The Project Level Assessment; and
• The approach to be adopted in Stage 3 the Procurement Level assessment.
The appendices provide additional detail on pro-formas to be adopted when assessing VfM and the assessment of VfM in specific sectors such as transport.