The quantitative assessments, sensitivity testing and the qualitative analysis will confirm the deliverability of the preferred project scope and procurement route. The quantitative VfM factor is likely to differ by sector.
The qualitative assessment should help the Authority to gauge the level of confidence that can be placed on the quantitative assessment, for example if the qualitative assessment identifies gaps in programme information the Authority may wish to place less reliance on the results of quantitative analysis until this has been addressed.
Procuring Authorities must calculate and confirm their own affordability envelope and compare this with the results of the quantitative analysis. If a project is deemed unaffordable, it should not be pursued.
If Stage 2 analysis shows that privately financed or NPD procurement route no longer represents VfM, the reasons should be reviewed as well as the appropriateness of the procurement route. This may involve re-examination of the project, its scope and allocation of risk. Assessors should consider the following:-
• identify why and whether the issue is specific to the proposed procurement route or to procurement of the project in general;
• consider the case for a delay to the start of the procurement, if this can address the concern;
• review the scope of the project and determine whether there is a better way to deliver the business requirement (e.g. rebuild versus refurbish); and
• reconsider the procurement route and the possibility of switching to other forms of procurement.
When considering the VfM assessment, Procuring Authorities must accord proper weight to the respective parts of VfM analysis - qualitative and quantitative. Providing that the indicative VfM is positive and is based on a balance of combined qualitative and quantitative VfM elements, the project can proceed - there is no necessity to prove quantitative VfM above a particular percentage. The weighting between the qualitative and quantitative elements is a key consideration and should refer to previous evidence bases and qualitative and quantitative assessments.
Stage 3: Procurement Level Quantitative Assessment |
In Scotland within procurement (post OBC) it is a requirement that Procuring Authorities demonstrate and review the VfM of privately financed / NPD bids against public sector procurement on both a qualitative and quantitative basis. They should therefore:
• continue to confirm that the Project in procurement is Viable, Desirable and Achievable as required by the qualitative guidance;
• Update the CPAM, forecasting relevant input costs, and assessing the timing, specification and risk allocation as priced by the bidder but assuming delivery by conventional means;
• the shadow bid model should also be updated as a VfM comparison against actual bids (to ensure the bids reflect current market conditions and structures etc); and
• where applicable market information regarding other private finance / NPD outturns should be used to compare and assist with VfM calculations and benchmarks.
At Stage 3, the CPAM will be inclusive of Risk, Tax Adjustment and Optimism Bias. .During procurement (for example Preferred Bidder selection), the NPV of the CPAM can be compared to the NPV of the shadow bid unitary payment profile over an equivalent appraisal period to provide a procurement VfM test. It is expected that the outcome of this test is positive VfM. The shadow bid model will be used to facilitate bid evaluation and to enable suitable audit trail and investment approval sign off at Preferred Bidder selection, FBC and Financial Close stages. Note, like all quantitative assessment, this should not be viewed in isolation. After taking account of supporting qualitative factors, should this assessment suggest that the bids do not offer VfM, then the NPD procurement process should be halted and further analysis undertaken. The Procuring Authority should assess the underlying reasons for the shift in VfM and should consider alternative options which address these issues, such as rescoping the project and putting it to the market at a later date, or procuring conventionally (in this circumstance if conventional procurement offered better VfM than the NPD). The Procuring Authority and its advisers should consider the financial and wider implications of the alternative options put forward at this stage. It is important that the assessment be as realistic as possible and not simply a theoretical exercise. The full consequences of rescoping the project or changing procurement route should be considered, taking into account factors such as:
• Impact on timetable;
• Impact of delay on cost;
• Sunk costs already invested;
• The ability to maintain market confidence; and
• Availability of alternative sources of finance
Procuring Authorities, Agencies and Directorates must consult with the SFT, SGHD Private Finance and Capital Unit as appropriate when making these decisions.