This section should include estimates of the costs of the public sector providing the services specified in the procurement, over the concession period to the specification being tendered. The exact nature of the costs will vary according to the service element; hence a universal checklist would be impractical. Items which must be covered here include:
• Full staff costs, including accruing pension liabilities and any expected redundancy costs
• Raw materials and consumables
• Repairs and maintenance (where these items have not been capitalised)
• Administration and management overheads associated with managing the project and operating the asset over the lifetime of the project.
• Insurance premiums or equivalent
• Specific risk uplifts and Optimism Bias (see section 5)
As a private finance / NPD procurement normally involves a long term contract, the effect of inflation on operating costs during the contract may be significant. The costs included in the CPAM should be expressed in a way that is readily comparable with the shadow bid model, therefore costs should be expressed in a consistent manner (i.e. adjusted for inflation) and the base dates for the NPV calculation should be the same. Whilst often the prescribed long term inflation rate will be applied, allowance should be made for expected changes in relative or real prices of certain cost inputs, i.e. where the price of particular input is expected to rise faster than the average price level.
Where applicable, the cost bases will reflect third party income and related costs if these would be applicable to Conventional Procurement.