With the increased emphasis on the need to cut costs within the government costs, it is increasingly important for the public sector to find new and more cost effective ways to provide public services and continue with needed projects. Frequently when the public sector calculates the total costs of a given project they omit several important costs, such as employee benefits, utilities, and total administrative costs. As a result of omitting these costs, when comparing public sector versus private sector provision, the public sector may look cheaper than the private sector, which can be due to an incomplete calculation of the total costs. A public cost comparator calculates the total costs and risks if the public sector provides a particular good or service through any given project. The public cost comparator can then be used to compare the public sector versus private sector provision. If private sector provision is found to be the more cost effective option, then the public sector may choose to engage in a public-private partnership, sharing in the costs, benefits, and risks of the project with the private sector.
There are several decision making factors that need to be understood prior to calculating a public cost comparator, including: the discount rate, risks, and costs. The discount rate takes into account the high and low risk factors and their return on investment. Typically the discount rate will be lower for the public sector than the private sector because they have the infrastructure already in place. Risks should be limited to those that will increase the total cost of the project. It is crucial to include all of the potential of the project. It is important to note that some risks are shared within the partnership, while other risks are retained by the individual partners. Components of a public cost comparator include the raw public cost comparator, competitive neutrality, transferred risk, and retained risks. By including all of these components, the public sector will better be able to calculate the total cost of a given project, and as a result will be more efficient in their use of funds. Best practices for using a public cost comparator were developed from published case studies, research, and interviews with practitioners.