A PCC should be administered prior to engaging in a public-private partnership PPP, in order to calculate the opportunity costs and true costs of providing a service or project. By calculating the total costs early in the planning process, the public sector will know the full costs of the project. A PCC will help quantify the benefits of using a PPP, making it possible to compare the tangible and intangible assets of public sector provision to private sector provision.13 This consists of calculating the risks of private service provision followed by the Value for Money (VfM). Value for Money is a valuation tool that is widely used outside of the United States in areas more familiar with PPPs.14 VfM takes the public cost comparator beyond just producing a market value for the project, but instead computes if there will be a return on investment, or value for money, to the end-users it does this by comparing the results with competitive bids from private firms.15 However, VfM is not without its drawbacks and risks. A calculation of this kind of scope requires insight, education, and extensive prior knowledge of multiple facets of the project.16 This point is significant in that it is extremely difficult to task just one person with calculating and creating the best estimate for the many diverse sets of expenses included in a specific project.
In addition to using a PCC to compare public versus private service provision, a PCC can also be used to compare multiple private sector contracts in terms of costs, to measure how successful a given project or service is during the implementation process, and to aid in deciding to whether or not to renew a PPP contract.17 This makes using a PCC a necessary step not only prior to the request for proposal (RFP), but also throughout the process. In addition, it is important to use a PCC when the public sector receives unsolicited proposals.18
While a PCC is similar to a cost-benefit analysis in that a PCC should be expressed in net present value terms, thus viewing all the costs over the lifecycle of the project as if at their present value, the PCC is not a cost-benefit analysis. Unlike a cost-benefit analysis which looks at cash flows including their accumulation basis as well as other non-cash items, the PCC looks at cash flows-not their accrual basis. Thus, non-cash items such as depreciation are not always required as part of the PCC.1920 The PCC also places an emphasis on the following three element:
1. A PCC is based on recent public methods of providing a defined output21;
2. A PCC takes into account the risks and the costs of these risks that would incur by the considered method of service provision;22 and,
3. A PCC is based on the assumption that there is no net financial advantage between public and private sectors even though the government has an inherent advantage due to its ownership of the public sector.23 This allows money assessments between the public and private sectors to be viewed the same.24
As every PPP is different, the scope and content of a PCC will vary depending on the project. However, these unique elements in a PCC ensure that parameters such as the value criteria used to measure success; the whole-life cost of the project, and the input and output specifications to be used, are considered prior to entering into a PPP.25
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13 Akintoye, A., & Beck, M. (2009).
14 National Cooperative Highway Research Program (2009). Public Sector Decision Making for Public-Private Partnerships: A Synthesis of Highway Practice. Transportation Research Board of the National Academies. Washington, D.C.
15 Ibid.
16 Ibid.
17 Akintoye, A., & Beck, M. (2009).
18 National Cooperative Highway Research Program, (2009).
19 Partnerships Victoria (2001), 18. Public Sector Comparator: A Technical Note. State of Victoria. Melbourne, Victoria. Australia: Department of Treasury and Finance, 18
20 McHugh, K. J. (Director) (2002, July 28). Improving system efficiency. Water asset management seminar. Lecture conducted from The National Council for Public-Private Partnerships, Florida. Retrieved from http://www.ncppp.org/councilinstitutes/watermeeting02/mchugh.pdf
21 Akintoye, A., & Beck, M. (2009).
22 Ibid.
23 Partnerships Victoria. (2001), 18.
24 Ibid.
25 Akintoye, A., & Beck, M. (2009).