The first component is to calculate a raw PCC by conducting a simple cost analysis as if the public sector was to distribute the good or service on its own. The public sector will supply its own public resources and face limitations as to what resources it can provide as well as the capacity the government has to take on a given project. The raw PCC is a quantitative evaluation that considers all of the direct and indirect costs used (or anticipated) in the lifecycle of the project - before adjustments for competitive neutrality and risk. Thus, the raw PCC includes only the financial costs and benefits.
The Raw PCC is intended as a financial benchmark to be used against other bids for the projects. At this point the discount factor chosen would be applied in calculating the NPV of net costs or benefits incurred by the public sector.
It is important to remember several points when calculating the Raw PCC regarding which costs are and are not included.
The Raw PCC includes:
• Only financial costs and financial benefits, when they are applicable, that are part of the cash flow. This includes the purchase of fixed assets.
• Maintenance costs over the life cycle of the project are essential to the Raw PCC. These costs must be estimated as close as possible to their actual anticipated amounts.
• As third-party financing reduces the net cost to government, it should be included in the Raw PCC. However, while the risks of third-party financing are adjusted in the Transferable Risk PCC, the Raw PCC must be careful to understand the costs of the third-party revenue and its risks. 51
The Raw PCC does not include:
• All risks, contingencies, and adjustments are excluded from the Raw PCC. In the Raw PCC, everything is assumed to work perfectly. These elements are included within the Transferable Risk PCC and the Retained Risk PCC. Rather, when constructing the Raw PCC, these elements of risk, contingency, and adjustment should be recognized for use later. 52
Thus, the Raw PCC is calculated below:
Raw PSC = (operating costs - third-party revenue) + capital costs
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51 Ibid.
52 Partnerships Victoria (2001), 18-23.