Competitive neutrality is a designed "set of policies and legal arrangements that ensure that all organizations and individuals-public, private and nonprofit-are treated in an equal manner in the bidding process between public and private bidders".53 In calculating the Competitive Neutrality PCC, all inherent advantages and disadvantages of the public sector are removed to create comparable project costs. This results in any tax exemptions or economies of scale will be netted out. All advantages and disadvantages which are not available to the private sector are calculated into the Competitive Neutrality PCC. Without incorporating the advantages or disadvantages of the public sector given its nature as government and public sector ownership, the PCC may be artificially lower than private bids.
There are three main steps in calculating the Competitive Neutrality PCC.
1. Identify the overall effects of government ownership including the areas of financial advantage and disadvantage. Government potential advantages such as exemptions from paying land tax, local government rates, stamp duties, payroll tax. Government potential disadvantages include accountability costs and employment compensations54.
2. After identifying the overall effects of government having a monopoly of the public sector, the value of each element quantified per unit needed in the project is estimated.
3. Lastly, the total for the Competitive Neutrality PCC is found by assessing the net advantage of government ownership. All quantified potential 'advantages' are treated as costs while the quantified potential disadvantages are treated as benefits.
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53 Eggers, William D. (1998). Competitive Neutrality: Ensuring a level playing field in managed competition. How to Guide no. 18. Retrieved from http://reason.org/files/89757d9aa5aed0ed3225193829d2b667.pdf.
54 Note that these should not be counted in the Competitive Neutrality PCC if they are already included in the Raw PCC to avoid counting elements twice.