In brownfield concessions or design-build-finance-operate (DBFO) toll-roads, the state receives an up-front payment and/or revenue sharing over the concession term. In these cases, the executive agency generally will estimate the value of an asset for comparison with bidders' proposals202 (see also Principle 9). Executive agencies may consider this estimate during project selection and procurement; it also may be relevant to legislators in states where their approval is required. Assumptions about traffic fow, life-cycle costs, debt financing, risk allocation, equity and various contract terms203 influence both what the state considers a fair price and what the market is willing to pay. Revenue-sharing arrangements can help protect the public interest and limit excessive private profits,204 but also may reduce the up-front payment. State revenue estimates may include interest or investment income on proceeds.
The tendency is to be overly optimistic when estimating traffic flows, revenue projections and investment income;205 any of these can affect how the public and private sectors value a deal. Estimates should instead be for the most likely outcome.206 Project valuation must be conducted with care and the results thoughtfully reviewed, as dangers exist in both under- and over-estimation.207