Another important consideration in judging PPP project proposals is a concept known as Value for Money (VfM). This concept refers to the extent to which the proposed PPP approach offers greater value to the sponsoring agency than the traditional approach. This analytical tool is often used to determine the project cost savings of a PPP approach paid for with availability payments or shadow tolls by the sponsoring agency, instead of through proceeds from direct user charges (such as tolls). To determine Value for Money for using an alternative project delivery approach, the sponsoring agency needs to define the project scope in advance to the extent that a realistic determination of project requirements, costs and revenues (where appropriate) are likely to be. This may involve the following actions:
• Develop greater understanding of project geotechnical and site conditions through advanced reconnaissance;
• Advance project design to the point where there is a clear understanding of the key attributes of the project design and functional characteristics;
• Perform advanced value engineering to ensure the most cost-effective design parameters are considered;
• Revise assumptions typically used to estimate traffic volume and revenue potential, especially the possible size and frequency toll rate changes when tolling is involved to reflect current fiscal concerns; and
• Recognize the risks inherent in the inflationary effects on the costs of project materials.
This information can then be used to develop a comparative basis for assessing whether a PPP approach or submitted proposal offers sufficient advantages to the sponsoring agency. The more information the sponsoring agency has to judge competing responses to the RFP against each other and to more traditional approaches using varying levels of in-house responsibilities will help to ensure a more informed basis for determining how to proceed in the use of private provider services and what kind of PPP approach most benefits the public interest. This does not necessarily mean advancing the project to the 30 percent design stage before developing the Request for Proposals for the project as a possible PPP. To gain greater opportunity for more cost-effective plans, projects taken to the 10 percent to 15 percent stage of design may be sufficient. This depends on the type, size, and complexity of the project.
Public and private entities engaged in PPPs can achieve greater "Value for Money" by:
• Applying business best practices to expedite the project and lower its cost;
• Providing higher quality design, construction, and inspection up front that saves costs over the long-term; and
• Using life-cycle asset management to reduce the frequency and costs of preservation.
Increased value or project cost savings from these kinds of strategies can range from 5% to 66% of total life-cycle costs, depending on the best practices used, the integration of project phases, and the extent to which life-cycle total asset management is applied. The Value for Money estimate will depend to some extent on how the sponsoring agency treats direct and indirect costs of the project.
From the private sector perspective, the details of the estimates of financial benefits to the private sector concessionaire for a long-term lease agreement is typically not fully disclosed and therefore not made part of the Value for Money determination. This may raise questions regarding the potential for windfall profits to be earned by the private concessionaire, difficulty in holding private partners accountable for project financial reporting, and public interest concerns where transparency in the procurement and development of PPPs is required.