The PSC had an inherently high level of uncertainty attached to it, as a result of the difficulty of forecasting not only the level of the Departments' accommodation requirements over 20 years, but also the associated running costs and potential income realisable from the estate. Risks were modelled in the comparator by using Monte-Carlo simulation and the final output of the final PSC was expressed as a range.
The risks modelled in the PSC covered uncertainties in predicting future income in areas such as subletting and sales and uncertainties in future costs such as ongoing rent payments. Since the STEPS deal differs from a standard Design, Build, Finance, and Operate (DBFO) PFI deal in that there is no construction of an asset, the STEPS PSC had no risk adjustment for construction time or cost overruns. This risk is usually the largest risk adjustment in a standard PSC. The overall risk adjustment in the PSC can be taken as the difference of £101 million between the minimum likely cost and the mean cost to compare the PSC with the PFI bid.
Minimum likely cost (Low level of risk) | £1,729 million |
Mean cost | £1,830 million |
Maximum likely cost (High level of risk) | £1,976 million |