2.3 Components of the PSC

The PSC comprises four elements:

• Retained risk;

• Raw PSC (base costing);

• Competitive neutrality; and

• Transferred risk.

Figure 2-1 Components of a Public Sector Comparator

These components highlight that a PSC should represent the total lifecycle cost to government of meeting the output specification under direct public procurement.

The key characteristics of the PSC are that:

• it is expressed as the Net Present Cost of a projected cash flow based on the project-specific discount rate over the life of the contract;

• it represents the most efficient form of public sector delivery;

• it includes an adjustment for Competitive Neutrality; and

• it contains an assessment of the value of the risks that are to be transferred to bidders and the risks that are to be retained by government.